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 ( MHVYF )

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 ( BIDU ) reporting later on Tuesday and Alibaba ( BABA )

on Thursday. Baidu ( BIDU ) 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 ( BIDU ), InterContinental Hotels