Defence stocks weigh in Europe as Trump pushes deal for Ukraine

 A mixed bag in Europe this morning, with early gains fading for the DAX despite apparent progress being made as Trump pushes Ukraine towards a deal that could end the war. Curiously, some of the best performing stocks in Europe this year have been defence and military names, with the drag provided by BAE Systems, Rheinmetall, and Thales highlighting that the war has actually been a tailwind for equities as governments ramp up fiscal expenditure in a bid to support the Ukrainian efforts. With Hamas apparently agreeing to a ceasefire proposal, and efforts to end the Ukraine-Russia war seemingly making headway, traders are left wondering exactly what the implications could be for financial markets should both conflicts draw to a close. The weakness seen in oil prices highlight an easing of concerns and potential rise in supply. However, it is worthwhile noting that from a European perspective, a deal to end the war could actually provide a drag on markets as a sharp run higher for defence stocks reverse course.

Today sees the latest earnings from Home Depot, with the home improvement high street name serving a timely reminder on the health of both the consumer and the housing sector. In an environment of higher interest rates, home owners are often incentivised to focus on improving the property they have rather than move home. Meanwhile, the focus on Main Street continues as we move through the week, with Lowe’s, Target, and Walmart all due in the coming days.

First came the Panda, now comes the rare earth, with China utilising these key materials for diplomatic and trade gains across the globe. It is commonly recognised that the softening of tone between the US and China came down to Trump’s realisation of the impact a shut down in rare earth imports would have on the economy. And the fact that we have seen an additional 90-day pause highlights the fact that China are the one outlier that plays by a different rule. Now we have seen the Chinese lift curbs on the export of these key materials to India, providing a timely reminder of the power they have over economic activity should relations break down. With markets wondering whether we have seen the end of the tariff volatility, it is worthwhile noting that all the signs point towards a US-China relationship that will remain in relatively good shape owing to the US reliance for their rare earth needs.