MARKET WRAPS

Stocks:

Stocks in Europe were mixed on Tuesday despite the emergence of more bleak data from its largest economy and Trump saying he would press ahead with tariffs on Canada and Mexico.

Germany's economy shrank 0.2% in the final quarter of 2024, underscoring the scale of the challenge for the next government, though data indicated that consumers were in the mood for spending.

Meanwhile, defence stocks traded higher on the likely requirement for Europe to spend hundreds of billions of euros in preparation for defending itself without U.S. military support.

Economic Insight

Germany's economy was stung by a plunge in exports in the final quarter of 2024, though domestic demand was robust.

Looking ahead, the balance between inventories and net trade will be a key factor for growth in 2025, according to Pantheon Macroeconomics.

Market Insight

Portfolio trading in the European corporate bond market is growing very quickly, Barclays Research said.

Its new database shows a new portfolio trade every 20 minutes and volumes reaching 250 billion euros in 2024, up 74% from 2023.

U.S. Markets:

Stock futures were under pressure and bond yields fell as worries about a slowing U.S. economy encouraged a move into the rceived safety of government debt.

In economic data due later, the Conference Board's consumer confidence survey will be monitored along with the Richmond Fed's manufacturing index.

Earnings from Home Depot will be examined for clues on the state of the retail and housing sectors, and wider economy.

Forex:

The euro retraced initial gains after Germany's election but has scope to strengthen on a more sustained basis over the medium term, MUFG Bank said.

Negotiations for a potential coalition between the CDU-CSU alliance and Social Democratic Party $(SPD.AU)$ could be relatively straightforward and completed by Easter.

This coalition has greater scope to deliver policy changes than under the "gridlock of the SPD-led three-party coalition that was rife with division."

The change in government paves the way for economic policies that could boost optimism over the growth outlook and prove euro supportive, MUFG added.

Sterling could fall if Bank of England chief economist Huw Pill hints at accelerating interest rate cuts in a speech at 1400 GMT.

Pill favors gradual rate cuts but any comments that signal a faster pace of policy easing could have a tangible impact on rate expectations.

"We expect three more cuts this year, also due to the worsening fiscal picture," ING said.

GBP/USD is a "cleaner way to play sterling downside" rather than EUR/GBP, given the euro's own challenges, according to ING.

The dollar traded steady as investors weighed President Trump's latest tariff remarks and looked ahead to consumer confidence and manufacturing data.

Trump said tariffs on Canada and Mexico would proceed on schedule next month following an initial delay.

"Thus far, Trump's bark has been worse than his bite, though assuming that stance will hold water for the next four years might well prove folly," Pepperstone said.

Bonds:

Eurozone government bond yields rose in early trade, with bunds shrugging off the weak German GDP data as investors focused on a potential fast-track approval of higher defense spending in Germany.

"The new government now holds the reins to stimulate new growth on one hand and to arrange with the U.S. in such a way that no additional significant burdens arise from punitive tariffs on the other," CMC Markets said.

Commerzbank Research said risk sentiment in the eurozone remained supported by hopes about debt-brake reform in Germany and more joint EU issuance.

The Free Democratic Party failing to reach the parliamentary threshold at Sunday's elections "is interpreted as opening the door to more fiscal largesse," resulting in more resilient sentiment in the eurozone and cheaper long-dated bunds, particularly versus Treasurys and swaps.

Treasury yields extended Monday's falls, with 10-year yields at their lowest in more than two months, as investors put more bets on Federal Reserve interest-rate cuts this year, Deutsche Bank Research said.

U.S. money markets now priced in 54 basis points of rate cuts this year, with a first 25 basis-point reduction now priced for July, having recently been priced for September, LSEG data showed.

Energy:

Oil prices rose, with positive momentum including President Trump's additional Iranian sanctions and fresh EU sanctions on Russia's shadow fleet and oil storage restrictions.

Headwinds include disappointing U.S. macroeconomic data on Friday and reports of a new coronavirus strain in China, alongside a resumption of oil flows from Kurdistan after a near two-year pause, Goldman Sachs said.

There is room for a potential recovery in positioning and valuation for oil, and Brent could rise up to $80 a barrel in the second quarter of the year.

Metals:

Gold futures, having set a fresh record in the prior session, as investors continued to pile into the precious metal on worries about President Trump's disruptive trade and geopolitical agendas.

