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The euro surged as European defense sector extended its furious rally on Monday, raising bets that investors must boost military spending and take on more burdens for security.
Shares in Rheinmetall, Germany’s largest defense company, rose 14%, while Leonardo rose 15.4% in Milan. Thales, listed in Paris, surged 15%, the BAE system rose 14.3%, and Swedish serve increased 11.3%.
Stoxx Europe Aerospace and Defense Index Since November 2020, it jumped 8.4% for its day-to-day profit, while Germany’s DAX has skyrocketed 3.3% for its biggest profit in over two years. European government bonds were sold to expectations of higher spending.
“We clearly need a ring fence. [defence] “We’re looking forward to seeing you in the process of exploring the world,” said Guymiller, chief market strategist in Zurich.
The move follows the summit of European leaders on Sunday in London as British and French leads try to save hopes for a peace deal in Ukraine following the explosive explosion of Ukrainian President Donald Trump on Friday.
European leaders are increasing pressure to boost defense spending after the Trump administration refused to provide US security guarantees.
Eurozone bonds are rising, with the benchmark 10-year German band rising 0.12 percentage points at 2.52%. Yields move in reverse to price.
Investor expectations for higher issuances have driven the sharp capacity of the yield curve in recent weeks. The spread of German debt for 10 years worth of two years reached 0.43% points on Monday, reaching its highest level in more than two years.
The euro traded at $1.049, up 1.2%, at $1.049, following reports on Monday that Zelenskyy expressed his willingness to meet Trump again for “serious talks” and supported eurozone inflation data that is slightly stronger than expected.
The rise in stock prices on Monday adds to a record run in the defense sector avoided by many European investors in 2022 before Russia’s full-scale invasion of Ukraine.
They helped to promote wider gatherings in the European market. The Stoxx 600 rose 1%, while London’s FTSE 100 hit increased by 0.9%, and both indexes scored fresh records, aided by Bae’s profits.
In the US, defence stocks have been left behind once again by the global rally in the European sector. Shares of L3Harris Technologies and Lockheed Martin rose just 0.7% and 1.2% in New York, respectively.
The Stoxx Europe Aerospace and Defense Index rose more than 30% this year as it suggests that local governments will spend more security in the wake of the biggest restructuring of US foreign policy since World War II.
Policymakers are considering several options to increase spending, such as setting up a European maintenance bank to leverage the European savings pool, which is modelled by the European Bank for reconstruction and development.
Investors are convinced that “Europe has no choice but to increase defensive spending,” said Mohit Kumar, Jeffries economist.
Orders for some European defense contractors had already reached record highs in the wake of the 2022 full-scale invasion of Ukraine.
Sector profits expanded beyond the region’s largest contractors on Monday.
The move comes as Germany’s waiting list Friedrich Merz is aiming to rush a billion-euro top-up to the country’s defense budget. He wants approval from the Social Democrats on the centre left, and is using the resigning Congress to vote through the constitutional changes needed to increase military spending by more than 100 billion euros.
“It appears that there is a paradigm shift in Germany,” said Robin Winkler, an economist at Deutsche Bank.
However, some analysts warned that initial market responses were growing as European fiscal policy tends to progress slowly, but proposed spending spread over the years.
“The rise in defense spending, rather than Big Bang Market expects, is likely to be slow and stable,” said Tomasz Wieladek, economist at Asset Manager T Rowe Price.
Additional Reports by Ray Douglas
