The Christian Democratic Union (CDU) of future Chancellor Friedrich Merz, the Social Democratic Party (SPD), and the German Greens reached an agreement on Friday to ease federal debt rules. Meanwhile, in the United States, the government narrowly avoided a federal shutdown on Friday, thanks to some reluctant votes from Democratic senators in favor of a budget bill pushed by Donald Trump. However, Trump congratulated Chuck Schumer “for doing what was necessary and showing courage.” And then there’s Musk…

European markets lifted by defense stocks and German policy

In Paris, the CAC 40 gained 1.13% to 8,028.28 points. In Frankfurt, the DAX rose by 1.65%, and in London, the FTSE 100 increased by 1.05%. The EuroStoxx 50 closed up 1.34%, the FTSEurofirst 300 gained 1.12%, and the Stoxx 600 advanced by 1.11%. However, for the week, the CAC 40 lost 1.13% and the Stoxx 600 fell by 1.25%, marking their worst weekly performance since mid-December.

The European defense sector (+3.91%, +3.92% for the week) had another strong day on Friday, bolstered by Germany’s agreement on the debt brake. In France, Thales led the CAC 40 with a 5.57% rise, while Safran gained 2.28%. Rheinmetall AG surged by 6.29%, and Leonardo SpA climbed 7.13%.

In Switzerland, the SMI closed up 0.63%. Among heavyweight stocks, Nestlé (-0.1%) and Novartis (-0.6%) weighed on the index, while Roche (+0.9%) gained ground. ODDO downgraded Novartis from “outperform” to “neutral” without changing its price target, while it raised Roche’s price target but maintained an “underperform” rating, citing an unattractive risk/reward ratio for upcoming Phase III clinical trials.

The German 10-year Bund yield rose by 2.1 basis points to 2.8750%. The 2-year Bund yield increased by 1 basis point to 2.1900%. The euro strengthened by 0.29% to $1.0877, supported by expectations of higher German defense spending. The U.S. dollar fell 0.14% against a basket of major currencies. The British pound declined by 0.16% against the dollar due to an unexpected contraction in the UK economy in January.

A breath of fresh air in the U.S.

The Dow Jones climbed 1.65%, the Nasdaq soared 2.61%, and the broad S&P 500 index jumped 2.13%. The rebound in mega-cap stocks contributed to market gains: Nvidia surged 5.27%, Apple rose 1.82%, Amazon gained 2.09%, and Microsoft advanced 2.58%. Tesla, which had fallen nearly 50% in three months, gained 3.4% on reports that Elon Musk’s company is considering producing a cheaper version of its Model Y in Shanghai to regain market share in China. However, for the past week, the Dow Jones lost 3.07%, the S&P 500 fell 2.28%, and the Nasdaq declined 2.43%.

U.S. Treasury yields remained stable, with the 2-year note rising 3.5 basis points to 4.015%, while the 10-year note was at 4.304%, up 3.1 basis points.

Gold and oil movements

On Friday, spot gold briefly surpassed the $3,000-per-ounce mark for the first time during early London trading before retreating. The precious metal is still up 13.7% since the beginning of the year, as trade wars and economic growth concerns boost its safe-haven appeal. However, the record-breaking moment was short-lived, with gold closing down 0.12% at $2,984.19 per ounce.

Oil prices rebounded on Friday, recovering some of the previous session’s losses of over 1%, partly due to uncertainty surrounding a potential halt to the war in Ukraine. Brent crude rose 0.8% to $70.44 per barrel, while U.S. West Texas Intermediate (WTI) crude gained 0.83% to $67.10 per barrel.

And then there’s Musk… the lizard

Early Friday, Elon Musk shared a post from an X user about the actions of three 20th-century dictators—then quickly deleted it after sparking backlash. The post falsely claimed that Joseph Stalin, the communist leader of the Soviet Union until 1953, Adolf Hitler, the Nazi leader of Germany, and Mao Zedong, the founder of the People’s Republic of China, were not responsible for the deaths of millions under their rule. Instead, it argued that public sector workers were to blame.

This morning in Asia

Official data showed that Chinese industrial production grew by 5.9% in the first two months of the year compared to the previous year, while real estate investment continued to be a drag. On Sunday, China’s State Council unveiled what it called a “special action plan” to boost domestic consumption, including measures to increase household incomes and establish a childcare subsidy system. The Shanghai Composite Index was still up 0.28%, while Hong Kong’s Hang Seng Index jumped more than 0.8%. Japan’s Nikkei 225 gained 1.24%.

Futures indicate a lackluster opening for Wall Street. U.S. Treasury Secretary Scott Bessent stated in an interview on Sunday that there are “no guarantees” the United States will avoid a recession.