European stocks closed sharply higher on Tuesday, after ECB President Mario Draghi suggested in a speech that the central bank will provide more stimulus — either through new rate cuts or asset purchases — if inflation does not pick up.
Draghi also defended the tools that the organization has available, saying that its asset purchase program still has considerable headroom.
The pan-European Stoxx 600 recovered from an early drop to end the session 1.8% higher, marking a one-month high. All sectors and major bourses were in positive territory, with basic resources leading the gains and surging by almost 3%.
Central banks will remain in focus this week. The U.S. Federal Reserve is scheduled to start a two-day monetary policy meeting on Tuesday, with investors on the look out for clues about potential rate cuts.
Stocks on Wall Street also surged on Tuesday, with the Nasdaq gaining 1.7% after Trump announced he would meet his Chinese counterpart Xi Jinping at the upcoming G-20 summit in Japan. Trade tensions between the world's two largest economies have been putting markets under pressure in recent months.
Investors will also be monitoring geopolitical tensions elsewhere, after acting U.S. Defense Secretary Patrick Shanahan announced Monday that 1,000 troops will be deployed to the Middle East, citing concerns about a threat from Iran. Fears of a confrontation between Iran and the U.S. have mounted since last Thursday, when two oil tankers were attacked, which Washington has blamed on Tehran.
Back in Europe, the six remaining Conservative party hopefuls to replace British Prime Minister Theresa May will face a second round of voting by secret ballot Tuesday, with Brexiteer Boris Johnson the clear frontrunner despite refusing to participate in Sunday's live television debate.
Looking at individual stocks, shares of German chipmaker Infineon fell 2% on Tuesday, as the company launched an accelerated capital increase to raise 1.5 billion euros ($1.68 billion) toward its planned acquisition of Cypress Semiconductor.
Steel producer Arcelormittal rose to the top of the European benchmark during afternoon trade, its shares gaining more than 6% as Trump's planned meeting with Xi lifted optimism for a Sino-U.S. trade deal.
At the other end of the Stoxx 600, Danish hospital equipment maker Ambu plunged 14% after the company cut its outlook for the year. Silicon wafer supplier Siltronic fell almost 8% after its third profit warning in 2019.