Europe close: Defence stocks lead gains across the region
By Josh White
Date: Monday 20 Oct 2025
(Sharecast News) - European equities rebounded on Monday, with bank and defence stocks leading gains after last week's turbulence in financial markets.
The pan-European Stoxx 600 rose 1.03% to 572.10, while Germany's DAX advanced 1.8% to 24,258.80, France's CAC 40 added 0.39% to 8,206.07, and London's FTSE 100 climbed 0.52% to 9,403.57.
"A big recovery in Asian markets helped give the FTSE 100 a lift as investors look to put a difficult week behind them," said Russ Mould, investment director at AJ Bell.
Patrick Munnelly at TickMill added that "Asian markets soared to new heights, surpassing their previous record close, as hopes of easing trade tensions brought renewed optimism."
He noted that MSCI's regional stock index climbed over 1.51%, with futures signalling gains in both U.S. and European markets, helping set a positive tone for the session.
Defence stocks also rallied sharply after reports of renewed tensions between Washington and Kyiv.
The Financial Times reported that US president Donald Trump's meeting with Ukrainian President Volodymyr Zelenskyy at the White House turned "fractious," allegedly descending into a shouting match.
Trump was said to have urged Zelenskyy to cede territory already occupied by Russia, following a two-hour phone call with Russian president Vladimir Putin ahead of a planned meeting between the two leaders in Hungary.
Eurozone construction output slips, German producer prices ease
Economic data across Europe on Monday painted a mixed picture, with weaker construction output in the euro area, easing inflationary pressures in Germany, and lingering strain on UK consumers, even as the EU moved closer to a full phase-out of Russian energy imports.
Eurostat's latest estimates showed eurozone construction output slipped 0.1% in August, dragged lower by a 1.3% fall in civil engineering activity.
Across the wider European Union, output contracted 0.9%, reversing July's upwardly revised 0.9% increase.
Specialised construction work edged 0.1% higher, while building construction softened by 0.1%.
Among member states, Germany led the gains with a 0.6% monthly rise, supported by growth in Spain and France, while Italian output fell 1.6%.
Year-on-year, production rose just 0.1% in the euro area and was unchanged in the EU, underscoring the sector's weak momentum.
Patrick Munnelly noted that "Eurozone inflation remained stable in September, with a slight upward revision to the core index largely due to base effects."
He said that headline inflation at 0.16% monthly "aligns closely with the ECB's 2.0% y/y target", while policymakers expect "a modest CPI undershoot next year before prices stabilize at the target over the medium term."
In Germany, producer prices continued to ease, reflecting the ongoing drag from lower energy costs.
Federal statistics showed prices fell 1.7% in September from a year earlier and 0.1% month-on-month.
Energy prices dropped 7.3% year-on-year, led by declines of 10.7% in natural gas and 10.2% in electricity.
Capital goods prices were 1.9% higher than a year ago, driven by modest increases in machinery and motor vehicle costs.
In the UK, household sentiment weakened further in October as stubborn living costs continued to weigh on confidence.
The S&P Global UK consumer sentiment index fell to 47.4 from 47.8 in September, remaining below the 50 threshold that separates growth from contraction.
S&P Global's Maryam Baluch said "some of the gloom" had lifted but warned that "it's clear the cost of living crisis has not yet been beaten," noting that lower-income households were particularly affected.
She added that while incomes had risen, "high bills eat into the amount of money left to spend," leaving many families under persistent financial pressure.
Munnelly pointed out that "the UK's economic updates are also grabbing attention," highlighting that public finance figures and inflation data due later in the week could "reveal a slight uptick in inflation, with persistent challenges in services inflation."
Elsewhere, European energy ministers reached a landmark agreement to phase out Russian gas imports by 2028 as part of ongoing efforts to sever energy ties with Moscow.
The Council of the European Union said member states had adopted a negotiating position on draft legislation that would prohibit all Russian pipeline and liquefied natural gas imports from 1 January 2028, with new contracts banned from 2026.
Denmark's climate and energy minister Lars Aagaard said: "Although we have worked hard and pushed to get Russian gas and oil out of Europe in recent years, we are not there yet.
"Therefore it is crucial that the Danish presidency has secured overwhelming support from Europe's energy ministers for the legislation that will definitely ban Russian gas from coming into the EU."
Russia currently supplies around 12% of the bloc's gas, down sharply from 45% before its 2022 invasion of Ukraine.
The proposal will now go to the European Parliament for final negotiations.
Defence stocks lead gainers, TKMS surges on debut
Defence stocks led European gainers on Monday as investors bet on sustained military spending amid renewed geopolitical tensions.
Hensoldt jumped 7.87%, Renk rose 6.2%, Rheinmetall advanced 5.9%, Leonardo climbed 4.32%, Thales gained 3.71%, and Saab added 3.89%.
The sector's rally followed signs of deepening uncertainty over the Ukraine conflict, fuelling expectations of further orders and government support for defence manufacturers across the continent.
In the luxury sector, Kering shares rose 4.83% after the group agreed to sell its beauty division to L'Oréal in a deal valued at €4bn.
"Beauty and wellness are markets with significant untapped potential, and L'Oréal and Kering are teaming up to try and take advantage of this opportunity," said Mould.
He added that "for Kering, this is the first big move on the part of new CEO Luca de Meo, as he seeks to turn around the fortunes of the struggling luxury goods firm."
Mould also noted that "L'Oréal's purchase of the House of Creed and the beauty and fragrance licences of Houses of Kering, including brands like Balenciaga and Gucci, should help bolster the company's credentials in the high-end component of the beauty market."
He said the deal "allows the company to make a meaningful dent in its onerous borrowing pile" and offers "longer-term potential for collaboration in wellness and longevity."
Building materials group Holcim gained 1.64% after announcing the €1.85bn acquisition of Germany's Xella, a producer of walling systems.
The deal was expected to strengthen Holcim's European presence and expand its range of energy-efficient construction solutions.
ThyssenKrupp Marine Systems surged 35.17% in its Frankfurt market debut after parent company ThyssenKrupp floated a minority stake at €60 a share, with the stock briefly reaching €87 before easing.
Shares in the parent company fell 19.4% as investors reacted to the partial spin-off, marking one of the largest German industrial listings of the year.
Reporting by Josh White for Sharecast.com.
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