Closing summary
European shares are rallying while Wall Street dipped, as investors were cheered by news that European leaders are drafting a Ukraine peace plan to present to the United States.
The German market jumped by 3% earlier and is now 2.4% ahead while the French and Italian markets have gained more than 1%.
The FTSE 100 index has hit a new record high, rallying by 1.1% to 8809.74, led by the defence and aerospace company BAE Systems which jumped by 14.5%. Across Europe, defence stocks rallied, with Germany’s Rheinmetall, Italy’s Leonardo and France’s Thales all gaining between 14% and 17% on the prospect of a splurge in defence spending.
The moves continued a steep rally in defence stocks as investors expected big increases in defence budgets by European countries, stoked by fears that Washington would withdraw security guarantees.
The euro jumped by 1.1% to $1.0491 while the pound rose by 0.9% to $1.26393.
There was also some relief about US tariffs – the US commerce secretary, Howard Lutnick, said on Sunday that new levies on Canada and Mexico will go into effect on Tuesday, but the president will determine whether to stick with the planned 25% level.
“That is a fluid situation,” Lutnick told the Fox News program Sunday Morning Futures.
“There are going to be tariffs on Tuesday on Mexico and Canada. Exactly what they are, we’re going to leave that for the president and his team to negotiate.”
Thank you for reading. We’ll be back tomorrow. Bye! - JK
US manufacturing expands but orders decline – ISM
The US manufacturing sector expanded for the second month in a row in February after more than two years of contraction, according to a closely watched survey.
The manufacturing purchasing managers’ index from the The Institute for Supply Management dipped to 50.3 in February from 50.9 in Janaury, but stayed above the 50 market that divides growth from contraction.
The production index fell to 50.7 from 52.5, still pointing to expansion, but at a slower rate.
The new orders index dropped back into contraction territory though, after expanding for three months, falling to 48.6 from 55.1 in January. Companies continue to lay staff off with the employment index falling further into negative territory, to 47.6.
Timothy Fiore, the institute’s chair, said:
Demand eased, production stabilised, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy. Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts. Although tariffs do not go into force until mid-March, spot commodity prices have already risen about 20%.
The #ISMPMI Employment Index was in contraction territory for the 27th time in 34 months in February, down 2.7 points to 47.6%. #Manufacturing companies continued to right-size staffs by releasing workers amid growing business uncertainty. https://t.co/G5mZqx2dOG #ISMPMI #economy
— Institute for Supply Management (@ism) March 3, 2025
.@ISM’s Tim Fiore: Companies experienced “the first operational shock of the new administration’s tariff policy. … Although #tariffs do not go into force until mid-March, spot commodity prices have already risen about 20%.” https://t.co/G5mZqx2dOG #ISMPMI #economy #inflation
— Institute for Supply Management (@ism) March 3, 2025
.@ISM® Report On Business®: New orders and #employment contracted, but U.S. factories had enough juice in February to keep the #Manufacturing PMI® (50.3%) in expansion for a second straight month. #Tariffs dominated panelists’ comments. https://t.co/G5mZqx2dOG #ISMPMI #economy
— Institute for Supply Management (@ism) March 3, 2025
European stocks, euro and pound jump on Ukraine peace plan
The euro and the pound are powering ahead and stock markets are surging, after European leaders agreed at a summit in London on Sunday to draw up a Ukraine peace plan to present to the United States.
The euro has rallied by 1.1% to $1.0485 while sterling is about 1% ahead at $1.2695.
The German stock market jumped by nearly 3% while the French index is 1.5% ahead, the Italian borsa rose by 1.4% and the FTSE 100 index in London climbed by 0.9%.
Defence stocks led the gains as European nations vowed to increase defence spending – the UK’s BAE Systems, Germany’s Rheinmetall, France’s Thales and Italy’s Leonardo rose between 14% and more than 15%.
By contrast, stocks on Wall Street dipped – the Nasdaq was down 0.8% while the Dow Jones and the S&P 500 both edged 0.3% lower.
Downing Street has said that “intense” work is now taking place to work to develop the proposals to help Ukraine that were discussed at the summit. You can read more on our politics live blog:
France is proposing a partial one-month truce between Russia and Ukraine, Emmanuel Macron and his foreign minister have said, as European efforts to bolster support for Kyiv accelerate in the face of uncertain US backing.
