The FTSE 100 closed up 0.4% at 8,768.01, while the FTSE 250 edged up 0.1% to 20,938.68. The AIM All-Share dipped slightly, down 0.1% at 725.22.

With US markets closed for Washington’s Birthday, European trading was driven by renewed interest in defence stocks following expectations of increased military spending.

Defence Stocks Rally on European Spending Plans

Shares in European defence firms surged as policymakers signalled a major boost to military expenditure.

  • BAE Systems rose 9.0%, Rolls-Royce gained 0.9% in London.
  • Rheinmetall climbed 14% in Frankfurt.
  • Leonardo advanced 8.1% in Milan.

European Commission President Ursula von der Leyen reaffirmed the need for a significant increase in defence budgets, calling for expenditure to rise from below 2% to above 3% of GDP. She also confirmed that the European Commission would exempt defence spending from EU budget limits, allowing member states to invest more heavily in security.

JPMorgan analysts noted that European defence spending must rise due to changing geopolitical conditions and decades of underinvestment. They expect sustained growth in the sector over the next four years.

US-Russia Talks Stir Uncertainty

Former US President Donald Trump took centre stage in geopolitical developments, reaching out to Russian President Vladimir Putin for talks on ending the Ukraine conflict. This move sidelined Kyiv and its European allies and prompted an emergency meeting of European leaders in Paris.

Meanwhile, Washington confirmed that US officials, including Secretary of State Marco Rubio, will meet Russian diplomats in Riyadh on Tuesday. Despite hopes for progress, Rubio downplayed expectations, emphasising that peace talks would require a prolonged process.

Lloyds and Car Finance Stocks Hit by Legal Developments

Lloyds Banking Group slipped 3.2% following reports that the UK Treasury’s bid to intervene in a Supreme Court case on motor finance was rejected. However, the Financial Conduct Authority’s application to intervene was approved, adding uncertainty to the case.

Other car finance providers took a hit:

  • Close Brothers fell 8.1%.
  • Secure Trust dropped 8.5%.
  • Vanquis Banking declined 6.6%.

Analysts warned that the rejection of the Treasury’s intervention may disappoint investors, keeping the sector under pressure as investigations into mis-sold car finance continue.

Ferrexpo Jumps on Peace Deal Hopes

Mining firm Ferrexpo surged 13% as speculation grew over a potential peace deal in Ukraine. Peel Hunt analysts suggested that a ceasefire could provide short-term upside for the stock, pushing it towards 245p if implemented swiftly.

Assura Rejects KKR Takeover Bid

Healthcare property investor Assura jumped 9.0% after rejecting four takeover proposals from US private equity giant Kohlberg Kravis Roberts (KKR). The most recent bid valued Assura at £1.56 billion, representing a 28% premium to its closing price on Friday. KKR is now considering whether to continue its pursuit.

Assura remains confident in its long-term growth potential and has reaffirmed its strategy of delivering shareholder value independently.

John Wood Group Continues Decline

Engineering and consultancy firm John Wood Group plummeted another 11%, adding to Friday’s staggering 56% drop. The company is implementing further cost-cutting measures and reviewing its funding position following weaker-than-expected trading and legacy contract challenges.

Looking Ahead: Key Events on Tuesday

Investors will be watching several key events on Tuesday, including:

  • Antofagasta reporting full-year results.
  • UK economic data at 07:00 GMT, covering unemployment and average earnings.
  • Canadian inflation figures at 13:30 GMT.
  • Australia’s interest rate decision overnight.

With geopolitical developments, corporate earnings, and macroeconomic data all in focus, volatility is expected to remain high in the coming days.

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