Defense Sector Gains
European defense stocks surged on Wednesday after U.S. President-elect Donald Trump called for increased defense spending from NATO allies.
- Leading European arms manufacturers, including Rheinmetall, Dassault Aviation, Leonardo, and Saab, saw their stocks rise by 2-3%.
- The pan-European defense index (.SXPARO) gained 1% as of 0910 GMT.
Trump’s Push for Higher Spending
At a Tuesday evening press conference held at his Mar-a-Lago residence in Florida, Trump suggested that NATO members, particularly Germany, should increase their defense spending to 5% of GDP, a significant jump from the current 2% target.
“They can all afford it,” Trump said, emphasizing the need for allies to contribute more to NATO’s defense efforts.
Mixed Reactions from Germany
- Friedrich Merz, leader of Germany’s opposition Christian Democrats, supported the idea of more defense spending but dismissed debates about a specific target as “irrelevant.”
- Merz is considered a leading candidate to succeed Chancellor Olaf Scholz after the snap election in February.
- Robert Habeck, Germany’s vice-chancellor and economy minister, expressed willingness to increase defense spending to 3.5% of GDP, reflecting a growing consensus for higher investment in security.
Dassault Aviation’s Performance
Shares of Dassault Aviation, the maker of Rafale fighter jets, experienced their largest single-day rise in nearly three months.
- The increase followed robust 2024 orders data reported by the company on Tuesday, further bolstering investor confidence in the sector.
Market Impact
The rise in defense stocks underscores the market’s anticipation of higher spending across NATO member states under Trump’s influence. Analysts from Stifel highlighted the potential for significant budget increases, particularly for European defense firms.
Looking Ahead
Trump’s proposal has renewed discussions about defense funding priorities across Europe, with nations like Germany signaling their intent to contribute more.
The combination of increased defense budgets and strong performance by key industry players positions the European defense sector for continued growth in 2025.
