Europe: Stocks end at record high with defence spending spike in focus
EUROPEAN shares closed at a record high on Tuesday, with banking and defence stocks among top gainers as investors priced in the likelihood of increased domestic military spending against a backdrop of peace talks to end the Russia-Ukraine conflict.
The pan-European Stoxx 600 index rose 0.32 per cent to 557.17 points, with Germany’s main stock index up 0.2 per cent, also an all-time high.
German midcap stocks also edged up 0.5 per cent to finish at levels not seen since August 2023 ahead of upcoming elections. The United States and Russia said they had agreed to press ahead with efforts to end the war in Ukraine after holding talks in the Saudi capital for the first time at which Kyiv was not represented.
Against this backdrop, European leaders have voiced the need to increase defence spending in response to the US being less willing to take the lead on Europe’s defence, which will likely result in greater government borrowing.
Yields on euro zone bonds ticked higher, aiding a 1.9 per cent rise in banks that led sectoral gains. On the other hand, utilities, often seen as bond proxies, declined 0.5 per cent.
Defence stocks gained 0.8 per cent, with Leonardo up 2.1 per cent, Sweden’s Saab AB rising 0.6 per cent and France’s Thales adding 2.3 per cent.
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Germany’s Thyssenkrupp, which is planning to spin off its warship division, advanced 7 per cent after a nearly 20 per cent surge on Monday.
The defence sector has gained for the eighth straight session. In the previous session, it surged 4.6 per cent, which was its biggest one-day rise since Russia’s invasion of Ukraine in February 2022.
“The US pushing ahead and engaging with Russia over a deal in Ukraine has instilled a sense of urgency among European leaders,” analysts at ING Economics said in a note.
“The prospect of joint borrowing to fund the EU’s defence needs had also received more tailwinds.”
Among others, Capgemini slid 10.2 per cent after the French IT consulting giant reported a 2 per cent annual decline in sales, though it surpassed expectations.
The technology sector lost 1.1 per cent. Enagas dropped 0.7 per cent after the Spanish gas grid operator anticipated a fall in core earnings this year.
On the data front, consumer prices in France rose by 1.8 per cent year-on-year in January, aligning with analysts’ expectations and the preliminary reading. German investor morale improved more than expected in February.
IHG, the owner of Holiday Inn, lost 4.7 per cent following the announcement of its 2024 results.
HSBC gained 1.9 per cent after the lender said it has laid off around 40 investment bankers in Hong Kong, as part of a global restructuring exercise at the Asia-focused lender to cut costs. REUTERS
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