The euro has also been under pressure after Donald Trump threatened last week to impose a 25% tariff on European Union exports of cars and other goods.
Oil prices have risen slightly, with Brent crude 0.3% higher at $73.02 a barrel.
Updated
Back to US tariffs.
Donald Trump’s plan to impose tariffs on Canada, Mexico and China could force American consumers to pay an average of $1,200 more per year, a prominent economic thinktank warns.
An analysis from the Peterson Institute for International Economics found that the tariffs would prompt retaliation from foreign governments, harming economic growth and leading to higher import costs that would be passed on to American households.
More on our US live blog here:
The former chief executive of Barclays, Jes Staley, is trying to convince a high court that the bank was well aware of the extent of his ties with child sexual abuse offender Jeffrey Epstein when it sent a letter to the financial regulator claiming that the pair “did not have a close relationship”.
The argument forms part of Staley’s attempt to challenge a decision by the Financial Conduct Authority (FCA) to ban him from senior roles in the UK’s financial sector in 2023, after its investigation found he had misled the regulator over the depth of his relationship with Epstein.
The former Barclays boss, who resigned in 2021, was also fined £1.8m and subsequently lost out on £18m in pay and bonuses from the bank.
A two-week hearing into the matter, at the Upper Tribunal in London, started on Monday with Staley in attendance. It is due to continue until at least 14 March.
Eurozone inflation dips to 2.4% ahead of Thursday's ECB meeting
Eurozone inflation has dipped, moving closer to the European Central Bank’s 2% target, ahead of a widely expected drop in interest rates at the central bank’s meeting on Thursday.
Headline inflation fell from 2.5% to 2.4% in January, while core inflation, which strips out volatile energy and food costs, dropped from 2.7 to 2.6%, Eurostat said this morning.
ING economist Bert Colijn said:
After quite a strong January reading, February eurozone inflation came in soft. Core inflation ticked down after having been stable at 2.7% since September.
The weak economic environment seems to trump an increase in reported input costs for the moment. For the European Central Bank, this is a dovish sign as the governing council mulls over how low it should bring rates.
The first decline comes despite businesses indicating that input costs have been increasing and their intentions to price these through to the consumer. But for the moment, this proves challenging given weak domestic demand. Consumers have regained purchasing power, but remain worried about the general economic situation, which has contributed to a higher savings rate.
Over the course of the year, we expect the eurozone to slowly move away from stagnation as domestic demand strengthens a bit on the back of further purchasing power improvements and lower rates. That should make for an environment in which inflation remains somewhat above 2%.
For the ECB, the big question is how low it will go. Concerns among hawks in the governing council about lowering rates too much have made headlines in recent weeks. Today’s soft inflation reading will contribute to views that inflation is now fairly benign, but will not provide firm evidence on how low rates should be set. We expect another 0.25ppt cut later this week to be accompanied by a fiercer debate on when the ECB will reach its terminal rate.
European shares climb as defence stocks jump; euro, sterling rally
European shares are pushing higher, with Germany’s Dax the standout performer, up by 1.2%, as Europe’s big defence names jumped on expectations of a splurge in defence spending.
The euro rallied by 0.65% to $1.0442 after hitting a 2 1/2 year low against the dollar last Friday, while the pound rose by 0.5% to $1.2641.
Following a weekend summit in London of European leaders, Keir Starmer announced a “coalition of the willing” led by the UK and France to help end the fighting in Ukraine, following Russia’s invasion of the country three years ago.
Last week, he said defence spending would rise to 2.5% of GDP from April 2027 (from 2.3% now) and increase to 3% in the next parliament. This will be funded by cuts to the aid budget from 0.5% of national income to 0.3% in 2027. Other countries, such as Germany, also plans to ramp up defence spending.
The UK’s FTSE 100 index has gained 0.4% while the French CAC is 0.6% ahead and Italy’s FTSE MiB rose by 0.4%. Aerospace and defence company BAE Systems is still the biggest riser in London, up 13.2%, and followed by Rolls-Royce, which is trading 5.1% higher.
The German arms manufacturer Rheinmetall and France’s Thales both jumped by 11%, while Italy’s Leonardo rose by 8.8%.
