Defence stocks in Europe at all-time high after Trump calls for higher US defence budget

• Trump stated the proposed U.S. military budget for next year should be $1.5 trillion after discussions with senators and political representatives
• Major European defence stocks rallied sharply: BAE Systems up 6%, Leonardo up 5%, Chemring up 4%, and Germany's Rheinmetall and Renk each rose 3%
• The European aerospace and defence index hit an all-time high, rising around 2% by morning trading

Summary

European defence stocks surged to record highs on January 8, 2026, following former President Trump's announcement that the U.S. military budget should reach $1.5 trillion for the coming year after negotiations with senators and political representatives.

Market Performance

The European aerospace and defence index climbed approximately 2% by 0816 GMT, reaching an all-time high. Individual stock performances included:

• BAE Systems (UK): +6%
• Chemring (UK): +4%
• Leonardo (Italy): +5%
• Rheinmetall (Germany): +3%
• Renk (Germany): +3%

Market Implications

The rally reflects investor optimism about increased defence spending globally, with Trump's proposed $1.5 trillion U.S. defence budget signaling sustained demand for military equipment and services. European defence manufacturers stand to benefit from both direct U.S. procurement opportunities and heightened defence budgets across NATO allies responding to geopolitical pressures.

The sector's all-time high suggests strong confidence in the long-term growth trajectory of defence contractors, particularly those involved in artillery, ammunition, and advanced military systems. Germany's Rheinmetall, which recently inaugurated a new artillery plant in Unterluess, exemplifies the capacity expansion occurring across the sector to meet anticipated demand.

This development continues the upward trend in defence sector valuations driven by ongoing conflicts, particularly in Ukraine, and increased recognition of defence modernization needs across Western nations. Investors appear to be pricing in sustained elevated defence spending for the foreseeable future.