Stock market check in: Defense stocks steal the limelight

UK’s index lifted by defense names
Oil majors hit by falling oil price
Europe also buoyed by defense names
US could see rotation out of tech and into defense

Kathleen Brooks XTB UK

2026 is turning out to be full of surprises, mostly due to President Trump. He is once again dominating markets, and this time his rapid expansion of foreign policy is triggering a surge into defense stocks. The market is eagerly watching developments with Greenland and also the ongoing situation in Venezuela, and as tensions rise this sector is outperforming.

If you want to gauge the market’s view on the geopolitical situation, take a look at the early YTD performance of the FTSE 100 and the Dax. The FTSE100’S top performers are dominated by defense firms. BAE Systems, Babcock International and Rolls Royce are higher by 18%, 17% and 10% respectively. This isn’t bad for the 8^th January.

In Germany, the situation is similar, with a rush into defense names including Rheinmetall, MTU Engineering, Airbus and Infineon. Rheinmetall is also up 18% YTD with smaller gains for the other names.

So far, European stocks are outperforming their US counterparts, especially the Dax. The FTSE 100 is higher by just over 1% in 2026, however, underperformance of some retailers and the oil majors, as the oil price remains subdued which is weighing on their profits, is limiting the upside for the UK index.

US stocks had been led higher by a strong rally in semiconductor stocks as the AI theme extended into the start of the new year. The new year rally was led by a broader array of AI names than we have been used to, including Sandisk. However, the rally has stalled, and we could see a rotation into US defense names after President Trump announced his plans to raise defense spending to $1.5 trillion by 2027. Halliburton is up 12% YTD, while Lockheed Martin is up nearly 8%. While this is not quite top 10 territory, we expect investors to remain attracted to US defense stocks in the medium term.

In time, we expect President Trump to dial down some of his rhetoric, especially around Greenland, and his defense spending ‘plan’ is likely to be an aspirational target rather than set in stone, even so, the first week of trading in January is likely to set the tone for some time and defense is expected to be one of the key themes for the year.

Chart 1: YTD top and bottom performers in the FTSE 100

Source: XTB and Bloomberg

Chart 2: YTD top and bottom performers in the Dax

Source: XTB and Bloomberg

Author

Kathleen Brooks

XTB UK

Kathleen has nearly 15 years’ experience working with some of the leading retail trading and investment companies in the City of London.

AUD/USD keeps range near mid-0.7100s as USD bulls await US CPI

AUD/USD steadies near mid-0.7100s in the Asian session on Friday, stalling the previous day's sharp decline to an over one-week low. The August PPI report reaffirmed Fed rate-hike bets and boosted the US Dollar on Thursday, which weighed heavily on the pair. However, hawkish RBA expectations limited losses for the Aussie as USD bulls now await the release of the US consumer inflation figures before placing fresh bets.

USD/JPY holds lower ground toward 154.00; looks to US CPI

USD/JPY holds lower ground toward 154.00 in the Asian session on Friday after hot Japanese PPI data bolster a more hawkish BoJ repricing and provide fresh impetus to the Japanese Yen. However, the downside appears capped as the US Dollar preserves overnight gains ahead of the latest US consumer inflation data.

Gold: Gains remain capped by $4,400

Gold regains composure and trades with decent gains on Friday, managing to refocus attention on the $4,440 mark per ounce troy. Therefore, the precious metal reverses Thursday’s decline as the US Dollar alternates gains with losses at the end of the week.

Ripple Price Forecast: XRP extends decline as returning ETF inflows fail to lift outlook

Ripple (XRP) falls below $1.33 on Friday, marking the third consecutive day of declines. The token continues to track the broader cryptocurrency market downturn, with investors closely monitoring heightened macroeconomic uncertainty ahead of the United States (US) Consumer Price Index (CPI) release and next week’s Federal Reserve (Fed) monetary policy decision.

Weekly focus – The hawks set the tone

Risky assets came under pressure this week as energy prices kept creeping higher and the ECB surprised the markets with a hawkish tone. The price of Brent crude touched USD 110 per barrel on Thursday night, highest since mid-May, as news emerged that the Yemeni Houthis had reached control of key port cities and islands near the Bab el-Mandeb strait.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.