European Markets Choppy as Defense Stocks Surge; Thales and BAE Systems See Significant Gains

European markets experienced volatility on Monday, as defense stocks surged following high-level discussions among regional leaders about increasing military spending. The Stoxx 600 index fluctuated between gains and losses, eventually closing 0.13% higher. This modest movement was overshadowed by a 5.8% rise in the Stoxx Europe aerospace and defense index, which was on track for its best performance in five years. Key defense companies such as Rheinmetall, BAE Systems, Saab, and Thales saw significant gains, with shares of BAE Systems rising by 14.9% and Thales increasing by 14%. Analysts have raised their price targets for these companies, further fueling investor optimism.

The surge in defense stocks came as European leaders gathered in London for a summit, with British Prime Minister Keir Starmer hosting talks focused on Ukraine’s peace efforts. The summit emphasized the need for continued support for Ukraine, with calls for increased defense spending across European countries. The United Kingdom, in particular, committed to raising its defense expenditure as a percentage of GDP in the coming years, echoing similar sentiments from other leaders. This followed a meeting between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky, further underscoring the geopolitical urgency of the discussions.

In Germany, there were reports that coalition negotiators were considering the establishment of special funds for both defense and infrastructure, potentially unlocking significant new spending. This move could open up an additional 400 billion euros ($416 billion) for military and infrastructure projects. Deutsche Bank’s chief economist described the potential fiscal shift as one of historic proportions, signaling a major change in Germany’s defense and economic policies. Such developments have driven expectations that German defense stocks, including Rheinmetall and Hensoldt, could see even further gains in the coming months.

Meanwhile, U.S. markets were slightly higher, with a focus on upcoming data, including euro zone inflation figures and potential developments on tariffs between the U.S. and Mexico, Canada, and China. European stocks were generally positive, with Germany’s DAX and the UK’s FTSE 100 up by 0.3%, while France’s CAC 40 showed a modest gain. Despite the broader market choppiness, defense sector stocks dominated the news, reflecting heightened investor confidence in the sector due to increasing military budgets across Europe.

SOURCE: CNBC