Europe midday: Arms makers surge again on post-Ukraine reality

(Sharecast News) - European shares set new records on Tuesday as geopolitical tensions continued to boost shares in arms manufacturers as bilateral "talks" on the future of Ukraine took place between Russian and US officials.

The pan-regional Stoxx 600 hit 556.8 in early trade, before settling back to be up 0.14% higher at 556.26. Major bourses were mixed.

Investors are watching the discussions between US and Russian officials in Saudi Arabia as they seek to impose a settlement to end the war in Ukraine, at the exclusion of the Ukrainians themselves along with the rest of Europe.

The US wants 50% of Ukraine's mineral rights while Russia wants to keep land it annexed after its unprovoked invasion in February 2022.

European leaders held an emergency summit in Paris on Monday to formulate their own response to US demands to ramp up defence spending and send peacekeeping troops to Ukraine if an armistice was signed. Shares in weapons makers spiked on the news.

UK Prime Minister Keir Starmer, speaking after the meeting, said he was prepared to consider putting British forces on the ground, alongside others, "if there is a lasting peace agreement", but said there had to be a US backstop "because a U.S. security guarantee is the only way to effectively deter Russia from attacking Ukraine again".

MarketScope analyst Joshua Mahony said the absence of both Ukraine and Europe in the talks "says a lot about the US' perceived ability to simply strike a deal and impart that upon the parties most affected by that agreement".

"Ukraine President Volodymyr Zelensky has stated that he will not agree to a deal that does not involve the Ukrainians, while Europe are waking up to the notion of them having to support Ukraine in the absence of US involvement. A peace deal could provide the basis for lower commodity prices and lower military assistance to Ukraine."

"However, the benefits of a lower bill to fund Ukrainian war efforts soon fade once factoring in the clear requirement to build out the European military force and potential troops on the ground under any peace agreement. Nonetheless, peace in Europe does provide a bullish driver for the region and thus the success or failing of these talks will likely be reflected in equity valuations going forward."

In equity news, German defence companies Henk, Rheinmetall and Thyssenkrupp continued to gain, along with Dassault and Thales of France and Italy's Leonardo.

German manufacturer Siegfried Holding slumped after results, while French IT firm Capgemini also tumbled after a fall in sales.

In economic news, investor morale in Germany saw a big uptick this month, with the removal of some domestic political uncertainty and rate cuts by the European Central Bank contributing to renewed optimism.

The ZEW economic research institute's indicator of economic sentiment jumped 15.7 points to 26.0 in February, up from 10.3 in January and well ahead of the consensus forecast of 15.0.

This was the highest level for the index in seven months and the biggest one-month increase over the past two years, ZEW said.

Reporting by Frank Prenesti for Sharecast.com