European Markets Surge as Defense Stocks Hit Record Highs Amid Ukraine Crisis

European stocks reached record levels, fueled by defense gains as leaders push for an emergency summit on Ukraine. Banks also hit 17-year highs, while global markets eye upcoming economic data.

European Markets Rally as Defense Stocks Reach New Peaks

European stocks surged to record highs on Monday, primarily driven by the defense sector, as political leaders across the region called for an emergency summit on the Ukraine conflict. The rally comes amid growing pressure from the U.S. to increase military spending, a move that has sent aerospace and defense stocks soaring.

The pan-European STOXX 600 index (.STOXX) climbed 0.4%, with the aerospace and defense sector (.SXPARO) leading the charge, gaining nearly 4% and setting new lifetime peaks. Since Russia’s invasion of Ukraine three years ago, the defense sector has more than doubled in value, reflecting heightened geopolitical tensions and the expectation of sustained military expenditures.

Defense Industry in a ‘Supercycle’

Market analysts predict continued growth for the defense industry, citing increased government spending as a key driver. Investors anticipate a prolonged “supercycle”—a term used to describe extended periods of high growth—due to soaring defense budgets aimed at meeting evolving security demands.

“A resolution to the Ukraine conflict could stimulate Europe’s economy, boosting consumer confidence, lowering energy costs, and easing financial conditions,” said Bruno Schneller, managing director at Erlen Capital Management.

Banking Sector Reaches 17-Year Highs

Alongside the defense rally, European banks also posted impressive gains. The banking sector index (.SX7P) climbed 1.2%, reaching its highest level in 17 years. The rise was attributed to increasing bond yields, reflecting investor confidence in the financial sector’s resilience amid global uncertainties.

The rally signals optimism among investors despite ongoing concerns over economic stability, inflation, and geopolitical risks.

Macron Hosts Emergency Ukraine Summit

French President Emmanuel Macron convened an emergency summit on Ukraine as diplomatic tensions escalated. The meeting comes after U.S. officials hinted that Europe might not be included in critical discussions set to take place this week in Saudi Arabia regarding the war’s resolution.

Britain announced its readiness to deploy peacekeeping troops should a diplomatic settlement be reached. Meanwhile, Russia and the U.S. prepared for competing negotiations, underscoring the fractured nature of international talks. Ukrainian President Volodymyr Zelenskiy reiterated that his country would reject any decisions made without its direct participation.

Delayed Tariffs and Trade Policy Uncertainties

The imminent threat of reciprocal U.S. tariffs has been postponed until April, providing temporary relief to European markets. However, concerns persist over the possibility of tariffs tied to value-added taxes, which could disrupt trade relations.

“Trade policy remains a significant variable, with potential tariff escalations posing risks to inflation and economic growth,” Schneller noted. “While current measures haven’t drastically altered the economic landscape, further escalation could introduce uncertainties.”

In response to mounting trade pressures, the European Commission is reportedly considering strict import restrictions on select agricultural products. The move aligns with the U.S. trade stance under President Donald Trump, who has advocated for reciprocal tariffs to protect domestic industries.

Global Market Trends and Economic Indicators

With U.S. markets closed on Monday for Presidents Day, trading volumes in Europe remained subdued. However, S&P 500 and Nasdaq futures saw slight gains of 0.2%, hinting at continued optimism in U.S. equities.

Last week, the S&P 500 recorded a 1.5% gain, while the Nasdaq surged 2.6%, reflecting a strong performance in the tech sector. Investors are now shifting focus to upcoming economic reports, particularly flash business activity data for February, which will offer insights into global economic health.

Meanwhile, German elections scheduled for the weekend could introduce additional volatility in European markets.

Currency and Commodity Markets

In the currency market, the euro slipped 0.2% to trade around $1.05, while the U.S. dollar weakened against the yen, dropping nearly 0.6% to 151.46 yen. The British pound remained stable at $1.2593, hovering near its highest level in two months as traders awaited employment and inflation data.

Interest rate decisions from Australia and New Zealand are also in focus this week, with both central banks expected to implement rate cuts in response to economic headwinds.

Commodities and Energy Outlook

In the commodities market, gold pulled back slightly from Friday’s record high of $2,899 per ounce, after experiencing a seven-week rally driven by economic uncertainty and investor demand for safe-haven assets.

Meanwhile, OPEC+ is reportedly considering delaying a series of planned supply increases originally set to begin in April. The potential delay follows pressure from President Trump to lower oil prices.

As of Monday, Brent crude edged up 9 cents to $74.82 per barrel, while U.S. crude climbed 13 cents to $70.87 per barrel.

Market Momentum and Key Watchpoints

European markets are experiencing a strong upswing, with defense stocks leading the charge amid increased military spending and geopolitical tensions. The banking sector’s rally highlights growing investor confidence, while trade and policy uncertainties continue to influence market movements.

Looking ahead, investors will closely watch economic indicators, central bank decisions, and global diplomatic efforts related to the Ukraine war. With upcoming German elections and evolving trade policies, volatility may persist, shaping the financial landscape in the weeks to come.

Source:  (Reuters)

(Disclaimer: This article is based on publicly available information and market data at the time of publication. Financial conditions are subject to change, and readers should refer to official sources for the latest updates.)

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