JPMorgan analysts said the events of the last two weeks have “turbocharged” their thesis of a European rearmament cycle, with Europe seeking to gradually make more of its own military equipment and import less from the United States
There are 30 European countries in NATO and we expect many of them will soon commit to much higher defence spending.
Bank of America analysts estimate that NATO members excluding the US were expected to spend around $450bn on defence last year, saying that if every country increased its spend to 3% of GDP, it would add $250bn, a “significant step up in spend and outlook.”
They added European defence stocks still look “cheap” despite the rally, with the sector currently trading at around 11 times its enterprise value/core earnings for 2027, compared to 13 times for their US rivals.
Updated
And finally, the UK housing minister has promised to abolish the centuries-old leasehold system in England and Wales before the end of this parliament, as the government takes the next steps towards an outright ban on new leasehold developments.
Matthew Pennycook said he was committed to ending the feudal-era system – which applies to 5m homes in England – after years of complaints from leaseholders about crippling service charges and crumbling buildings.
With some leaseholders complaining about the slow pace of action by this government, ministers will today lay out a series of proposals to make it easier for homeowners to jointly own the buildings they live in.
The commonhold white paper will form the basis of a draft leasehold reform bill later this year that is likely to include a ban on developers selling new flats under the controversial system.
In the world of fashion, Prada is in talks to buy the Versace brand from the US investor Capri Holdings for a price that could reportedly reach nearly €1.5bn (£1.2bn).
Milan-based Prada and the New York-listed Capri could reach a deal for Versace this month, Bloomberg reported, although the talks could still fall apart.
A deal would bring the Versace brand back under Italian ownership, and would make Prada larger as it tries to compete with France’s LVMH, the owner of luxury brands including Louis Vuitton, Moët & Chandon and Hennessy.
Prada was founded in 1913 in Milan by Mario Prada, but has been led since the 1970s by his granddaughter Miuccia Prada. Capri was formerly known as Michael Kors but was renamed after the US fashion brand took over the shoemaker Jimmy Choo in 2017, and then Versace in 2018.
Updated
UK mortgage approvals rise, credit card borrowing jumps
Mortgage approvals have risen year-on-year, suggesting a busy housing market at the start of the year, while consumers also borrowed more via their credit cards.
Mortgage approvals on house purchases in January rose to 66,189, up by 18% compared with January 2024, according to Bank of England figures. The total was down slightly from 66,505 in December.
Net mortgage lending rose by £900m to £4.2bn in January, the most since September 2022 when Liz Truss’s mini-budget sparked turmoil bond and mortgage markets.
Net consumer credit borrowing jumped to £1.7bn from £1.1bn in December, driven by higher credit card borrowing, up to £1.1bn from £400m the month before, and the highest increase since November 2023.
Ashley Webb, UK economist at Capital Economics, said:
The stagnating economy is partly because households appear to be continuing to save rather than spend. This is unlikely to change over the next six months with the sharp deterioration in the outlook for employment.
The £1.7bn rise in consumer credit in January was much higher than the average gain of £1.1bn over the previous six months and it was the biggest monthly increase since January last year. This suggests that households financed some of January’s big 1.7% month-on-month in retail sales via unsecured credit.
Overall, the economy will probably do little more than flatline at best in the first quarter.
Turning to the housing market, Simon Gammon, managing partner at Knight Frank Finance, said:
The mortgage market remained busy in January, largely due to first time buyers squeezing deals through ahead of the changes to stamp duty and needs-based buyers that had put off acting during the volatility of 2024.
The year began with more turbulence in bond markets, however mortgage rates have since eased on signs that the medium-term outlook for inflation looks fairly positive. That gave lenders the confidence to bring two and five year fixed rate deals below 4% this month.
The short-term outlook is a different matter altogether. Inflation is likely to spike in the third quarter and, though Bank of England policymakers are convinced it will be a temporary bump, it may exert some upwards pressure on mortgage rates. Borrowers can expect another year of alarming headlines, with mortgage rates ebbing and flowing around this level until we get a more positive shift in the outlook.
