European Markets Hit Record Highs as Defence Stocks Soar

European markets surged to new all-time highs on Monday, driven by a rally in defence stocks as investors reacted to growing regional security concerns and fresh spending pledges from European leaders. The pan-European Stoxx 600 gained 0.54%, marking yet another milestone after a series of consecutive highs last week. Strong gains in major defence firms, including Saab, Rheinmetall, and BAE Systems, fuelled market optimism, as policymakers in Paris and Munich discussed increased military commitments. Meanwhile, Asia-Pacific markets traded mostly higher, with Tencent shares reaching a three-year peak, while Wall Street was closed due to the US holiday.

Key Takeaways:

European Markets Hit Record Highs on Defence Stock Surge: The pan-European Stoxx 600 climbed 0.54% to close at an all-time high of 555.42 points, rebounding from a minor decline on Friday. Defence stocks were the key drivers, as increased military spending discussions across Europe fuelled investor optimism. Germany’s DAX led gains with a 1.26% rise, adding 285 points to close at its highest level in weeks, while the FTSE MIB surged 350 points, up 0.92%. The FTSE 100 Index advanced 35.55 points, or 0.41%, to 8,768.01, while France’s CAC 40 edged up 0.1% to 8,189.

Defence Stocks Rally as Leaders Pledge More Military Spending: The Stoxx 600 Aerospace and Defence Index jumped 4.2%, with some of Europe’s largest defence firms seeing double-digit gains. Sweden’s Saab soared 16%, its strongest session in months, while Germany’s Renk Group and Rheinmetall skyrocketed 17.5% and 14%, respectively. BAE Systems also saw a sharp increase of 9%, marking its best trading day since July 2022. The surge came as European leaders met in Paris for an emergency summit, responding to US President’s decision to engage in Russia-Ukraine peace talks without European involvement.

Asia-Pacific Markets Mostly Higher, but Thailand Tumbles to Multi-Year Low: Asia-Pacific markets traded mostly higher on Monday, led by Tencent’s 4.25% rally, which pushed the stock to its highest level since July 2021. South Korea’s Kospi rose 0.75% to 2,610.42, while the smaller Kosdaq index jumped 1.61% to 768.48. In Japan, the Nikkei 225 remained flat but closed slightly positive at 39,174.25, while the Topix gained 0.28% to 2,766.9. Meanwhile, China’s CSI 300 advanced 0.21% to 3,947.40, although Hong Kong’s Hang Seng Index dipped 0.15%, and the Hang Seng Tech Index slipped 0.38%. Australia’s S&P/ASX 200 was the regional underperformer, falling 0.22% to 8,537.1. However, Thailand’s SET Index saw a sharp 1.86% decline, plunging to its lowest level since November 2020. This came after Thailand’s fourth-quarter GDP growth of 3.2% year-on-year missed expectations of 3.9%, while full-year 2024 growth stood at 2.5%. Meanwhile, Japan’s fourth-quarter GDP expanded at an annualised rate of 2.8%, significantly surpassing analyst expectations of 1%.

Oil Prices Decline for Fourth Consecutive Session Amid Peace Talks: Oil prices extended their losing streak to four days as optimism around Russia-Ukraine peace talks weighed on supply concerns. Brent crude futures slipped 0.2% to $74.59 per barrel, down 3.1% over the past four sessions. US West Texas Intermediate (WTI) crude fell 0.3% to $70.51 per barrel, after briefly touching a low of $70.12, its weakest level since December 30.

Canadian Housing Starts Rise 3% in January, Beating December’s Growth: The Canadian housing market showed resilience as housing starts rose 3% month-over-month to a seasonally adjusted annualised rate of 239,739 units in January, up from December’s revised figure of 232,492. However, the increase fell short of economists’ expectations of 252,500 units.

FX Today:

EUR/USD Struggles to Hold Ground as Market Uncertainty Persists: EUR/USD closed at 1.0482, slipping 0.04% for the session after reaching a high of 1.0506 before retreating to 1.0466. The pair remains trapped in a consolidation phase, with resistance seen near 1.0520 and key support around 1.0450. The 50-day moving average at 1.0395, alongside the 100-day and 200-day moving averages at 1.0578 and 1.0746, suggests limited momentum for a breakout. If the euro climbs above 1.0520, it could test 1.0600, last seen in June 2024, while a decline below 1.0450 may push it toward the psychological 1.0400 level.

GBP/USD Extends Gains, Recovering December 2024 Levels: GBP/USD rose 0.34% on Monday to close at 1.2628, rebounding from a session low of 1.2578 before peaking at 1.2635. The pair continues to recover from its January dip to 1.2350, with resistance at 1.2650 and a potential move toward 1.2700 if bullish sentiment prevails. Support lies at 1.2580, with downside risks increasing toward 1.2500 if selling pressure intensifies. The 50-day moving average at 1.2473, alongside the 100-day and 200-day moving averages at 1.2689 and 1.2788, places the pair near a key decision zone. A dovish Federal Reserve outlook could further support the pound’s advance.

