- BAE Systems shares climb 15%
- European stocks sharply higher
- UK and France discuss Ukraine deal
The European defence sector enjoyed its biggest one-day rally since 2020 after the Trump administration refused to offer any security guarantees, leading investors to bet on European governments ramping up their defence spending.
Shares in BAE Systems (BA.) jumped 210p or 15% to £16.15, pulling with them shares in Qinetiq (QQ.), which gained 36p or 9% to 440p, and Babcock (BAB), which added 46p or 7% to 717p.
EUROPEAN DEFENCE BANK
‘The events over the last days made it clear to European leaders that they need to raise defence spending significantly going forward’, said T Rowe Price asset manager Tomasz Wieladek in an interview with the Financial Times.
The Stoxx 600 European Aerospace & Defence index has now gained more than 30% since the start of 2025 as it has dawned on investors the region will have to dramatically increase spending due to the ‘realignment’ of US foreign policy.
European defence contractors such as Germany’s Rheinmetall (RHM:ETR), Sweden’s Saab (SAAB-B:STO) and Italy’s Leonardo (LDO:BIT), which owns UK helicopter-maker Westland, have seen their order books swell as governments divert increasing funds to defence spending.
The International Financing Review reported European countries have been discussing a ‘Defence Bank’ which could raise hundreds of billions of euros in international bond markets ‘to upgrade its military capabilities in response to the ongoing threat from Russia and fears the US has become an unreliable ally’.
The new institution would issue AAA-rated bonds backed by shareholder nations in order to close the ‘defence funding gap’ across Europe.
Meanwhile, the UK and French governments are leading an attempt at a peace deal for Ukraine which would initially include a one-month truce with Russia covering air, sea and infrastructure.