Property expert Emma Fildes said:
In January 2025, buyers took a step of the gas as rates crept up and the chances of making the deadline became unlikely. Net mortgage approvals for house purchases falling by 300 to 66,200. At the same time the amount of mortgage debt by individuals rose as those already owing… pic.twitter.com/VfuYadOsxd
— Emma Fildes (@emmafildes) March 3, 2025
Updated
UK factory downturn deepens; steepest job losses since 2020
However, in the UK the factory downturn deepened last month, leading to the steepest job losses since mid-2020
The UK manufacturing sector continued to face tough conditions in February, as concerns about weak demand and rising cost pressures led to steeper declines in output, new orders and employment.
The S&P Global headline PMI fell to a 14-month low of 46.9, down from 48.3 in January, but above the flash estimate of 46.4. The PMI has remained below the 50 level that separates contraction from expansion for five months in a row, signalling contraction.
Output shrank for the fourth month running, as manufacturers scaled back production in response to lower new order intakes, subdued client confidence (at both businesses and consumers) and supply chain issues. Companies faced weaker demand from both domestic and overseas clients.
Rob Dobson, director at S&P Global Market Intelligence, said the autumn budget’s changes to the national minimum wage and employer national insurance contributions (NIC) are driving up inflation fears and intensifying the downward trend in staff headcounts.
The pace of manufacturing job losses is currently running at a rate not seen since the pandemic months of mid-2020.
Cost and demand considerations also encouraged cutbacks to purchasing activity and stocks, as the tough economic backdrop placed manufacturers on an increasingly defensive footing. Input costs are rising at the fastest pace for over two years, as suppliers front load expected increases in their own wage and NIC costs. Factory gate selling price inflation has also hit a 22-month high.
This combination of absent growth and rising prices will contribute to a growing dilemma for the Bank of England over the coming months.
Eurozone factory downturn eases, firms more optimistic – survey
The eurozone’s factory downturn eased last month and was at its least severe since early 2023, according to a survey.
The headline purchasing managers’ index from Hamburg Commercial Bank, compiled by S&P Global, rose to 47.6 in February (final reading), from January’s 46.6. Any reading above 50 indicates a contraction. It showed industrial production came close to stabilising, with reductions in new orders – both total and from abroad – less severe.
Manufacturing growth expectations were among their most optimistic since Russia began its invasion of Ukraine three years ago. That said, factory job losses intensified, with employment falling at its fastest rate in four-and-a-half years.
Input cost inflation ticked up to a six-month high, but firms struggled to pass on higher costs to clients as output charges fell slightly.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
It’s still too early to call it a recovery, but the PMI hints that the manufacturing sector might be finding its footing. New orders are falling at the slowest pace since May 2022, and production is edging closer to stabilising. So, after almost three years of recession, we could see a bit of growth in the coming months. A quick formation of a government in Germany, political stability in France, and a deal with the US on key tariff issues would definitely help.
Job cuts sped up in February, but it’s not uncommon for layoffs to continue even after a recession ends. So, this doesn’t necessarily mean a recovery is far off.
As for the four big eurozone countries, Spain is still showing growth in production, but its manufacturing PMI, which has been doing rather well for the past three years, dipped below the 50 mark due to declining new orders.
Most companies are staying optimistic about the future. The confidence index is just above the long-term average. This is surprising considering the tariff threats from the US, but companies know that a recession is usually followed by a recovery. There are also signs that Russia’s war against Ukraine might end this year, and the expected political stabilisation in Germany is certainly a positive element, too.
Countries ranked by manufacturing PMI: February
Ireland 51.9, 12-month high
Netherlands 50.0, eight-month high
Spain 49.7, 13-month low Italy 47.4, five-month high
Austria 46.7, 24-month high
Germany 46.5 (flash: 46.1) 25-month high
France 45.8 (flash: 45.5), nine-month high
Updated
Neil Wilson, analyst at TipRanks, said:
European stocks rallied at the start of the month despite fears over tariffs, tracking gains in Asia overnight and a bounce on Wall Street on Friday as US PCE inflation came in as expected, somewhat easing fears about the state of the world’s largest economy. A strong-than-expected Chinese PMI also warmed investor sentiment.
There was that conversation in the Oval Office. Europe is rallying round Ukraine and it’s hard to see defence stocks not enjoying years of orders – Rheinmetall, Saab, Leonardo, Thales, BAE Systems, Rolls-Royce, etc. London’s FTSE 100 closed at a record on Friday and extended higher early in trading on Monday, now up 7% so far this year. The Dax also rallied as Rheinmetall surged another 15% this morning. There is suddenly a lot of extra cash for defence.
