European aerospace and defence sector surges by €18bn to record high
And finally… the surge in share prices of weapons makers today has driven an index of defence companies up to a new all-time high.
The STOXX Europe Total Market Aerospace & Defense index has jumped by 4.4% today. That lifts the total value of all the companies on the index from €417.4bn to €435.7bn, a gain of over €18bn, or £15bn.
As we’ve been covering through the day, analysts are anticipating a jump in military spending, as NATO members are pushed to increase defence spending as a share of their economy and Europe responds to the rupture with the Trump White House.
vp vance in munich was motivating to convince europeans of the unreliability of the americans.
— ian bremmer (@ianbremmer) February 17, 2025
you probably don’t get the uk troop commitment without the vance speech.
Shares in Britain’s BAE Systems continued to rally though the day, and have closed up 9% tonight, lifting its value alone by £3.3bn.
As covered earlier (see here), weapons makers across Europe have rallied – Rheinmettal closed 14% higher, Thales gained 7.8%, Thyssenkrupp jumped by a fifth and Saab rose by 16%.
This chart, from Deutsche Bank, shows how UK defence spending has fallen over recent decades, as a share of overll spending:
As their strategist Jim Reid explain, that could be about to change:
Going forward, it seems increasingly clear that defence spending will have to increase. You’ll get a lot more idea of how much, and how this could be funded in the links below. However, there’s little political appetite to reduce the welfare state, so Europe in particular may have to sign up for higher government spending. Even in Germany, once the election is out the way on Sunday there should now be the political consensus for this.
So the last four days could easily mark a major turning point in Europe’s future with many macro and geopolitical implications.
European leaders will be weighing this issue up in Paris right now, as they hold an emergency summit.
Our Europe liveblog has all the action:
Goodnight. GW
Updated
European defence stock values surge
More than £10bn has been added to the value of Europe’s defence industry today, as investors anticipate a surge in military spending.
Weapons makers are leading the risers on many of Europe’s stock exchanges today, as leaders from major European powers prepared to meet in Paris for emergency talks on the Ukraine war.
Last week’s shock move by the US to sideline Kyiv and its European backers from peace negotiations has prompted expectations that Europe must spend more on defence.
Before today’s summit Ursula von der Leyen said the issue was “about Ukraine – but also about us. We need an urgency mindset. We need a surge in defence. And we need both of them now.”
The British prime minister, Keir Starmer, echoed her sentiments, telling reporters before heading to the French capital:
“This isn’t just about the frontline in Ukraine. It’s the frontline of Europe and of the UK. It’s about our national security.”
Traders across Europe have been swift to react.
In London, BAE Systems’ shares are up 7.7% in late trading. That adds £2.8bn to its market capitalisation, lifting it from £36.9bn to £39.7bn.
Shares in German arms maker Rheinmetall are up over 10% to a record high, lifting its value from €35.5bn (£29.5bn) to €39bn (£32.5bn), a gain of £3bn.
Thyssenkrupp, which provides systems for submarines, surface ships, and maritime electronics, jumped by 20% – adding around £500m to its value.
France’s Thales jumped 7.2%, taking its value up from €34bn to €36.5bn, up £2bn.
In Italy, aerospace and defence firm Leonardo gained 7.7%, taking its value from €18.2bn to €19.6bn, up £1.1bn.
Sweden’s Saab has surged 15%, adding 20bn Swedish crowns (£1.5bn) to its value.
These moves have lifted the Europe’s aerospace and defence index by 4% to an all-time high today – the index has more than doubled in value since Russia invaded Ukraine three years ago.
As covered earlier, European government bond yields – a measure of borrowing costs – have also risen today as investors anticipate higher defence spending.
Kathleen Brooks, research director at XTB, says:
The markets are once again being driven by geopolitics, this time it’s the bond market. European bond yields have jumped at the start of trading on Monday, as the EU is set to announce an overhaul of defence spending after next week’s German election.
This is good news for global defence stocks, and European markets have opened higher on Monday, but not such great news for bonds, as investors weigh up the impact on Europe’s debt pile.
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A US central bank policymaker is arguing for interest rates States-side to remain on hold, as officials wait for more progress on inflation.
Federal Reserve Bank of Philadelphia President Patrick Harker argues that policy “remains restrictive” despite three interest rate cuts last year.
So with economic growth and production still resilient, there’s good reason to hold rates “steady, Harker says in remarks prepared for an event in the Bahamas (nice work if you can get it!)
He adds:
“And while I won’t commit to a specific timetable, I remain optimistic that inflation will continue a downward path and the policy rate will be able to decline over the long run.”
The financial markets currently expect the Fed to next cut interest rates in July.
Harker is currently an Alternate Member of the Federal Reserve’s FOMC interest-rate setting committee, meaning he’d only get a vote this year if a full member were absent. Under the Fed’s rotating membership policy, Philadelphia get a full seat next year.
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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.
Euro area trade in goods surplus €15.5 bn in December 2024, €16.3 bn surplus for EU https://t.co/oKkeA9HAA7 pic.twitter.com/VwM53ymeGM
— EU_Eurostat (@EU_Eurostat) February 17, 2025
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.
Updated
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
— PiQ (@PiQSuite) February 17, 2025
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…
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.
Thyssenkrupp: up 17%
Saab: up 10.7%
Rheinmettal: up 9%
BAE Systems: up 7%
Leonardo: +6%
Updated
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!
