European defence stocks wobbled at the beginning of the week. This is because investors were working on details of the framework trade agreement that was hit by the US and the European Union on Sunday (still lacking in some areas). The first concern was that the EU’s commitment to increasing US purchases, particularly military equipment, could be at the expense of European defense companies that staged large gatherings this year in hopes of regional spending expectations. These include Thales, France, which fell 4.3% on Monday. Germany’s Renk and Rheinmetall fell by 5.1% and 3.3% respectively, while Italy’s Leonardo soaked 0.74%. Analysts told CNBC that such fears were unfounded and that European defense companies were set to remain key beneficiaries of the larger national budget for the next few years. According to a summary of the White House contract, the EU will earn $600 billion in new investments in the US by the end of President Donald Trump’s term in 2028, in addition to the $100 billion that EU companies currently invest annually. It added that Bullock has “agreed to buy a substantial amount of US military equipment,” and that Trump will tell reporters that he will buy “hundreds of millions of dollars” of weapons. In its own read, the EU said it has allowed it to “invest” in investing at least $600 billion in various sectors in the US by 2029, and instead designated its intention to purchase US liquefied natural gas, oil and nuclear energy products, as well as US liquefied natural gas, oil and nuclear products, equivalent to 40 billion Euro AI CHIP. European Commission President Ursula von der Leyen did not come two weeks after proposing a seven-year budget of 2 trillion euros for US military purchases, and two weeks after submitting a seven-year budget that includes a five-fold increase from current spending on defense and space. Overall, the EU outlines plans this year to mobilise around 800 million euros of new defence spending as part of a major re-contract push, including ease of lending and fiscal spending constraints. Peter Schaffrik, global macrostrategist at RBC Capital Markets, told CNBC that the lack of capacity mentioned in the trade agreement is a source of uncertainty. “This is relevant, especially since we know that not all of European spending will be done in European companies, especially for defense. Therefore, it is unclear whether the amount mentioned will be done in a short or long time frame (i.e. 10 years), in addition to what was planned. US military suppliers such as Lockheed Martin, Northrop Grumman and Raytheon were expected to benefit significantly from increased EU spending as they expand existing contracts and acquire new contracts, despite the calls for European bosses and leaders to maintain as much funding as possible in the region. Dmitrii Ponomarev, Exchange Traded Fund Product Manager at investment management firm Vaneck, noted that Europe accounted for around 35% of all US arms exports between 2020 and 2024, with the US supplying about 64% of weapons imported from European NATO states. The Stockholm Institute for International Peace has raised concerns about the EU’s ambitions for domestic defense manufacturers, citing the historical difficulties of expansion of production, cost inflation from protectionist policies, and the persistent discrepancies between demand and intervention within the bloc,” Ponomarev said. “US defense contractors are likely to be the main beneficiaries of this contract. European defense companies initially responded negatively to the news, but still can benefit in the long run, assuming that the overall size of the European defense market grows faster than local companies can absorb.” Local capital flows by spending pushes to places where private sector companies are looking for the best profits if the US makes the economy, markets and regulations more attractive, if the US makes it more attractive, local capital flows. But from the current announcement, it remains difficult to know what is new and added, or it will happen anyway. “In my opinion, timing is the issue. If a country wants to invest in defense equipment, the sourcing options at this stage are somewhat limited. There are many defensive manufacturers in Europe, but perhaps the ability to output such a boost is not sufficient,” he said. “Of course, some money flows to the US, as it is the only provider of many important NATO-compliant defense systems. A lot flows to the UK. [French President Emmanuel] Macron and others have made it clear that this much of the spending needs to be done locally. “All Trump Trade Transactions, including the recent announcement of Saudi Arabia’s $600 billion US investment commitment,” includes a wide range of things, including spending on defense, investments in the private sector, you unpack it, and spending on defense. What does this mean in the context of EU-US trading? At this stage, “Evtet said, he said the Commission indicates that $600 billion refers to private sector investments and does not mean additional spending beyond the purchase of energy by the European government.
