The FTSE 100 rallied on Monday amid a broad European rally driven by defence stocks sparked by positioning for greater defence spending.
Donald Trump’s approach to Ukraine peace negotiations has strengthened the argument that Europe must bolster its armed forces with investors quickly buying up defence shares, including London’s BAE Systems and Rolls Royce.
“European markets pushed ahead on Monday amid talk of greater defence spending, M&A activity and a series of important political meetings,” said Russ Mould, investment director at AJ Bell.
“Ukraine peace talks topped the agenda, while Chinese president Xi Jinping undertook a rare meeting with some of China’s biggest tech firms to boost business sentiment.”
BAE Systems was the top FTSE 100 riser as investors tweaked their portfolios to reflect a possible increase in defence spending.
“Comments by secretary general Mark Rutte that NATO members will have to boost their defence spending by ‘considerably more than 3%’ of GDP put a rocket underneath defence stocks. BAE Systems jumped to the top of the FTSE 100 risers list as investors hoped its earnings prospects would be greatly improved. Mid-cap defence player Chemring also enjoyed a boost.
BAE Systems shares surged by 7% while Rolls-Royce gained 3%, reaching an all-time record high.
Away from the defence sector, Barclays and NatWest enjoyed buying pressure following a bout of profit-taking last week. Both banks dipped after releasing their results, but the weakness proved short-lived, with investors piling back in and sending the pair higher by more than 3%.
Barratt Redrow added 1%, and Persimmon was flat after Rightmove said house prices showed signs of slowing, although sales remained robust.
“UK asking prices rose modestly from January to February, slightly below the typical seasonal gain, with the year-on-year increase also slowing according to data from Rightmove,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Despite this, sales activity remains solid, with strong buyer demand and an uptick in new sellers. After a tough 2024, housebuilders have generally been upbeat about the outlook for 2025, and the steady market activity supports some cautious optimism.”