European markets advanced on Tuesday, buoyed by promising corporate earnings and significant geopolitical developments across the continent. As investors turned their attention to key political shifts and robust quarterly results, confidence in European equities strengthened, pushing indices higher.
The pan-European Stoxx 600 climbed 0.5% by mid-afternoon, with major exchanges collectively trading positively. Notably, the UK’s largest defence contractor, BAE Systems, surged over 4% after Prime Minister Keir Starmer unveiled plans for substantial increases in defence spending. Starmer committed to an additional annual £13.4 billion defence budget starting in 2027, targeting 2.5% of UK GDP. This marks the most significant sustained increase in UK defence funding since the conclusion of the Cold War, reflecting growing geopolitical urgency and heightened investor enthusiasm in the defence sector.
In Germany, investor sentiment was lifted by the federal election results, which saw the conservative Christian Democratic Union (CDU) and its Bavarian ally, the Christian Social Union (CSU), secure the largest share of votes. Friedrich Merz is now poised to succeed Olaf Scholz as chancellor, heralding a potential shift towards more market-friendly policies that investors welcomed positively, driving the Dax index upward.
Novo Nordisk emerged as a standout performer, with shares jumping 4% after American telehealth firm Hims & Hers indicated a potential halt in selling compounded semaglutide, an alternative to Novo Nordisk’s popular weight-loss treatments Ozempic and Wegovy. The announcement significantly enhanced investor optimism around Novo Nordisk, fuelling further gains in the broader healthcare sector. Consequently, the Stoxx 600 Healthcare index led sectoral rises, bolstered by positive momentum in stocks like Smith & Nephew and Zealand Pharma.
Smith & Nephew itself advanced by 3.3%, propelled by robust revenue growth of 4.7% in 2024. The medical devices manufacturer credited its strategic 12-point transformation plan for the performance boost, forecasting further revenue expansion of approximately 5% in 2025.
Elsewhere, geopolitical concerns surrounding US trade policies resurfaced as former President Donald Trump indicated tariffs on goods from Canada and Mexico would be enforced once a temporary reprieve expires next week. Trump’s announcement, coupled with plans for reciprocal tariffs, weighed negatively on Asia-Pacific markets overnight and cast uncertainty over the immediate trajectory of global trade sentiment.
Meanwhile, US markets opened cautiously stable, with investors preparing for a week of key earnings announcements from significant market players including Nvidia and Home Depot, which will provide further clarity on corporate health and economic outlook.
Overall, European equities displayed resilience driven by strategic defence spending, positive corporate earnings, and significant political developments, demonstrating the region’s investment appeal amid global uncertainties.
JPMorgan European Discovery Trust plc is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
