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[MARKET ANALYSIS] Weaker sentiment across equities; defence sector outperforms on the back of Trump's announcement

We are seeing broader weakness in European equities, but the defence sector stands out, buoyed by President Trump's announcement regarding increased military budget allocations.

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[MARKET ANALYSIS] Weaker sentiment across equities; defence sector outperforms on the back of Trump's announcement

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  • European bourses are mostly lower, with the DAX (+0.2%) the sole outperformer among the major indices. Weaker sentiment is broadly evident across sectors; however, defence stocks are bucking the trend. Shares in key defence names such as Leonardo (+3.7%), Rheinmetall (+2.5%), and BAE Systems (+6.5%) are higher after comments from US President Trump that the military budget should rise from USD 1.1tn to USD 1.5tn in 2027. Strength in Rheinmetall is providing support to the DAX and helping underpin its relative outperformance.
  • European sectors have opened mostly in the red. Leading sectors are Banks (+0.4%), Insurance (+0.2%) and Food Beverage & Tobacco (+0.2%). The banking sector has been underpinned by gains in BNP Paribas (+2.0%) after the Co. said that the judge's decision to certify the verdict in Sudan clears the path for the bank to pursue an appeal, otherwise newsflow has been light for the other outperforming sectors.
  • On the downside, Basic resources (-1.0%), Optimised Personal Care & Grocery Store (-1.2%) and Energy (1.34%), are the biggest underperformers. Basic Resources is being weighed down by weaker metal prices, underpinning mining Cos, which has contributed to downside in the FTSE 100, while Optimised Personal Care & Grocery Stores is pressured by losses in Tesco after the company’s like-for-like sales missed expectations. Meanwhile, subdued crude prices have dampened sentiment across the energy sector.
  • Movers include Shell (-2.4%), with shares sliding after Co. announced an overall weaker Q4 outlook. AB Foods (-10.9%) has also seen its shares take heavy losses after Co. warned of lower-than-expected profit after a challenging start of the year.
  • US equity futures are lower as sentiment continued to be pinned down following yesterday's session when Trump said he is immediately taking steps to ban large institutional investors from buying more single-family homes.
  • Major news this morning includes Trump saying that the US would be extracting Venezuelan oil for years. US Challenger Job cuts were also released this morning (early release) and were below previous levels, although this failed to really move markets.
  • In terms of notable US equity news, China is to reportedly approve some NVIDIA (NVDA) H200 purchases as soon as this quarter, according to sources cited by Bloomberg.
Context

This sector's strength suggests heightened focus on geopolitical stability and arms expenditure, which could influence risk sentiment and price movements across equities and related commodities, such as oil. Overall, while the market is grappling with various pressures, defence stocks demonstrate resilience, indicating a potential shift in investor appetite towards safety and government-supported sectors.

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