European defence stocks surge to record high; China’s Xi holds rare meeting with company leaders

European defence stocks surge to record high

Shares in European weapons makers are rising as investors anticipate a rise in defence spending.

Europe’s aerospace and defence stocks have jumped by 3% this morning to a new record high as the sector rallies this morning.

A stock market index of European aerospace and defence stocks over the last 20 years Photograph: LSEG

BAE Systems are the top riser on London’s FTSE 100 in early trading, jumping 5.5% to its highest level since late November last year.

Richard Hunter, head of markets at interactive investor, says:

BAE Systems shares rose by more than 5%, lifting the price by a cumulative 12% so far this year.

The possibility of increased military spending has underpinned the sector for some time, with the group being one of the preferred plays in the meantime, with Rolls-Royce also seeing the renewed interest lifting its shares by almost 2% and building on a gain of more than 90% over the last year.

In Paris, French multinational aerospace and defence firm Thales are up 4%. Italy’s Leonardo have jumped over 5%.

The rally comes as European leaders gather for an emergency summit on the Ukraine war in Paris later today, after US officials suggested Europe would not be involved in talks to end the conflict with Russia.

US and Russian officials are set to meet in Saudi Arabia next week to start those talks, to which Ukraine say they’re also not invited.

Europe has also been shaken by Donald Trump’s newly appointed defence secretary, Pete Hegseth, who said last week that the US was no longer “primarily focused” on European security and that Europe would have to provide “the overwhelming share” of future military aid to Kyiv.

UK prime minister Keir Starmer appears to be taking the lead this morning, saying he is prepared to put British troops on the ground in Ukraine if there is a deal to end the war with Russia.

Key events

The top riser on the London stock market isn’t actually a defence stock, though.

It’s Assura, the UK healthcare property investor and developer, whose shares have surged over 17% to the top of the FTSE 250 index after rejecting four takeover bids from private equity firm KKR and the Universities Superannuation Scheme, a pension fund.

Assura builds and renovates a range of healthcare buildings, including GP surgeries and diagnostic and treatment centres.

KKR told the City this morning that its latest offer, valuing Assura at £1.562bn, had been rejected on Saturday, adding:

KKR is considering whether there is any merit in continuing to try and engage with the Board.

Here’s Bloomberg on the jump in Rheinmetall’s share price this morning:

Rheinmetall AG’s shares surged the most in more than two years as European officials contemplate a major new package to increase defense spending and support for Ukraine.

The German manufacturer’s stock rose as much as 11% in Frankfurt. The shares have more than doubled over the past year as military orders increased, especially from Germany. If Europe moves to increase spending further, it could push Rheinmetall to accelerate plans to increase its production capacity.

Swedish aerospace and defence company Saab are the top riser on the OMX Stockholm 30 share index, up 8%.

Shares in German arms maker Rheinmetall have jumped around 7%, making it the top riser on the DAX share index this morning.

European government borrowing costs are rising this morning too – perhaps a sign that investors are pricing in higher defence spending.

The yield, or interest rate, on UK 10-year bonds has risen by 7 basis points (0.07 percentage points) to 4.56% this morning, reversing losses last Thursday.

Shorter-dated two-year UK bond yields are up 5 basis points to 4.24%, the highest since the end of January.

German and French 10-year bond yields are also up around 7 basis points.

Bond yields rise when prices fall, and can signal that traders expect a rise in borrowing (as higher supply means governments have to accept a higher interest rate on their debt).

Valls: We myst increase defence spending

The jump in defence stocks comes as French government minister Manuel Valls warns that Europe is at a turning point in terms of its relations with the United States.

That means Europe must do more than ever before to defend Ukraine and boost its defence spending, Valls argues.

The former French PM told France Info radio:

“We are at a turning point.

“This forces us more than ever before to support our defence for Ukraine, and to increase our defence spending budget and to be on the front foot.”

European defence stocks surge to record high

Shares in European weapons makers are rising as investors anticipate a rise in defence spending.

Europe’s aerospace and defence stocks have jumped by 3% this morning to a new record high as the sector rallies this morning.

A stock market index of European aerospace and defence stocks over the last 20 years Photograph: LSEG

BAE Systems are the top riser on London’s FTSE 100 in early trading, jumping 5.5% to its highest level since late November last year.

