Rheinmetall Soars 14% as Ukraine Peace Talks Boost Defence Stocks

German arms maker Rheinmetall surged 14% as European defence stocks rallied ahead of Ukraine peace talks, with US President Trump set to meet Russian officials in Saudi Arabia. European markets held near record highs, while Mitsubishi Heavy Industries rose 3% in Tokyo and Hong Kong’s Hang Seng hit a four-month peak. Australia cut interest rates for the first time since 2020, while New Zealand is expected to follow with a larger 50 bps cut on Wednesday.

Equities

The FTSE 100 rose 0.4% on Monday, lifted by defence stocks amid expectations of increased military spending. The aerospace and defence index gained 4.5% as BAE Systems climbed nearly 9%, making it the top gainer on the blue-chip index.

UK Prime Minister Keir Starmer emphasised the need for higher defence spending, echoing European leaders’ concerns. The European Commission signalled plans to exempt defence from EU spending limits.

The FTSE 250 edged up 0.1%. Assura gained 9% after rejecting a £1.56 billion proposal from KKR and Universities Superannuation Scheme. However, engineering firm John Wood Group dropped 10.8% to a record low after warning that it expects another year of negative cash flow. UK banks saw mixed performance, with the banking sector gaining 1.2% overall.

Close Brothers fell 8% and Lloyds declined 1.9% after the Supreme Court rejected Finance Minister Rachel Reeves' attempt to intervene in a car loan misselling case. Investors expect the ruling to lead to higher costs for lenders with motor finance businesses. Higher bond yields pressured real estate stocks, with Segro and Land Securities falling 2% and 0.8%, respectively.

US markets were closed for the Presidents’ Day holiday, limiting trading activity in Europe. The STOXX 600 reached a record closing high, rising 0.5% to 555.42 points. Defence stocks were the top performers, with Rheinmetall soaring 14%, Italy’s Leonardo up 8.1%, and Sweden’s Saab climbing 16.2%. Thyssenkrupp jumped 19.8% as investors responded positively to its plans to spin off its warship division.

Forex & Commodities

The US dollar strengthened, rising 0.27% to 107.01 against a basket of currencies, though it remained near two-month lows due to uncertainty over tariffs. The euro fell 0.27% to $1.0455, while sterling slipped 0.2% to $1.2593 before recovering slightly after UK wage data showed a 5.9% annual increase in earnings, complicating the Bank of England’s plans for rate cuts. The yen weakened 0.4% to 152.17 per dollar, as solid economic data increased expectations of a Bank of Japan rate hike later this year. The Australian dollar held steady at $0.6351 after the Reserve Bank of Australia cut interest rates by 25 basis points but signalled caution on further easing. The New Zealand dollar fell 0.55% to $0.57195 ahead of the Reserve Bank of New Zealand’s expected 50 basis-point rate cut on Wednesday.

Gold rose 0.6% to $2,913.79 an ounce, with US gold futures gaining 0.9% to $2,925.50, as concerns over President Trump’s tariffs drove demand for safe-haven assets. Goldman Sachs raised its gold price forecast to $3,100 per ounce for the end of 2025, citing higher central bank demand, with a potential rise to $3,300 if trade policy uncertainty remains high.

Brent crude oil edged up 0.3% to $75.45 per barrel following a drone attack on a Russian pipeline transporting Kazakh oil. US West Texas Intermediate crude gained 75 cents to $71.49, as investors weighed potential supply disruptions against expectations of increased OPEC+ production from April.