Europe close: Stocks dip but defence names rally on Trump spending plans

(Sharecast News) - European stocks fell on Thursday, but defence stocks rallied on geopolitical tensions as US President Donald Trump said he wanted to ramp up military spending and talked up an increasingly expansionist agenda.

The benchmark Stoxx 600 index snapped a recent run of gains, ending down 0.2% at 603.83, while Germany's Dax finished flat at 25,127.46 and France's CAC 40 was 0.1% firmer at 8,243.47.

Investors continued to digest Trump's controversial cross-border military operation on Venezuela at the weekend, which saw the country's president Nicolas Maduro moved to a federal jail in New York on 'narco-terrorism' charges.

On Wednesday Trump said Venezuela would be "turning over" between 30 million and 50 million barrels of "sanctioned oil" and the proceeds would only be spent on US goods, while US Energy Secretary Chris Wright said America planned to oversee the sale of Venezuelan oil "indefinitely".

Later in the day US forces seized two tankers - one recently reflagged as Russian - accused of assisting Venezuela to break American sanctions.

In further developments, Trump renewed his focus on Greenland as his next potential target for American expansionism, claiming that annexing the region is a "national security priority". He also said he wants to raise defence spending to $1.5tn in 2027 - a 50% increase from this year's budget.

The White House said the US president was looking at "a range of options" to take over the semi-autonomous Danish territory and could potentially use military action to get what he wants.

Danni Hewson, head of financial analysis at AJ Bell, said: "If anyone thought 2026 might bring a more measured, less volatile period for markets they're probably already ripping up their playbook.

"Every day brings new considerations with most of them originating from the White House.

"Donald Trump's calls for a significant boost to US defence spending have unsurprisingly boosted US defence stocks, despite the sting in the tail with the US president threatening to block contractors from dividend payouts or share buybacks until production is massively scaled up to meet his targets.

"London listed BAE Systems topped the FTSE 100 gainers hitting a fresh record as investors consider the increased pressure now facing European leaders as the global map comes under increasing scrutiny."

In economic news, a survey showed consumer sentiment remained subdued across the Eurozone at the end of last year despite the unemployment rate nudging lower.

According to Eurostat, the statistical office of the European Union, the seasonally-adjusted unemployment rate was 6.3% in November, down from 6.4% in October. Consensus had been for no change.

Across the wider bloc, the rate was 6.0%, unchanged on the previous month. That compares to unemployment rates of 6.2% and 5.8% in the Eurozone and EU respectively in November 2024.

Meanwhile the European Commission's Economic Sentiment Index shed 0.4 points in December in the Eurozone, to 96.7, narrowly missing consensus for 97.

In equities news, defence stocks led the gainers, with BAE Systems, Leonardo, Rheinmetall and Saab all higher.

Oil giant Shell gushed lower as it said it expected to post a loss in its chemicals and products division in the fourth quarter, but left guidance for the rest of the business largely unchanged.

Retailers were in focus after a flurry of updates, with Primark owner AB Foods sharply lower after the conglomerate issued a profit warning as retail and US foods sales struggled amid weak consumer confidence.

Tesco slumped as it said full-year earnings were expected to be at the top end of forecasts but reported a slowdown in underlying sales growth over the key Christmas selling season. Sainsbury's, which is due to update the market on Friday, also fell.

Marks & Spencer rose as it left its full-year guidance unchanged after what it called "solid" Christmas trading.