By Amanda Cooper
LONDON (Reuters) -European shares and the euro rallied on Monday, after the region’s leaders agreed to draw up a Ukraine peace plan, while bitcoin surged after President Donald Trump unveiled plans for a new U.S. strategic cryptocurrency reserve.
European leaders agreed at the weekend to draft the peace plan to take to the United States, following President Volodymyr Zelenskiy’s clash with Trump in the Oval Office.
Their acknowledgement of the need to spend more on defence sent shares in European arms makers soaring, which supported the broader equity markets.
Reuters reported that parties in talks to form Germany’s new government are considering setting up a defence fund. Investors sold off 30-year German debt, which pushed yields up by more than 10 basis points.
“It is an inflection point and Europe realises it needs to do the heavy lifting (on defence and security),” RBC Capital Markets’ Global Macro Strategist Peter Schaffrik said.
“The German elections have opened the door for more spending. The whole Zelenskiy-Trump meltdown has fast forwarded everything.”
Europe’s STOXX 600 index gained 1% on the day, as shares in the likes of Rheinmetall, Leonardo and BAE Systems surged by 11% to 15%.
The euro rose almost 1% to $1.047, having fallen as much as 0.4% at one point late on Friday, after talks between Trump and Zelenskiy collapsed.
S&P 500 futures and Nasdaq futures were both up 0.2%.
CRYPTO MANIA
Bitcoin stole the limelight on Monday, rising by as much as 20% from last week’s lows below $80,000 after Trump announced on social media five digital assets he expected to include in a new reserve, including bitcoin, ether, XRP, solana and cardano.
Trump provided no detail on how the fund would work, but it was enough to revitalise the crypto bulls, who took a serious knock last week.
“Trump just gave the pump that crypto traders have been holding out for,” said Matt Simpson, senior market analyst at City Index.
Ether, the second-largest cryptocurrency, pulled back to $2,366 after climbing 13% on Sunday.
CLOUDY OUTLOOK
The European Central Bank meets on Thursday and is widely expected to cut interest rates, although there is less conviction over what the central bank might signal about the outlook for monetary policy, given the geopolitical backdrop.
Expectations around the U.S. Federal Reserve are even more uncertain now. Futures are pricing in 60 basis points’ worth of cuts this year, from barely pricing in 25 bps just a couple of weeks ago.
Concern about the economic outlook deepened on Sunday when U.S. Commerce Secretary Howard Lutnick said tariffs on Canada and Mexico would go into effect on Tuesday, but that Trump would determine whether to stick with the planned 25% level.
An extra 10% levy on Chinese imports is also due to come into effect this week, just as the country’s National People’s Congress opens its third annual session on Wednesday where stimulus measures and possible reprisals against the United States could be announced.
“As with other Trump tariff announcements so far, it’s hard to know if this is a bluff or a genuine turn in policy,” said JPMorgan economist Michael Feroli.
Adding to the mix has been a string of soft U.S. economic data that has seen the closely watched Atlanta Fed GDPNow tracker swing to an annualised -1.5%, from +2.3%, sparking talk of a possible recession.
By Monday, the Canadian dollar and the Mexican peso were trading a touch stronger on the day, up 0.4% and 0.25%, respectively against the U.S. dollar.
The next major macro event is the January U.S. payrolls report due on Friday. Fed Chair Jerome Powell is due to speak just a few hours after the jobs report, and at least seven other officials will appear this week.
In commodities, gold was last up 0.6% at $2,876 an ounce, while oil was also up 0.6%, at $73.72 a barrel.
(Additional reporting by Wayne Cole and Stella Qiu in Sydney; Editing by Edwina Gibbs, Emelia Sithole-Matarise and Susan Fenton)
