By Nell Mackenzie and Tom Westbrook
LONDON/SINGAPORE (Reuters) – European futures hit record peaks on Tuesday as defence stocks soared on expectations of a spending bump, while Hong Kong shares were on the verge of three-year highs as investors cheered business leaders’ meeting with President Xi Jinping.
Australia’s central bank began its rate cutting cycle, as expected, and the Australian dollar found support at $0.6350 as the cut came with caution on further easing.
S&P 500 futures were up 0.2% and European futures added 0.1%. Japan’s Nikkei rose 0.5% with bank and defence-related shares taking their cues from Europe’s rally.
On Monday, the pan-European STOXX 600 index closed 0.5% higher as a gauge of defence and aerospace stocks surged 4.6% to lifetime peaks, having already more than doubled in value since Russia invaded Ukraine three years ago.
Investors expect earnings in the industry to continue to rise strongly, reckoning a long era of modest defence budgets has ended and a rush to buy arms is beginning.
“If European defence spending gets anywhere near Trump’s 5% of GDP target, European defence companies like Rheinmetall, SAAB, BAE Systems, Thyssenkrupp, and Thales can extend considerably their overnight gains,” said Tony Sycamore, analyst at IG Markets in Sydney.
The euro hovered around $1.0455 in the Asia session, though Sycamore said a sustained break of $1.0530 would open the way to $1.06 and beyond ahead of Germany’s weekend election.
Russian and U.S. officials are scheduled to meet for bilateral talks on Tuesday in Saudi Arabia. Ukraine’s President Volodymyr Zelenskiy has said the country would not recognise any decisions made in deliberations where they were not present.
CHINA RALLY
U.S. markets re-open later on Tuesday following a holiday.
In China, markets have been buoyed by Monday’s rare meeting between Xi and business leaders. Hong Kong’s Hang Seng touched its highest since October and an index of tech shares hit a three-year high before some selling kicked in.
The tech index is up more than 25% for the year to date, turbocharged by gains in artificial intelligence stocks.
“I believe that China will be the winner in the AI race, just like electric cars,” said Britney Lam, who is running a family office, LAM Group, based on China’s access to data, energy, talent and computer chips.
Shares in Baidu steadied following their slide on Monday after the founder of the search engine giant was not spotted at the meeting. The company reports earnings later in the day. Alibaba’s stock rose 2% after founder Jack Ma was shown on television shaking hands with Xi.
