London, March 2, 2026, 11:10 GMT — Regular trading hours.
- BAE Systems jumped roughly 6% in London, standing out against a broader European decline.
- Defence stocks found buyers, with investors sizing up the potential for prolonged conflict and the possibility of increased military spending.
- Fresh inflation numbers are next on traders’ radar, along with continued headline risk coming out of the Middle East.
Shares of BAE Systems surged 6.1% to 2,241.34 pence on Monday, lifted by a wave of buying in European defence names as traders responded to turmoil in the Middle East.
That shift hit just as risk appetite buckled. European shares fell sharply, with airlines and banks bearing most of the pain. Investors pivoted to sectors expected to gain from increased security budgets and rerouted trade flows.
BAE shares climbed, moving up with peers Rheinmetall, Saab, and Leonardo, as the regional defence sector notched gains—this while most other groups slipped.
The jump in oil prices heightened the tension. Rising crude can squeeze financial conditions and stoke inflation concerns—a combination that usually weighs on cyclicals while giving a lift to so-called “defensive” names like defence contractors.
Paolo Zanghieri, senior economist at Generali Investments, said the coordinated strikes from Israel and the US on Iran are “explicitly aimed at regime change.” He also noted this campaign will probably drag on longer than last year’s brief flare-up. Reuters
BAE’s narrative keeps circling back to defense spending—NATO countries and partners raising budgets, a shift investors have chased hard since 2022. The company’s most recent full-year report highlighted an order backlog at all-time highs and put out guidance for increased sales and operating profit by 2026.
Even so, a single session’s spike can vanish just as quickly. Should tensions ease or shipping routes resume normal flow without sticking points, that “war premium” often built into energy and defence names might not stick around—traders could just strip it right back out.
Investors face a mixed set of signals as they digest macro data alongside the latest headlines. UK factory activity picked up for another month in February, according to a PMI survey—a measure eyed for clues on rates and government borrowing. (PMIs print above 50 when the sector is expanding.)
Tuesday brings the next major event: Eurostat will drop its flash estimate for February euro zone inflation. That number could quickly sway rate bets and set the mood for equities heading into the week’s remainder.
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