3rd Mar 2025 16:55
(Alliance News) - Defence stocks powered European equity markets higher on Monday, amid expectations of higher armament spending as politicians seek an end to conflict in Ukraine.
Shares in Thales were 17% higher in Paris, Leonardo climbed 16% in Milan, BAE Systems jumped 14% in London and Rheinmetall leapt 15% in Frankfurt.
On the FTSE 250, Babcock was up 8.9% and Qinetiq up 11%.
JPMorgan increased share price targets by an average of 25% across the European defence sector and expects the share of GDP allocated to defence to grow to 2.5% "as an absolute minimum."
The FTSE 100 index ended up 61.57 points, 0.7%, at 8,871.31. It had earlier hit a new all-time high of 8,908.82. The FTSE 250 rose 55.91 points, 0.3%, at 20,382.29, but the AIM All-Share fell 2.03 points, 0.3%, at 701.80.
The Cboe UK 100 ended up 0.8% at 888.88, the Cboe UK 250 climbed 0.3% at 17,702.55, and the Cboe Small Companies rose 0.1% at 15,552.97.
In Paris, the CAC 40 ended 1.3% higher, while the DAX 40 in Frankfurt soared 2.7%, topping 23,000 for the first time.
The gains in defence stocks followed the dramatic events on Friday and over the weekend.
Berenberg's Holger Schmieding said: "Shocked into more serious action, Europe is now scrambling to contain the fallout from last Friday’s public row between US president Donald Trump and Ukrainian president Volodymyr Zelensky in the Oval Office. Outcome open. Following a meeting in London, European leaders are reportedly trying to devise their own plan to stop the fighting, possibly with a proposal for a one-month partial armistice and an immediate EUR20 billion support package for Ukraine."
"Europe and Germany in particular must – and very likely will – raise defence spending for themselves as well as for Ukraine well beyond recent plans. The UK and Norway have already pledged additional support for Ukraine, Germany will likely do so shortly. The EU looks set to loosen its fiscal rules, probably by excluding increases in military expenditures from deficit limits and by redirecting some unspent NextGenEU funds to military purposes while starting a discussion about some joint borrowing," he said.
In the UK, the Sunday Times reported Chancellor Rachel Reeves said she would change the remit of the GBP27.8 billion National Wealth Fund so it could be spent on defence.
The public-private investment fund was previously only used for infrastructure projects, including green energy schemes.
The money would be separate from the increase in defence spending announced by Prime Minister Keir Starmer last week.
The brighter mood, in equity markets at least, failed to spread to New York. At the time of the London close, the Dow Jones Industrial Average was down 0.5% at the time of the London equities close. The S&P 500 was 0.4% lower and Nasdaq Composite declined 0.7%.
A report from the Institute for Supply Management showed the manufacturing sector expanded at a slower rate in February. The ISM's manufacturing PMI hit 50.3 in February, down from 50.9 in January.
The New Orders Index dropped back into contraction category after expanding for three months, at 48.6 from 55.1 in January. The Production Index fell to 50.7 from 52.5 and the Prices Index surged to 62.4 from 54.9. The Employment Index fell to 47.6 from 50.3.
"The fall in the ISM manufacturing index in February likely marks the beginning of the end of the recent mini renaissance, as the reality of the disruption to the sector caused by tariffs (including retaliatory action by trading partners) starts to set in. The impact of new country- and product-specific tariffs is already visible with the prices paid index surging to its highest level since June 2022. This supports our view that there will be a goods-driven resurgence in core inflation in the second half of the year," said Thomas Ryan, North America economist at Capital Economics.
The pound was quoted higher at USD1.2710 late on Monday in London, compared to USD1.2588 at the equities close on Friday. The euro stood higher at USD1.0498, flat against USD1.0406. Against the yen, the dollar was trading lower at JPY150.20 compared to JPY150.38.
Eurostat's preliminary consumer price index reading showed inflation abated to 2.4% in February from 2.5% in January.
The reading was slightly hotter than forecast, with the FXStreet-cited market consensus expecting a slowdown to 2.3%.
But analysts noted progress on annual core consumer price inflation which eased to 2.6% in February, in line with expectations, from 2.7% in January.
Further, service price inflation abated to 3.7% from 3.9%.
"The weak economic environment seems to trump an increase in reported input costs for the moment. For the ECB, this is a dovish sign as the governing council mulls over how low it should bring rates," said analysts at ING.
The figures came ahead of the European Central Bank meeting on Thursday. The Frankfurt-based central bank is widely expected to lower interest rates by 25 basis points.
"Today’s soft inflation reading will contribute to views that inflation is now fairly benign, but will not provide firm evidence on how low rates should be set. We expect another 25 [basis points] cut later this week to be accompanied by a fiercer debate on when the ECB will reach its terminal rate," ING added.
The pound was supported by stronger-than-expected UK mortgage approvals data, from the Bank of England.
Net mortgage approvals for house purchases decreased by around 300 to 66,189 in January, the central bank's numbers showed. They had risen by roughly 400 to 66,505 in December.
The latest reading topped the FXStreet-cited consensus of 65,650.
Further, a survey showed the UK manufacturing sector contracted at a less severe pace than before.
The UK S&P Global manufacturing purchasing managers' index fell to 46.9 points in February, from January's 48.3. The reading topped the flash estimate of 46.4 points, however.
On the FTSE 250, Senior rose 5.5% after saying the sale of its Aerostructures business is at an "advanced stage" after delivering results in line with its expectations.
Chief Executive David Squires said there is "good buyer interest" in the unit, and Senior is holding talks with a "small number of parties, and negotiations are progressing positively."
"We are focused on completing the sale process and maximising value for shareholders and will update the market in due course. This is in line with our strategy to position Senior as the leading pure play fluid conveyance and thermal management business."
The news came as the Rickmansworth, England-based engineer said pretax profit jumped 22% to GBP27.8 million in 2024 from GBP22.8 million in 2023. Adjusted operating profit increased 1.5% to GBP46.5 million from GBP45.8 million at an unchanged adjusted operating profit margin of 4.8%.
Revenue rose 1.4% to GBP977.1 million in 2024 from GBP963.5 million in 2023.
But Severfield plummeted 46% after pulling its GBP10 million share buyback amid disappointing trading. The firm lowered pretax profit guidance for financial 2025 and 2026.
Analysts at Jefferies expect consensus downgrades to be "material", around 30% in financial 2025 and 60% in financial 2026.
The broker said: "While this is a disappointing update, it is the magnitude of the likely [financial 2025] and [financial 2026] consensus downgrades that will be the greatest challenge for the market to digest, we feel. We expect the shares to move meaningfully lower today, and it may take some time before there is an improvement in the group's underlying markets."
Brent oil was quoted slightly lower at USD72.59 a barrel on Monday from USD72.62 late Friday. Gold was quoted higher at USD2,888.92 an ounce against USD2,848.92.
Tuesday's economic calendar sees eurozone unemployment figures.
In the local corporate calendar, full-year results are due from industrial equipment group Ashtead, insurer Beazley and precious metals miner Fresnillo.
By Jeremy Cutler, Alliance News reporter
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