European Defense Stocks Fall as Trump-Brokered Middle East Peace Deal Sparks Market Jitters
European markets opened mixed on Friday as investors digested the early stages of a U.S.-brokered Middle East peace agreement and new trade tensions over China’s rare earth export controls. The pan-European Stoxx 600 index hovered near flat in early trade, reflecting cautious optimism as traders assessed both geopolitical developments and shifting sector trends across the region.
Defense stocks led the morning sell-off after reports that the Israeli government approved the first stage of a peace deal championed by former U.S. President Donald Trump. The agreement, which includes the release of hostages held by Hamas and a planned ceasefire within 24 hours, triggered investor uncertainty over future defense spending in the region. The Stoxx Europe Aerospace and Defense index slipped 0.7%, with German defense giants Hensoldt and Renk losing 3.5% and 3.2% respectively.
Adding pressure to the markets, China’s latest export restrictions on rare earth minerals rattled European manufacturers and mining firms. These minerals are essential in producing defense technologies, electric vehicles, and consumer electronics. The Stoxx Europe Basic Resources index fell 1.2% in morning trading — reversing earlier gains from the European Union’s move to raise steel tariffs earlier this week. Analysts say Beijing’s restrictions could disrupt Europe’s defense supply chain and intensify trade frictions between the EU and China.
Meanwhile, Denmark’s Jyske Bank was among the top gainers, climbing 4.6% after raising its full-year earnings forecast to as much as 5.3 billion Danish krona ($820 million). On the regulatory front, the European Commission is preparing legal action against Italy’s “golden power rule,” which previously blocked UniCredit’s bid for Banco BPM. The move underscores Brussels’ growing push to encourage banking consolidation and reduce political interference in the eurozone’s financial sector.
Across the broader European landscape, investors are keeping an eye on key economic indicators, including Italian industrial output, Russian inflation, and Swiss consumer sentiment. The Swiss economy continues to feel the strain of the 39% tariff imposed by the Trump administration in August, a move the country’s central bank has described as a “major challenge.” As Asian chip stocks rallied overnight on renewed AI optimism, European traders remained cautious — balancing hope for peace in the Middle East against fresh uncertainties in global trade and defense.
source: cnbc