The UK hosted a summit on Ukraine in London over the weekend, as Europe attempts to wrest control of the peace narrative from Donald Trump. The French president, Emmanuel Macron, said France and Britain proposed a one-month ceasefire that would cover air, sea and energy infrastructure “and then, once peace is signed, a (troop) deployment”. Pushing back against the US position, Volodymyr Zelenskyy pointed out that “if you don’t have an end to the war and you don’t have security guarantees, no one is able to control a ceasefire”.
Wilson added:
Today, eurozone inflation data is due, but we all know the European Central Bank is going to cut on Thursday anyway and president Christine Lagarde will signal more to come. All that extra defence spending is going to need to be financed somehow and that will require lower interest rates.
European stocks climb, lifted by defence stocks
European stock markets have opened higher, with defence stocks rallying.
Aerospace and defence companies are among the biggest risers in London. BAE Systems is the top riser on the FTSE 100 index in early trading, up by more than 16%, while Rolls-Royce jumped by 6.1% and Melrose Industries, another aeorospace company, advanced by 1.6%.
German arms maker Rheinmetall climbed by 13.8%. Germany could be at the heart of Europe’s defence splurge after reports over the weekend suggested the two parties that are locked in talks to form the next government, the CDU/CSU and the SPD, are considering setting up two special funds for defence and infrastructure spending.
The FTSE 100 index is 40 points ahead at 8850, a 0.46% gain, while Germany’s Dax has rallied by 0.88% and France’s CAC rose by 0.69%. The Italian borsa edged 0.1% lower.
Introduction: Bitcoin jumps on US crypto reserve plan; euro rises on Europe's Ukraine peace push
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Cryptocurrencies have rallied on plans for a new US strategic reserve, while the euro and sterling rose amid Europe’s peace push for Ukraine.
After a summit of 18 leaders, mostly from Europe, in London over the weekend, Keir Starmer announced a “coalition of the willing” led by the UK and France to help end the fighting in Ukraine, following Russia’s invasion of the country three years ago.
The euro climbed by 0.4% to $1.0417, recovering from Friday’s low of $1.0360 hit after US president Donald Trump and Ukrainian president Volodymyr Zelenskyy clashed publicly at the Oval Office. Sterling rose by 0.2% to $1.2604.
Bitcoin and some of its rivals jumped on news that it would be included in a new US strategic reserve of cryptocurrencies, along with ether and XRP.
Trump named five digital assets on social media that he expects to include in a new reserve, including bitcoin, ether, XRP, solana and cardano.
Bitcoin, the world’s largest crypto asset rose by 9.2% to more than $92,000 this morning while ether advanced by nearly 7% and XRP leapt by more almost 25%.
The rally came after bitcoin recorded its largest monthly loss since June 2022, as the euphoria over cryptocurrencies after Trump’s election win faded, before the president pumped it up again on Sunday. The price of bitcoin, which tends to be volatile, fell by 17.5% in February.
Stock markets in Asia made some gains following upbeat Chinese factory data, while investors are waiting nervously to see if new US tariffs will go ahead. Japan’s Nikkei rallied by 1.7% while Hong Kong’s Hang Seng gained by 0.3% and China’s Shenzhen rose by 0.36%. However, exchanges in South Korea, Taiwan and India were in the red.
Production at China’s factories returned to growth last month, an official survey showed, thanks to higher new orders and purchase volumes.
US commerce secretary Howard Lutnick said on Sunday that tariffs on Canada and Mexico will come into effect on Tuesday, but president Trump will determine whether to stick with the planned 25% level. The Canadian dollar and Mexican peso initially gained about 0.2%, but are now down by the same amount.
A further 10% levy on Chinese imports is also due to kick in tomorrow, as the country’s National People’s Congress opens its third annual session on Wednesday where stimulus measures and potential counter-measures against the US could be announced.
The Agenda
9.30am GMT: Bank of England consumer credit and mortgage lending for January
10am GMT: Eurozone inflation flash for February (dip to 2.3% from 2.5% expected)
3pm GTM: US ISM Manufacturing PMI for February
Updated
