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CNBC
21 minutes ago
- CNBC
Trump's meeting with Putin is a win-win for European defense stocks, no matter the outcome
European defense stocks have further to run regardless of whether U.S. President Donald Trump and Russian counterpart Vladimir Putin achieve a breakthrough on the war in Ukraine later this week, market watchers say. Trump and Putin are slated to meet in person in Alaska on Friday, with a view to discuss what it would take to end the more-than-three-year conflict that began with Russia's full-scale invasion of Ukraine in early 2022. Reports that the two heads of state would meet buoyed broader European equities on Thursday, but sank regional defense stocks . Concerns about Russian aggression had contributed to decisions by European governments and the NATO military alliance to drastically hike their defense budgets, benefiting security companies operating in the region . So far this year, the Stoxx Europe Aerospace and Defense index has surged by 52%. Following three consecutive days of losses after the Trump-Putin summit was announced, the index regained some ground, and was last seen trading 1.3% higher in Thursday's session. Market watchers told CNBC that a deal to end the fighting in Ukraine — which may not be on the horizon of Friday's meeting — was unlikely to throw Europe's defense growth off course. 'Win-win' for defense stocks In emailed comments to CNBC on Wednesday, Dmitrii Ponomarev, product manager at VanEck EU, pointed to a recent Financial Times report that Europe is "building for war," with arms sites expanding at roughly thrice the pace struck during peace time. He labeled this as "evidence that the current ramp is broader than Ukraine resupply alone." "No firm would add that much capacity if it depended only on Ukraine shipments; the bigger driver is NATO Europe's pivot to modernization and restocking under the new 5% of GDP long-term goal, of which about 3.5% is the truly comparable "core" defense spend, anchoring multi-year demand," he said. "Even with a peace deal, stockpiles don't magically refill: governments still face years of munitions and air-defense replenishment, so revenues likely shift from short-term surge programs toward steadier replenishment, sustainment, and long-horizon modernization." VanEck runs a $6.9 billion Defense ETF, which includes stakes in some of Europe's biggest defense stocks. Among the fund's top holdings are Italy's Leonardo , France's Thales and Sweden's Saab . Ponomarev said that companies that rely more heavily on deliveries to Ukraine or supplying short-cycle munitions "may feel a sharper de-rating if urgency fades" from any potential breakthrough emerging from this week's Alaska summit between the Russian and U.S. leadership. "[But] more diversified primes with long-cycle programs, services, and sustainment should be better placed to absorb near-term volatility," he said. Asked on Monday whether the European defense boom remained a long-term story regardless of the outcome in Ukraine, Christopher Granville, managing director of TS Lombard, said he "strongly agrees" that the momentum has further to run. "My call on European defense stocks since about 2023 — when it became clear that the Russian military was extremely powerful and was not going to be rolled out of those territories in eastern and southern Ukraine — has been buy on any weakness, on any temporary pullback, because this is a win-win for European defense stocks," he told CNBC's "Squawk Box Europe." Granville pointed out that either the negotiations would go off the rails on Friday — an outcome that he labeled "more than perfectly possible, if not likely" — or peace would be struck. The former would result in the need for America and Europe to replenish their arms inventories, he said, while the latter would lead to "a very powerful Russian military." "Although the words victory and defeat [would] be bandied around, [this would be] a Russian military which has to an extent, prevailed," he said. "That reality will force a continued increase in defense procurement by European governments, and it's also good for European defense stocks. Either way, it's a winner." Granville noted that markets had been discounting the second scenario's ability to benefit defense companies. "From time to time, those names pull back a bit — you should buy on that weakness in my opinion," he advised. 'At least a decade' of rearmament Defense company leaders have been telling CNBC in recent weeks that an end to the Ukraine war would be unlikely to derail the boost to European defense spending. In conversation with CNBC's "Worldwide Exchange" on Monday, Dimitrios Kottas, co-founder and CEO of Greek autonomous defense tech developer Delian Alliance Industries, said the timing of Europe's consensus to modernize defense capabilities was correlated with the invasion of Ukraine, but argued that this rearmament would last "at least a decade." "It's something that is driven by historical macroeconomic forces, [that are] much stronger than the current ongoing invasion in Ukraine," he said. Micael Johansson, CEO of Swedish defense giant Saab , meanwhile insisted the growth in European defense was "absolutely" a long-term trend. "I have a hard time seeing, after all that happened with the invasion in Ukraine and the aggressive neighbor that we have to the east … even if we get a ceasefire or peace deal that is reasonable with Ukraine, that [governments] would step back and say it's over," he said in an interview with CNBC toward the end of July. Earnings misses and downgrades The bull run this year hasn't been a continuously upward trajectory, even without questions surrounding the future of Ukraine. Shares of German arms manufacturer Rheinmetall shed 8% on Thursday, after the firm's earnings came in below expectations . The company said contracts had not been awarded during the reporting period given the election of a new government in Germany, but noted that an anticipated influx of orders in the second half of 2025 meant Rheinmetall was able to confirm its full-year guidance. Rheinmetall is one of the best performers in European defense this year, with its shares gaining roughly 160% over the course of 2025. In a Friday note, Deutsche Bank's Christoph Laskawi argued that Rheinmetall's second-quarter result "does not change the investment case by any means." "The order intake potential ahead remains significant and the win rate should be high which is the basis for sizeable revenue growth in the coming years," he said. Back in June , Citi's European Aerospace and Defence analyst Charles Armitage downgraded Hensoldt, Renk and Saab — whose shares have all more than doubled in value this year — to give them a "sell" rating. He argued at the time that the companies were "pricing in more growth than seems likely." A lot of optimism nevertheless still remains in the sector. "It's no surprise [defense] share prices have jumped sharply this year, maybe to unsustainable levels in the short term and a welcome resolution or ceasefire in Ukraine may see their prices soften," Neil Birrell, chief investment officer at U.K. investment management firm Premier Miton, told CNBC by email. "However, the spend on defence and related infrastructure is here to stay and will be taking place over the coming years and decades. The move to greater … regional self-reliance for defence, energy, food and raw materials is a very long-term one. Defence stocks will be big beneficiaries of that."
