By Nikhil Sharma and Purvi Agarwal
(Reuters) -Defence stocks powered European shares to a record high on Monday, after expectations mounted of higher military spending in the region, and the prospect of a Ukraine peace proposal boosted sentiment.
Germany’s blue-chip index logged its biggest one-day jump since November 2022, and closed at a record high, alongside Britain’s benchmark index.
The pan-European STOXX 600 index closed up 1.1%, at a record high, building on 10 straight weeks of gains.
Leaders from major European economies agreed, over the weekend, to boost defence spending to show U.S. President Donald Trump that the continent could protect itself.
Britain said there were several possible proposals for a Ukraine ceasefire after last week’s Oval Office rupture between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy.
Rheinmetall surged 13.7% to a record high, while Italy’s Leonardo advanced 16%. Britain’s BAE Systems was up 14.5%.
France’s Thales and Dassault Aviation were up 16% and 14%, respectively.
The European aerospace and defence index climbed 7.7% to a record high, while the industrial goods and services sector gained 2.5%.
A Reuters report that said parties in talks to form Germany’s new government were considering setting up a defence fund also boosted sentiment towards the defence companies.
“While hopes of a Ukraine peace plan continue to play some part in today’s positive market action, it is the expectation of rearmament across Europe that is the most important driver,” said Chris Beauchamp, chief market analyst at trading platform IG.
“However, the problem is, as with all these euphoric surges, that it may take some time for it to fully develop… With European defence, it’s a question of seeing how this translates into actual funding.”
Germany’s 10-year Bund yield, the euro zone benchmark, rose to 2.49%, pressuring rate-sensitive real estate and utilities, which were the top sectors in the red.
Meanwhile, data showed Euro zone inflation dipped less than expected last month, but its most closely watched element dropped, sealing the case for another ECB interest rate cut on Thursday and for further policy easing in the coming months.
The focus, however, will be on the central bank’s stance on U.S. plans for “reciprocal” tariffs on the European Union, as Trump’s deadline for tariffs on Canada and Mexico, and a further 10% duty on China looms
Bunzl fell 8.8% after the business supplies distributor reported a fall in annual profit.
(Reporting by Nikhil Sharma and Purvi Agarwal; Editing by Savio D’Souza, Shinjini Ganguli and Barbara Lewis)