For now, investor activity has been mostly focused on gold futures, but in recent weeks there has been a noticeable increase in physical flows in gold-backed exchange traded funds, ANZ Research said.

ETFs saw their biggest net inflow since 2022 last week, and holdings were now at their highest level since January 2024.

Comex gold futures seemed to be looking to resume their uptrend, RHB Retail Research said.

Despite mild selling pressure on Monday, bulls retained the "upper hand" based on the daily chart.

Base metals fell, with copper and aluminum both down.

However, the copper market is ready for another sustainable step up in pricing driven by strong electrification demand, while supply growth will be limited by years of underinvestment in mining capacity, according to Goldman Sachs.

EMEA HEADLINES

Unilever CEO to Step Down as Part of Turnaround Effort

Unilever Chief Executive Hein Schumacher is stepping down as the consumer-goods giant pursues a major turnaround, and will be replaced by finance chief Fernando Fernandez.

The surprise exit comes less than two years after Schumacher took on the top role at the company. Unilever said he would step down by mutual agreement on Saturday, before leaving the company on May 31.

EU Court Backs Italian Antitrust Ruling on Google's Android Auto Platform

Judges in the EU's Court of Justice have said that Google's refusal to let Enel host an electric-vehicle charging app on its Android Auto platform might break EU competition rules.

The ruling comes after a years-long dispute between the Italian energy company and the tech giant over how it manages access to Android Auto-a platform that lets drivers use smartphone tools like messaging apps while behind the wheel.

Smith & Nephew Shares Rise After Higher Profit, Revenue Offset China Headwinds

Smith & Nephew shares climbed after its full-year pretax profit rose on higher revenue, that helped offset inflationary and China headwinds.

In London early morning trading, shares in Smith & Nephew rose 9.7% to 1,144.50 pence, its biggest one-day percentage rise in more than four years. The stock has risen 14% in the year to date.

Heidelberg Materials' Key Earnings Metric, Revenue Beat Market Views

Heidelberg Materials posted better-than-expected results for a key earnings metric and revenue for the full year.

The German building materials group on Tuesday said that its results from current operations before depreciation and amortization-the company's preferred metric-for the full year were 4.50 billion euros ($4.71 billion) compared with 4.26 billion euros in the prior-year.

Fresenius Medical Care Narrows Key Earnings Metric View on Profit Slump

Fresenius Medical Care narrowed its operating profit margin target for this year after its fourth-quarter profit slumped.

The German dialysis company said Tuesday that it forecasts its operating profit to grow in the high teens to high twenties percentage in 2025, translating into an operating profit margin of 11% to 12%, previously seen between 10% to 14%. The company expects 2025 revenue to grow by a low-single digit percent rate. The expected growth rates for 2025 are at constant currency, excluding special items.

GLOBAL NEWS

U.S. Wins Backing for U.N. Resolution on Ukraine War That Doesn't Blame Russia

The U.S. sided with Russia and China to win the United Nations Security Council's backing for a resolution crafted in Washington that didn't blame Moscow for the Ukraine war and called for a swift end to the conflict, as President Trump said he was in talks with Russia about an economic-development deal.

Trump's comments and the U.S.'s vote at the U.N. on Monday illustrated the extent to which the president has changed the U.S.'s posture toward the region, coming on the same day as European leaders gathered in Kyiv to mark the third anniversary of the invasion.

Forget MAGA, Investors Want MEGA: Make Europe Great Again

Donald Trump's election victory was seen as the swan song for long-struggling European assets. Investors are now betting it could actually be the opposite.

European equities have been underperforming their U.S. peers almost continuously since 2008. In recent years, the artificial-intelligence boom benefited American and Chinese technology giants, the war in Ukraine massively increased Europe's energy costs and the pivot toward electric cars left the powerhouse German auto industry lagging behind Tesla and China's BYD.

New U.S. Sanctions Target Iran's Oil Supply Chain Amid Trump's 'Maximum Pressure' Push

The U.S. is ratcheting up sanctions targeting Iran's oil supply chain, continuing the Trump administration's "maximum pressure" campaign to effectively blockade the country's petroleum exports, the Treasury Department said.

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February 25, 2025 05:17 ET (10:17 GMT)

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