European Defence Stocks Leads Market Rally
European stock markets soared to record highs on Monday, driven by expectations of increased military spending across the region. Hopes for a Ukraine peace proposal also contributed to the positive rise of European defence stocks.
Germany’s blue-chip index DAX logged its largest single-day gain since November 2022, closing at a record high. Britain’s FTSE 100 also ended at an all-time high. Meanwhile, the pan-European STOXX 600 index extended its winning streak, rising 1.1% to another record close after 10 consecutive weeks of gains.
Over the weekend, leaders of major European economies committed to boosting defence budgets to demonstrate to US President Donald Trump that Europe can defend itself.
Defence Stocks Rally on Spending Prospects
Shares of European defence companies skyrocketed as investors bet on higher military budgets. Germany’s Rheinmetall surged 13.7% to a record high, while Italy’s Leonardo climbed 16%.
Britain’s BAE Systems gained 14.5%, while France’s Thales and Dassault Aviation saw increases of 16% and 14%, respectively. The broader European aerospace and defence index jumped 7.7%, while the industrial goods and services sector gained 2.5%.
Investor optimism was further supported by reports that Germany’s coalition parties are considering the creation of a dedicated defence fund.
“While hopes of a Ukraine peace plan continue to play some part in today’s positive market action, expectations of European rearmament are the biggest driver,” said Chris Beauchamp, chief market analyst at IG. “However, it remains to be seen how quickly this translates into actual funding.”
Economic Data and Trade Tariffs in Focus
Outside the defence sector, Germany’s 10-year Bund yield rose to 2.49%, putting pressure on real estate and utilities stocks, which were among the worst performers of the day.
Meanwhile, Eurozone inflation dipped slightly less than expected last month. However, core inflation—closely watched by the European Central Bank (ECB)—fell, reinforcing expectations of an ECB interest rate cut on Thursday and further easing in the coming months.
Markets are also watching the ECB’s response to US trade policies, with Trump’s tariff deadlines approaching. His administration is considering reciprocal tariffs on the EU, alongside planned duties on Canada, Mexico, and an additional 10% tariff on China.
In the UK, Bunzl dropped 8.8% after reporting a decline in annual profits, making it one of the biggest losers of the session.
With inputs from Reuters