European Equities Flat Amid US-China Trade Talks Defense Sector Drops 0.8% Due to Rare Earth Mineral Uncertainty Gold Prices Rise 0.9% Ahead of US Inflation Data Japan’s Yen Falls 0.4% as BOJ Holds Rates Steady

European equities remained largely unchanged on Tuesday as trade talks between the United States and China continued in London. Traders across Europe were cautious, awaiting the outcome of the discussions, particularly regarding the standoff over critical minerals. The pan-European Stoxx 600 index stayed flat, while the FTSE 100 in London rose by 0.4% and Germany’s DAX dropped 0.2%. The CAC 40 in France saw a small uptick, but overall, there was a lack of significant movement in the market due to the prevailing trade tensions.

The defense sector faced considerable pressure, with the Stoxx Aerospace and Defense index down 0.8% for the third consecutive day. This decline was attributed to rising uncertainty around the supply of rare earth minerals, which are crucial for defense technology. In April, China had retaliated against U.S. tariffs by restricting the export of these key minerals, impacting Europe’s manufacturing and military industries.

In the commodities market, gold prices edged higher, trading at $3,333.89 an ounce by 08:18 GMT, after an earlier drop to $3,301.54. U.S. gold futures remained steady at $3,354.70. The increase in gold prices was driven by steady buying ahead of the upcoming U.S. inflation numbers, which could influence the Federal Reserve’s decision on interest rates. Investors were cautious, seeking safe-haven assets in anticipation of potential macroeconomic shifts.

Meanwhile, other metals saw declines. Silver dipped 0.6% to $36.51 per ounce, despite hovering near a 13-year high. Platinum fell 1.1% to $1,206.42 after reaching its highest point since May 2021, and palladium slipped 1% to $1,063.22. The broader market caution was reflected in the metals sector, mirroring the overall risk-averse sentiment in equity and bond markets across Europe.

In Japan, Bank of Japan Governor Kazuo Ueda addressed parliament, stating that the central bank is not yet ready to achieve its inflation goal. Ueda emphasized that the short-term policy rate is 0.5% and that the bank has limited room to stimulate the economy in the face of strong downward pressures. This statement led to a drop in the yen, which fell from 144.69 to as low as 145.29 against the dollar before recovering slightly. Ueda’s remarks suggested that rate hikes are not imminent, but potential economic support measures could be implemented, further weakening the yen.

Japan’s inflation rate is the highest among the G7 nations, yet it maintains the lowest policy rate. Ueda’s comments reflect the need to eventually lift rates, but not until the economic outlook becomes clearer. Reports also indicated that Japan’s finance ministry might reduce the issuance of super-long bonds and even buy some back, adding to the yen’s decline. The Bank of Japan is expected to keep rates unchanged at its upcoming policy meeting next week, citing “extremely high uncertainties” in the economic forecast. As investors navigate risks across various asset classes and geopolitical factors, the pressure continues to mount.