USD/JPY Declines, Approaching Major Support Levels: USD/JPY dropped 0.56% on Monday, settling at 151.42 as selling pressure pushed the pair from a session high of 152.38 to a low of 151.3350. The pair is nearing key support at 151.00, with further downside toward 150.50 if the yen strengthens. Resistance remains near 152.50, with a potential recovery toward 154.00 if dollar strength returns. The 50-day moving average at 155.07, along with the 100-day and 200-day moving averages at 153.17 and 152.66, suggests a weakening trend. A break below 151.00 could see the pair test the 150.00 level, which has historically provided strong support.

USD/CHF Stabilises but Struggles for Momentum: USD/CHF gained 0.23% on Monday, closing at 0.9008 after reaching an intraday high of 0.9017 before pulling back to 0.8975. The pair remains range-bound, with support at 0.8950 and resistance at 0.9050. The 50-day moving average at 0.9032, alongside the 100-day and 200-day moving averages at 0.8867 and 0.8827, indicates a neutral outlook. A breakout above 0.9050 could push the pair toward 0.9100, last seen in May 2024, while a drop below 0.8950 may trigger a move toward 0.8900.

AUD/USD Climbs to Two-Month High Ahead of RBA Decision: AUD/USD closed at 0.6361 on Monday, rising 0.20% after touching a session high of 0.6373 before retreating to 0.6344. The pair is testing resistance at 0.6400, with a potential breakout opening the door to 0.6450, a level last reached in September 2024. Support is seen at 0.6320, with a failure to hold above this level possibly leading to another decline toward 0.6250. The 50-day moving average at 0.6264, along with the 100-day and 200-day moving averages at 0.6441 and 0.6557, suggests a gradual recovery after late 2024 losses. Traders are awaiting the Reserve Bank of Australia’s monetary policy decision, which could determine the Australian dollar’s next move.

Gold Advances in Quiet Trading as Us Markets Remain Closed: Gold prices rose 0.57% on Monday, closing at $2,898 as the metal climbed to an intraday high of $2,906 before dipping to $2,878. With US markets closed for Presidents’ Day, trading remained subdued, but gold extended its recent rally, having gained over 5.38% since December 2024. Key resistance is at $2,910, while support remains firm at $2,870. If bullish momentum continues, gold could target $2,950, last seen in mid-2023, while a drop below $2,880 may lead to a correction toward $2,850. The 50-day moving average at $2,722 continues to provide strong support, while the 100-day and 200-day moving averages at $2,694 and $2,561 reinforce the bullish trend.

Silver Rallies, Approaching September 2024 Levels: Silver prices gained 0.77% on Monday, closing at $32.35 after reaching an intraday high of $32.49 before dipping to $31.92. The metal has been on an upward trajectory since late 2024, gaining nearly 7% in the past three months after rebounding from its October low of $29.50. Immediate resistance is seen at $32.50, with a potential move toward $33.00, a level last reached in August 2024, if bullish sentiment persists. On the downside, support lies at $31.90, with further losses potentially sending the metal toward $31.50.

Market Movers:

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Twilio Plunges on Weak Earnings Guidance: Twilio shares tumbled 15% after the cloud communications company issued disappointing first-quarter earnings guidance.

Wynn Resorts Jumps on Strong Earnings Report: Casino operator Wynn Resorts soared 10.4% after posting better-than-expected fourth-quarter results.

GameStop Climbs Amid Cryptocurrency Investment Speculation: Shares of meme stock GameStop gained 2.5% on Monday following reports that the company is considering an investment in Bitcoin and other cryptocurrencies.

Applied Materials Slumps after Issuing Softer Revenue Outlook: Semiconductor manufacturer Applied Materials saw its shares fall 8.2% after issuing a weaker-than-expected revenue forecast.

Palo Alto Networks Slips on Disappointing Free Cash Flow Figures: Shares of cybersecurity firm Palo Alto Networks edged down 0.9% after the company’s fiscal second-quarter free cash flow fell short of analyst expectations.

As markets navigate a volatile start to the week, European stocks surged to new record highs, fuelled by a sharp rally in defence stocks amid increased military spending commitments from European leaders. Meanwhile, Asia-Pacific markets traded mostly higher, with Tencent reaching a three-year peak, though Thailand’s SET Index plunged to its lowest level since November 2020 following weaker-than-expected GDP data. Oil prices extended their losing streak for a fourth consecutive session as optimism over Russia-Ukraine peace talks weighed on supply concerns, while gold and silver continued their upward momentum.