Yahoo
35 minutes ago
- Yahoo
Equities Mostly Rise Intraday as Fed Rate Cut Bets Reach Almost 100%
US benchmark equity indexes were mostly higher intraday as markets fully priced in a Federal Reserve Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
an hour ago
Asian shares are mixed after days of gains driven by hopes for US rate cuts
MANILA, Philippines -- Asian shares were mixed on Thursday after days of gains driven by hopes for lower U.S. interest rates, while U.S. futures slipped. Bitcoin rose more than 3% to a new record of over $123,000, according to CoinDesk. In Tokyo, the Nikkei 225 fell 1.4% to 42,657.94 as investors sold to lock in recent gains that have taken the benchmark to all-time records. The Japanese yen rose against the dollar after U.S. Treasury Secretary Scott Bessent said in an interview with Bloomberg that Japan was 'behind the curve' in monetary tightening. He was referring to the slow pace of increases in Japan's near-zero interest rates. Low interest rates tend to make the yen weaker against the dollar, giving Japanese exporters a cost advantage in overseas sales. The dollar fell to 146.55 Japanese yen early Thursday, down from 147.39 yen. The euro fell to $1.1703 from $1.1705. In Chinese markets, Hong Kong's Hang Seng index shed less than 0.1% to 25,597.85, while the Shanghai composite index gained 0.2% to 3,690.88. South Korea's Kospi slid 0.3% to 3,215.61, while Australia's S&P ASX 200 index added 0.5% to 8,871.80. Taiwan's TAIEX fell 0.4%, while India's Sensex edged 0.1% higher. 'Asian markets opened today like a party that ran out of champagne before midnight — the music still playing, but the dance floor thinning out,' Stephen Innes of SPI Asset Management said in a commentary. The futures for the S&P 500 and the Dow Jones Industrial Average were down less than 0.1%. On Wednesday, U.S. stocks ticked higher, extending a global rally fueled by hopes the Federal Reserve will cut U.S. interest rates. The S&P 500 rose 0.3% to 6,466.58, coming off its latest all-time high. The Dow climbed 1% to 44,922.27, while the Nasdaq composite added 0.1% to its own record set the day before, closing at 21,713.14. Treasury yields eased in the bond market in anticipation that the Fed will cut its main interest rate for the first time this year at its next meeting in September. Lower rates can boost investment prices and the economy by making it cheaper for U.S. households and businesses to borrow to buy houses, cars or equipment, though they risk worsening inflation. Stocks of companies on Wall Street that could benefit most from lower interest rates helped lead the way. PulteGroup climbed 5.4%, and Lennar rose 5.2% as part of a broad rally for homebuilders and others in the housing industry. Lower rates could make mortgages cheaper to get, which could spur more buying. The cryptocurrency exchange company Bullish ended its debut day of trading after an initial public offering of more than $10 billion with a gain of nearly 84% to $68 a share. The hopes for lower interest rates are helping to drown out criticism that the U.S. stock market has broadly grown too expensive after its big leap since hitting a low in April. President Donald Trump has angrily been calling for cuts to help the economy, often insulting the Fed Chair Jerome Powell while doing so. But the Fed has hesitated of the possibility that Trump's sweeping higher tariffs could make inflation much worse. Fed officials have said they want to see more fresh data about inflation before moving. On Thursday, a report will show how bad inflation was at the wholesale level across the United States. Economists expect it to show inflation accelerated a touch to 2.4% in July from 2.3% in June.
