European defence stocks surge to record high
Shares in European weapons makers are rising as investors anticipate a rise in defence spending.
Europe’s aerospace and defence stocks have jumped by 3% this morning to a new record high as the sector rallies this morning.
BAE Systems are the top riser on London’s FTSE 100 in early trading, jumping 5.5% to its highest level since late November last year.
Richard Hunter, head of markets at interactive investor, says:
BAE Systems shares rose by more than 5%, lifting the price by a cumulative 12% so far this year.
The possibility of increased military spending has underpinned the sector for some time, with the group being one of the preferred plays in the meantime, with Rolls-Royce also seeing the renewed interest lifting its shares by almost 2% and building on a gain of more than 90% over the last year.
In Paris, French multinational aerospace and defence firm Thales are up 4%. Italy’s Leonardo have jumped over 5%.
The rally comes as European leaders gather for an emergency summit on the Ukraine war in Paris later today, after US officials suggested Europe would not be involved in talks to end the conflict with Russia.
US and Russian officials are set to meet in Saudi Arabia next week to start those talks, to which Ukraine say they’re also not invited.
Europe has also been shaken by Donald Trump’s newly appointed defence secretary, Pete Hegseth, who said last week that the US was no longer “primarily focused” on European security and that Europe would have to provide “the overwhelming share” of future military aid to Kyiv.
UK prime minister Keir Starmer appears to be taking the lead this morning, saying he is prepared to put British troops on the ground in Ukraine if there is a deal to end the war with Russia.
Key events
It’s plausible that European nations may need to pledge further support to Ukraine in order to have a say about peace negotiations.
As Mediobanca Securities told clients in a research note:
“It is clear to us, that the ability of European countries to influence peace talks will be directly proportional to the additional military support that they will be able to provide to Ukraine,”
Donald Trump may not be pleased with the latest European trade data, which shows that the EU’s trade in good surplus with the US swelled at the end of last year.
In December, EU exports to the US rose by 5.6% to €41.6bn, while imports from America into Europe shrank by 10.8% to €26.1bn.
For last year as a whole, Ireland’s goods trade surplus with the United States reached a record €50bn, beating the previous high of €41bn set in 2022, driven by a surge in drug exports to the U.S.
Exports of chemicals and related products — almost entirely pharmaceuticals — rose 44% year-over-year to 58 billion euros in 2024, Ireland’s statistics agency said.
It’s possible that fears of a new trade war prompted a surge of imports into the US following Trump’s election win, as importers tried to preempt new tariffs.
Economic news: Israel’s economy grew less than expected in the fourth quarter of 2024, with the war in Gaza continuing to hit growth.
Israel’s economy expanded at an annualised rate of 2.5% in October-December, mimssing expectations of 5.7% annualised growth.
ISRAEL Q4 GDP 2.5% ANNUALISED IN 1ST ESTIMATE (REUTERS FORECAST 5.7%) -STATISTICS BUREAU
ISRAEL ECONOMY GREW 1.0% IN 2024 VS 1.8% IN 2023; PER CAPITA GDP FELL 0.3% IN 2024 -STATISTICS BUREAU
ISRAEL 2024 EXPORTS -5.6%, PRIVATE CONSUMPTION 3.9%, INVESTMENT -5.9%, PUBLIC SPENDING…
— PiQ (@PiQSuite) February 17, 2025
British prime minister Keir Starmer has told reporters it is crucial for all of Europe to spend more on defence – the kind of talk that will keep weapons makers’ shares high,
Before heading to Paris for the emergency leaders’ meeting to discuss the Russia-Ukraine war, Starmer said:
“We’re facing a generational challenge when it comes to national security.
“I think there’s a bigger piece here as well, which is that this isn’t just about the front line in Ukraine. It’s the front line of Europe and of the United Kingdom. It’s about our national security and I think that we need to do more.”
Germany at particular risk from US tariffs, Bundesbank warns
Germany’s top central banker has warned that US trade tariffs could hit Europe’s largest economy hard.
In a spech this morning, Bundesbank President Joachim Nagel said that Germany is particularly vulnerable to U.S. trade tariffs, which could curb growth for years to come and hold back an economy that has already struggled to grow for the last two years.
Nagel explained:
“Our strong export orientation makes us particularly vulnerable.
Economic output in 2027 would be almost 1.5 percentage points lower than forecast.
The Bundesbank sees the German economy growing by 0.2% this year and 0.8% in 2026, suggesting that a 1.5% point hit over the next three years would result in more economic contraction, Reuters points out.
At noon, defence shares lead risers across Europe
After a strong morning’s trading, here’s the latest share prices for Europe’s defence stocks.
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Thyssenkrupp: up 17%
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Saab: up 10.7%
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Rheinmettal: up 9%
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BAE Systems: up 7%
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Leonardo: +6%
Elsewhere in the City, shares in Petra Diamonds have dropped 16% after the sudden departure of its CEO.
Petra reported this morning that Richard Duffy has resigned as chief executive officer by mutual agreement and with immediate effect.
