By Amanda Cooper
LONDON (Reuters) – European markets held firm on Tuesday ahead of German lawmakers voting on a landmark overhaul to government spending, while uncertainty over a call on Ukraine between U.S. President Donald Trump and Russia’s Vladimir Putin kept gold at $3,000 an ounce.
This month has brought a huge divergence between the performance of U.S. stocks and those elsewhere, particularly in Europe and China, where markets have seen a surge in inflows from investors that have cashed in on Wall Street’s sky-high valuations.
Trump’s erratic approach to trade policy, coupled with his mass firings of federal employees, has stirred up uncertainty for companies, households and investors and U.S. economic data is starting to reflect that.
Europe’s STOXX 600, which on Tuesday was up 0.7%, has risen by 8% this year, compared with a 4% drop in the S&P 500, marking the biggest outperformance in European stocks against the U.S. index in the first 12 weeks of the year in a decade.
The euro, meanwhile, rose further above $1.09 to its highest since early October, supported by this month’s steep rise in German bond yields.
Germany’s lower house of parliament votes later on Tuesday on a massive surge in borrowing that could boost Europe’s largest economy and stimulate growth across the region, a key factor in the euro’s recent strength.
“History will be made today when the Bundestag approves a change to the constitution, abandoning the fiscal stance Germany has always been known for,” Commerzbank chief rates strategist Christoph Rieger said.
German 10-year government bonds were last at 2.846%, up 4 basis points on the day and up 45 bps this month.
The prospect of a ceasefire and eventual peace in Ukraine has helped shore up sentiment in Europe in recent weeks. A scheduled call between Trump and Putin later on Tuesday to discuss steps to end the conflict could cover territorial concessions by Kyiv and control of a nuclear power plant, which injected a degree of caution into markets.
German investor morale improved more than expected in March, likely due to the positive signals on the future of fiscal policy, according to the ZEW economic research institute.
GOLD STAR
Gold, which has roared above $3,000 for the first time on record driven by safe-haven flows, held above this level on Tuesday, bringing gains for the year to 15%.
“In uncertain times, central banks and individuals demand gold, while inflation concerns emanating from President Trump’s tariffs and trade war are also boosting the price of gold. Life above $3,000 per ounce could be the norm for the gold price in 2025,” XTB research director Kathleen Brooks said.
Asian stock markets also got a bump higher on Tuesday from stronger retail sales data from China the previous day, as well as from a series of steps aimed at revitalising domestic consumption in the world’s second-largest economy.
Hong Kong shares hit a three-year peak, while Japan’s Nikkei bounced 1.5%, putting it on course for its sharpest rise in three weeks.
Chinese stocks have been an unlikely winner of Trump’s burst of tariffs and cuts to government spending in his first two months in office, as fears of a U.S. slowdown turn investors abroad.
“Momentum and sentiment are shifting now as well in a positive way,” said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Trump said Chinese President Xi Jinping may visit the U.S. in the not-too-distant future, further raising expectations that some sort of breakthrough deal could reduce tariffs.
U.S. stock futures fell 0.3-0.4%, following modest gains in the S&P 500 and the Nasdaq on Monday. But the mood on Wall Street remains fragile ahead of April, when Trump’s threatened reciprocal tariffs are set to take effect. [.N]
Softer-than-expected retail sales and factory activity figures kept downward pressure on the U.S. dollar and on U.S. yields.
Much of the market’s focus is on the U.S. Federal Reserve, which concludes a two-day meeting on Wednesday.
Sterling briefly rose above $1.30 for the first time since the U.S. election in early November. It was last flat on the day at $1.29875. The yen was the outlier, weakening sharply as investors prepared for the Bank of Japan’s decision on monetary policy on Wednesday, leaving the dollar up 0.3% at 149.67.
Ten-year Treasury yields were mostly steady at 4.314%.
(Additional reporting by Tom Westbrook in Singapore; Editing by Shri Navaratnam, Lincoln Feast, Ed Osmond and Susan Fenton)
