A look at the day ahead in European and global markets from Tom Westbrook

Europe's rally in banking and defence stocks extended into Tokyo, where shares in Mitsubishi Heavy Industries popped 3% to trade near record highs.

The focus is on Ukraine and expectations that Europe will ramp up defence spending in the event of any peace deal.

European futures were slightly higher and pointed to a market open around the record peaks hit on Monday, when the defence sector lifted the broader indexes including the pan-European STOXX 600 and Germany's DAX. Arms maker Rheinmetall surged 14%.

U.S. President Donald Trump has arranged bilateral peace talks with Russia, scheduled to begin later on Tuesday in Saudi Arabia. British Prime Minister Keir Starmer said he was willing to send peacekeeping troops to Ukraine though European leaders made no similar pledge at emergency talks in Paris on Monday.

The possibility of an end to fighting has the euro and European stocks well-supported and has taken a little bit of the limelight from tariffs and interest rates.

It's likely to eclipse Germany's ZEW survey, British labour data and second-tier manufacturing figures due in the U.S.

Australia's central bank, as widely expected, began its rate-cutting cycle by lowering interest rates for the first time since 2020.

The bank sounded, however, like it was in no rush for further cuts, and that lent a little support to the Aussie dollar while the Aussie stock market slipped.

It's a bit of a different story across the Tasman Sea, in New Zealand, where a 50 basis-point cut is priced in for Wednesday and more than 100 bps of easing are expected this year.

Hong Kong shares hit their highest since October in morning trade and tech stocks marked a three-year high on a wave of enthusiasm following Monday's rare meeting between President Xi Jinping and business leaders.

Earnings will also be in focus with Chinese search giant Baidu reporting later on Tuesday and Alibaba on Thursday. Baidu shares steadied after a selloff in the previous session when founder Robin Li was not spotted at the symposium in Beijing.

U.S. markets return from a public holiday.

Key developments that could influence markets on Tuesday:

Economics: German ZEW survey, UK labour data, U.S. Empire Fed manufacturing

Earnings: Baidu, InterContinental Hotels