— IG (@IGcom) February 17, 2025
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
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.
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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.
Updated
Here’s Bloomberg on the jump in Rheinmetall’s share price this morning:
Rheinmetall AG’s shares surged the most in more than two years as European officials contemplate a major new package to increase defense spending and support for Ukraine.
The German manufacturer’s stock rose as much as 11% in Frankfurt. The shares have more than doubled over the past year as military orders increased, especially from Germany. If Europe moves to increase spending further, it could push Rheinmetall to accelerate plans to increase its production capacity.
Swedish aerospace and defence company Saab are the top riser on the OMX Stockholm 30 share index, up 8%.
Shares in German arms maker Rheinmetall have jumped around 7%, making it the top riser on the DAX share index this morning.
European government borrowing costs are rising this morning too – perhaps a sign that investors are pricing in higher defence spending.
The yield, or interest rate, on UK 10-year bonds has risen by 7 basis points (0.07 percentage points) to 4.56% this morning, reversing losses last Thursday.
Shorter-dated two-year UK bond yields are up 5 basis points to 4.24%, the highest since the end of January.
German and French 10-year bond yields are also up around 7 basis points.
Bond yields rise when prices fall, and can signal that traders expect a rise in borrowing (as higher supply means governments have to accept a higher interest rate on their debt).
Valls: We must increase defence spending
The jump in defence stocks comes as French government minister Manuel Valls warns that Europe is at a turning point in terms of its relations with the United States.
That means Europe must do more than ever before to defend Ukraine and boost its defence spending, Valls argues.
The former French PM told France Info radio:
“We are at a turning point.
“This forces us more than ever before to support our defence for Ukraine, and to increase our defence spending budget and to be on the front foot.”
Updated
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.
Bloomberg is reporting that China’s fast fashion retailer Shein is under pressure to cut its valuation to about $30bn, ahead of a float on the London stock market.
Shein shareholders are apparently suggesting that an adjustment is needed to help get its potential initial public offering in the UK over the line.
That’s quite a reduction on Shein’s previous valuations – in 2022 it was tagged at $100bn.
Uncertainty over its value has risen as Donald Trump has escalated trade tensions, including briefly suspending the ‘de minimis’ rules which allow duty-free entry for cheap Chinese goods.
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Jack Ma’s presence at today’s meeting with Xi suggests authorities are finally moving beyond its crackdown on Alibaba, suggests Angela Huyue Zhang, a law professor at the University of Southern California.
She told CNN:
“With the domestic economy slowing and geopolitical pressures escalating, the government is making it clear that it values and relies on the private sector to drive innovation and stimulate growth.”
Updated
China's Xi holds rare meeting with business leaders
Over in Beijing, Chinese President Xi Jinping has held a rare meeting with some of the country’s top business leaders.
Xi spoke at a symposium attended by business leaders including Huawei founder Ren Zhengfei, Xiaomi’s Lei Jun, BYD’s Wang Chuanfu, Unitree’s Wang Xingxing, and CATL’s Robin Zeng.
And intriguingly, Alibaba co-founder Jack Ma was also there, state media reported. Ma has been keeping a low profile since Xi’s government forced Alibaba to drop the stock market floatation of its Ant Group, after Ma made a speech criticising Chinese regulators.
That spat was the start of a campaign to tighten state control over private companies in the world’s second-largest economy.
Today’s meeting may be a sign that Xi’s administration are gearing up to work more closely with China’s major companies as it tries to cushion the economy from the impact of a trade war with the US.
Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong, has said:
“It’s a tacit acknowledgement that the Chinese government needs private sector firms for its tech rivalry with the US.
“The government has no choice but to support them if it wants to compete with the US.”
Updated
Introduction: Business confidence tumbles
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Confidence among UK small businesses has tumbled as bosses fret about the health of the economy, the tax burden and rising wages.
The Small Business Index (SBI) calculated by the Federation of Small Business shows that optimism slumped at the end of last year.
The SBI hit its lowest recorded point outside the Covid-19 pandemic in the October-December quarter, dropping from -24.4 points in Q3 to -64.5 points in Q4.
The survey covers the period when companies were awaiting, and then digesting, Rachel Reeves’s budget at the end of October which included increases to employers national insurance contributions (NICs).
The FSB reports that accommodation and food services was the least optimistic major sector, followed by the wholesale and retail sector. Construction recorded the largest decline in confidence between Q3 and Q4, from -26.6 points to -76.8 points.
Tina McKenzie, FSB’s policy chair, says small businesses are worried:
“The fourth quarter blues reported by small firms underline how urgently the Government’s growth push is needed.
“Small firms are understandably nervous about their prospects as 2025 gets underway.
“The upcoming employment rights bill is a major source of stress for small firms, with nine in 10 business owners saying they are concerned about its introduction, and this is undoubtedly a major cause of the very subdued confidence levels seen in our research.
A separate survey this morning, from the Chartered Institute of Personnel and Development (CIPD), also makes for grim reading. It found that UK employers are preparing for the biggest redundancy round in a decade – with those budget tax rises being blamed.
The CIPD survey, which was carried out in the second half of January, found that most employers cited the rise in employer NICs and a 6.7% increase in the “national living wage”.
The agenda
10am GMT: Eurozone trade data for December
11am GMT: Israel’s Q4 2024 GDP report
Updated