Richard Hunter, head of markets at interactive investor, says:

BAE Systems shares rose by more than 5%, lifting the price by a cumulative 12% so far this year.

The possibility of increased military spending has underpinned the sector for some time, with the group being one of the preferred plays in the meantime, with Rolls-Royce also seeing the renewed interest lifting its shares by almost 2% and building on a gain of more than 90% over the last year.

In Paris, French multinational aerospace and defence firm Thales are up 4%. Italy’s Leonardo have jumped over 5%.

US and Russian officials are set to meet in Saudi Arabia next week to start those talks, to which Ukraine say they’re also not invited.

UK prime minister Keir Starmer appears to be taking the lead this morning, saying he is prepared to put British troops on the ground in Ukraine if there is a deal to end the war with Russia.

Bloomberg is reporting that China’s fast fashion retailer Shein is under pressure to cut its valuation to about $30bn, ahead of a float on the London stock market.

Shein shareholders are apparently suggesting that an adjustment is needed to help get its potential initial public offering in the UK over the line.

That’s quite a reduction on Shein’s previous valuations – in 2022 it was tagged at $100bn.

Uncertainty over its value has risen as Donald Trump has escalated trade tensions, including briefly suspending the ‘de minimis’ rules which allow duty-free entry for cheap Chinese goods.

Jack Ma’s presence at today’s meeting with Xi suggests authorities are finally moving beyond its crackdown on Alibaba, suggests Angela Huyue Zhang, a law professor at the University of Southern California.

She told CNN:

“With the domestic economy slowing and geopolitical pressures escalating, the government is making it clear that it values and relies on the private sector to drive innovation and stimulate growth.”

China’s Xi holds rare meeting with business leaders

Over in Beijing, Chinese President Xi Jinping has held a rare meeting with some of the country’s top business leaders.

Xi spoke at a symposium attended by business leaders including Huawei founder Ren Zhengfei, Xiaomi’s Lei Jun, BYD’s Wang Chuanfu, Unitree’s Wang Xingxing, and CATL’s Robin Zeng.

And intriguingly, Alibaba co-founder Jack Ma was also there, state media reported. Ma has been keeping a low profile since Xi’s government forced Alibaba to drop the stock market floatation of its Ant Group, after Ma made a speech criticising Chinese regulators.

That spat was the start of a campaign to tighten state control over private companies in the world’s second-largest economy.

Today’s meeting may be a sign that Xi’s administration are gearing up to work more closely with China’s major companies as it tries to cushion the economy from the impact of a trade war with the US.

Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong, has said:

“It’s a tacit acknowledgement that the Chinese government needs private sector firms for its tech rivalry with the US.

“The government has no choice but to support them if it wants to compete with the US.”

Introduction: Business confidence tumbles

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

Confidence among UK small businesses has tumbled as bosses fret about the health of the economy, the tax burden and rising wages.

The Small Business Index (SBI) calculated by the Federation of Small Business shows that optimism slumped at the end of last year.

The SBI hit its lowest recorded point outside the Covid-19 pandemic in the October-December quarter, dropping from -24.4 points in Q3 to -64.5 points in Q4.

The survey covers the period when companies were awaiting, and then digesting, Rachel Reeves’s budget at the end of October which included increases to employers national insurance contributions (NICs).

The FSB reports that accommodation and food services was the least optimistic major sector, followed by the wholesale and retail sector. Construction recorded the largest decline in confidence between Q3 and Q4, from -26.6 points to -76.8 points.

Tina McKenzie, FSB’s policy chair, says small businesses are worried:

“The fourth quarter blues reported by small firms underline how urgently the Government’s growth push is needed.

“Small firms are understandably nervous about their prospects as 2025 gets underway.

“The upcoming employment rights bill is a major source of stress for small firms, with nine in 10 business owners saying they are concerned about its introduction, and this is undoubtedly a major cause of the very subdued confidence levels seen in our research.

A separate survey this morning, from the Chartered Institute of Personnel and Development (CIPD), also makes for grim reading. It found that UK employers are preparing for the biggest redundancy round in a decade – with those budget tax rises being blamed.

The CIPD survey, which was carried out in the second half of January, found that most employers cited the rise in employer NICs and a 6.7% increase in the “national living wage”.