European Defence Surge: Investors Flock to Arms Amid Zelenskiy-Trump Tension

Shares in European arms manufacturers surged as leaders moved to boost defence spending after tensions in a Zelenskiy-Trump meeting. Government bond yields rose as a result. Increased defence spending is viewed as critical amid the ongoing Ukraine conflict, with a significant European rearmament cycle anticipated.

European arms manufacturer shares rose on Monday, spurred by increased defence spending after a tense meeting between Ukrainian President Volodymyr Zelenskiy and former U.S. President Donald Trump. The move follows heightened diplomatic efforts across Europe to bolster defence capabilities and stabilize the situation in Ukraine.

The euro surged by 0.7% to $1.045 as investors poured into the European equity market, sending aerospace and defence indices to historic highs. This surge comes amid growing pressure on Europe to act decisively in its security efforts three years after Russia's invasion of Ukraine, with European nations sidelined in discussions spearheaded by Washington and Moscow.

Further reinforcing the shift, parties in Germany are contemplating establishing a defence fund, which propelled 30-year German bond yields up over 10 basis points. Defence companies across Europe saw shares skyrocket, with BAE Systems and Hensoldt leading the charge. The momentum reflects a potential transformative moment for European defence strategy.

(With inputs from agencies.)