Europe close: Defence, mining plays lead continental gains

(Sharecast News) - European shares closed higher on Tuesday, with defence and mining stocks in focus as metals prices surged and investors weighed slow progress in talks aimed at ending the war in Ukraine.

The pan-European Stoxx 600 rose 0.68% to 593.25, while Germany's DAX added 0.57% to 24,490.41.

France's CAC 40 climbed 0.69% to 8,168.15 and the UK's FTSE 100 advanced 0.75% to 9,940.71.

Kathleen Brooks, research director at XTB, said the penultimate trading day of the year was marked by fading momentum across global markets.

"It's the penultimate trading day of 2025, and the overriding theme is that global stock indices have lost momentum into year end."

She added that this reflected strong returns earlier in the year and investor caution ahead of 2026, but also highlighted a broader shift in market leadership.

"Perhaps the most powerful reason is that the MSCI World Index excluding the US has outperformed the S&P 500 by the highest margin since 2009 this year," she said, raising questions about stretched US valuations and a rotation into other regions.

In London, the FTSE 100 closed at another record high, edging closer to the 10,000 mark.

"Could there be a fairytale ending to the year for London's blue-chip index?" asked Danni Hewson, head of financial analysis at AJ Bell.

"The FTSE 100 ended the day at 9,940, another fresh record high and tantalisingly close to that 10,000 mark which at the start of the year seemed inconceivable."

She added that the index's global exposure had helped insulate it from domestic weakness, noting "the global nature of the inhabitants of London's top-flight index has helped it avoid the doldrums which have held back the more domestically focused FTSE 250 - although even it was experiencing that end of year phenomenon often referred to as a 'Santa rally' today."

Eurotunnel at a standstill as focus turns to US data

Travel between Britain and the continent was in focus, as Eurostar urged passengers to change their travel plans after a problem with the overhead power supply forced the Channel Tunnel to close, causing major disruption during the New Year travel season.

Eurostar said all services were suspended until further notice and warned passengers not to travel to stations, while LeShuttle said its vehicle services were temporarily suspended for up to three hours due to the same power supply issue.

The disruption brought one of Europe's busiest international rail corridors close to a standstill.

US economic data also shaped sentiment.

The S&P/Case-Shiller national home price index showed US home prices rose 1.4% year-on-year in October, up from 1.3% in September, with Midwestern and Northeastern cities leading gains while Sun Belt markets such as Tampa, Phoenix and Dallas remained under pressure.

16 of the 20 major metropolitan areas recorded month-on-month declines as high mortgage rates weighed on affordability.

Separately, the Federal Housing Finance Agency said US house prices rose 0.4% on the month and were 1.7% higher than a year earlier, with wide regional variation.

Meanwhile, the MNI Chicago business barometer climbed to 43.5 in December from 36.3 in November, beating expectations but remaining in contraction territory.

Brooks said attention was turning to US monetary policy signals, with markets awaiting the release of the latest Federal Reserve minutes.

"The focus will be on how likely Fed members are to switch from one to two rate cuts in 2026," she said, adding that she doubted the minutes would "shift the dial for markets," a scenario that could keep upward pressure on bond yields.

She warned that "one of the biggest threats to stock indices for 2026 is an end to interest rate cuts, or even rate hikes in the major economies," stressing that bond yield movements would remain critical in the year ahead.

Defence stocks, miners led the charge

On the equity front, defence stocks rebounded as underlying geopolitical tensions persisted despite ongoing peace talks.

Rheinmetall rose 2.29%, Hensoldt gained 1.24%, Saab advanced 2.65%, Renk added 1.28%, Babcock International Group climbed 2.05% and Leonardo rose 1.4%.

Brooks said defence remained a key structural theme, arguing that "even if there is peace, defence spending will still need to grow, as Europe needs to create a deterrent to ensure Russia respects sovereign borders in the coming years."

Mining stocks also outperformed as soaring gold, silver and copper prices boosted demand for the sector.

Fresnillo surged 6.26%, while Glencore gained 3.01%, Anglo American rose 2.38% and Antofagasta advanced 3.27%.

Hewson said miners had again driven gains in London, noting "miners have once again done a lot of the heavy lifting, with Fresnillo leading the way."

She added that the strong performance reflected structural demand trends, saying that "considering both the ongoing demand for gold and silver and an increasing need for connectivity in emerging markets, investors will be hoping for more fair weather in 2026."

Reporting by Josh White for Sharecast.com.