He’s been replaced by two co-CEOs – Vivek Gadodia, who will handle corporate matters, and Juan Kemp who will deal with operational matters.
They’ll both have a lot to do – Petra also reported a drop in revenues in the second half of last year, to $115m from $164m, with its net loss after tax widening to $69m from $11m.
🔥 BAE Systems soars 6.5% today!
Investors are betting big on rising European defence spending as tensions escalate.
UK defence stocks gain £4bn ahead of key military talks. Is this just the beginning? 🤔📈 #BAE #FTSE100 #DefenceStocks— IG (@IGcom) February 17, 2025
Talk of greater defence spending has helped push European markets ahead this morning, reports Russ Mould, investment director at AJ Bell:
“Comments by secretary general Mark Rutte that NATO members will have to boost their defence spending by ‘considerably more than 3%’ of GDP put a rocket underneath defence stocks. BAE Systems jumped to the top of the FTSE 100 risers list as investors hoped its earnings prospects would be greatly improved. Mid-cap defence player Chemring also enjoyed a boost.
“Shares in defence companies had already rallied hard since Russia invaded Ukraine as investors took the view that the shocking events would spur governments around the world to fortify their own defences. Rutte’s comments effectively confirm this line of thinking and have acted as another share price catalyst, even though markets had already priced in a stronger earnings environment for the sector. That Donald Trump is keen for European allies to spend as much as 5% of GDP on defence adds to the narrative supporting the sector.”
With weapons makers leading the market risers, Britain’s FTSE 100 is up 0.15%, as is France’s CAC, while Germany’s DAX index has gained 0.8%.
BAE Systems’ shares are being pushed higher – now up almost 7% in London this morning.
Joshua Mahony, analyst at Scopemarkets, says:
A mixed start to trade in Europe comes amid growing fears that the new US President seems to show little interest in strengthening ties with their transatlantic partners.
Talks over an end to the Ukraine-Russia war could take place in Saudi Arabia, but incredibly this could take place without Europe and even Ukraine itself. An interesting strategy considering the US will likely expect Europe to be the central pillars to any post war security arrangement.
With European leaders heading to Paris in a bid to structure their response, there is a fear that the breakdown in military ties between the US and Europe will necessitate a huge ramp-up in defence spending, thus pushing debt and borrowing costs higher once again. With the FTSE 100 being led by BAE Systems, and European bond yields on the rise, concerns over the shifting narrative around Ukraine, Russia, and the US looks provide key drivers of sentiment in Europe this week.
Ukraine’s government bonds have seen their biggest fall of the year this morning, after weeks of rallying driven by hopes of a ceasefire with Russia.
Reuters has the details:
Tradeweb data showed Kyiv’s bonds down much as 0.84 cents on the dollar, with the 2036 maturity bidding at 68.16 cents. The strong gains in the recently restructured bonds began after U.S. President Donald Trump’s election win in November. Trump has promised to negotiate a quick end to the hostilities.
On the Russia-Ukraine war, analysts at Danske Bank say:
“We continue to see a high chance of a ceasefire in Ukraine this year.”
“We expect any confidence boost for markets to be short-lived, even under an acceptable deal … However, sustainable peace could give a boost to consumption and investments, especially if it coincided with lower energy prices.”
BoE’s Bailey warns UK economy is ‘quite static’
Bank of England governor Andrew Bailey has warned that the better-than-expected UK growth figures released last week don’t change the broader picture.
Speaking on a visit to South Wales, Bailey said:
“We’ve had the GDP numbers slightly stronger than we thought it would be, but I don’t think it changes the general story we have got, which is the economy has been quite static since late spring last year.
As covered here last week, the UK economy expanded by 0.1% in October-December – better than the 0.1% fall in GDP expected by the Bank.
Bailey went on to explain that inflation could fall quicker if the economy was suffering from low demand, rather than weak supply:
“The big question for us was to what extent is it demand and to what extent it is supply and demand, and that will go on being a big question for sometime.
Clearly it matters as the more you think it is pure demand than that is going to bring inflation down faster. The more you think it is pure supply it will have the other effect, but actually a combination of the two is probably the reality.”
The possibility of a peace deal in the Russia-Ukraine war (although on what terms?!) has has driven up shares in Ukranian iron ore pellet manufacturer Ferrexpo.
Ferrexpo’s stock is up 16% this morning, adding to gains on Friday.
The top riser on the London stock market isn’t actually a defence stock, though.
It’s Assura, the UK healthcare property investor and developer, whose shares have surged over 17% to the top of the FTSE 250 index after rejecting four takeover bids from private equity firm KKR and the Universities Superannuation Scheme, a pension fund.
Assura builds and renovates a range of healthcare buildings, including GP surgeries and diagnostic and treatment centres.
KKR told the City this morning that its latest offer, valuing Assura at £1.562bn, had been rejected on Saturday, adding:
KKR is considering whether there is any merit in continuing to try and engage with the Board.
