London close: Stocks finish firmer as defence plays surge
By Josh White
Date: Monday 03 Mar 2025
(Sharecast News) - London's financial markets closed on a positive note on Monday, bolstered by a significant surge in defense stocks amid expectations of increased military expenditure.
The FTSE 100 index advanced 0.7%, closing at 8,871.31 points, while the FTSE 250 rose 0.28% to 20,382.29 points.
In currency markets, sterling was last up 0.97% on the dollar, trading at $1.2699, while it declined 0.12% against the euro to change hands at €1.2109.
"While hopes of a Ukraine peace plan do continue to play some part in today's positive market action, it is the expectation of rearmament across Europe that is the most important driver," said IG chief market analyst Chris Beauchamp.
"This will mark the most significant reorientation of European economies since the end of the Cold War, and promises to see the infusion of cash into defence and related stocks.
"Bond yields have risen however, a sign that investors remain nervous about the impact on government spending and on inflation."
Beauchamp noted that US futures showed a continuation of Friday's recovery on Wall Street, but tariff concerns meant gains in the cash session had been muted so far.
"President Trump is likely to decide on them today, which sets traders up for an interesting session on Tuesday.
"Continued investor nervousness has seen more gains for gold, which has continued to rebound from Friday's low as geopolitical concerns loom."
UK manufacturing contracts further in February, private sector weakness continues
In economic news, the UK manufacturing sector continued to contract in February, with job losses accelerating to the fastest pace since mid-2020.
The S&P Global purchasing managers' index (PMI) fell to 46.9 from 48.3 in January, marking a 14-month low.
Although slightly above the initial flash estimate, the reading remained below the 50.0 threshold that separates expansion from contraction for the fifth consecutive month.
Weaker demand, both domestically and internationally, weighed on the sector, with firms scaling back production amid subdued business and consumer confidence.
Higher cost pressures and policy changes from the previous year's Autumn Budget also contributed to the decline.
"February PMI data show UK manufacturers facing an increasingly difficult trading environment," said Rob Dobson, director at S&P Global Market Intelligence.
"Weak demand, low client confidence and rising cost pressures are accelerating the downturns in output and new orders, while the Autumn Budget's changes to the national minimum wage and employer NICs are driving up inflation fears and intensifying the downward trend in staff headcounts.
"The pace of manufacturing job losses is currently running at a rate not seen since the pandemic months of mid-2020."
The broader UK private sector showed continued weakness, according to the latest Confederation of British Industry (CBI) survey.
Business volumes declined across all major sectors in the three months to February, with a net balance of -27%, down from -23% in the previous period.
Service-sector firms expect further deterioration in the coming months, with consumer services facing the bleakest outlook since late 2022.
In contrast, manufacturers anticipated a return to growth, with a net 8% of firms forecasting an uptick in activity.
Alpesh Paleja, the CBI's deputy chief economist, said that while a brighter outlook in manufacturing offered "some glimmers of hope", the overall survey "paints a picture of a tough operating environment for businesses, with consumer-facing sectors faring particularly badly".
"We do expect some tailwinds to growth over the year ahead," Paleja said.
"Rising real incomes will hopefully give households more confidence to spend, giving some relief to the sectors suffering the most."
Despite the weak business sentiment, the UK housing market showed signs of resilience, as mortgage borrowing rose to £4.2bn in January, the highest level since September 2022, according to Bank of England data.
Mortgage approvals for house purchases held steady at 66,200, defying expectations of a sharper decline.
Remortgaging approvals also increased, suggesting some homeowners are locking in deals amid uncertainty over future interest rates.
Consumer credit borrowing surged to a one-year high of £1.7bn, driven primarily by credit card debt.
On the continent, eurozone manufacturing conditions showed tentative signs of improvement, with the HCOB PMI rising to 47.6, its highest level in two years.
While still in contraction, the reading suggested the downturn was easing, with new orders falling at their slowest rate in nearly three years.
However, employment in the sector remained under pressure, with job losses accelerating to a four-and-a-half-year high.
Inflation in the eurozone meanwhile edged down to 2.4% in February, fueling expectations that the European Central Bank could cut interest rates later this year.
Across the Atlantic, the US manufacturing sector slowed in February, with the Institute for Supply Management (ISM) PMI slipping to 50.3 from 50.9.
While still indicating growth, new orders fell sharply due to tariff uncertainties, marking the steepest one-month decline in nearly five years.
In China, manufacturing activity expanded at its fastest pace in three months, with the Caixin/S&P Global PMI rising to 50.8, reflecting a modest rebound in demand.
Defence firms lead the charge in London, Bunzl in the red
On London's equity markets, defence stocks led the gains, with BAE Systems soaring 14.58%, QinetiQ Group up 11.43%, and Chemring Group rising 7.1%.
Rolls-Royce Holdings, Melrose Industries, and Babcock International also posted strong advances.
The sector benefited from heightened geopolitical focus after a summit in London, where prime minister Keir Starmer and French president Emmanuel Macron proposed a one-month ceasefire covering key infrastructure in Ukraine.
Starmer also pledged £1.6bn in financing to help Ukraine acquire 5,000 missiles, boosting investor sentiment toward defence-related companies.
Elsewhere, Senior gained 5.45% after confirming it was in advanced talks to sell its aerostructures business.
Spirent Communications added 1.56% following news that US-based Viavi Solutions had agreed to acquire Keysight Technologies' high-speed ethernet and network security business for $410m.
Shell rose 0.78% after reports surfaced that it was considering selling its chemicals assets in Europe and the US.
On the downside, Bunzl slid 7.57% as a weaker performance in the US overshadowed a modest rise in adjusted pre-tax profit.
While annual profits increased 2.2% to £873m, revenue slipped to £11.7bn, and reported profits dropped 3.6% to £673m.
Reporting by Josh White for Sharecast.com.
Market Movers
FTSE 100 (UKX) 8,871.31 0.70%
FTSE 250 (MCX) 20,382.29 0.28%
techMARK (TASX) 4,843.85 1.71%
FTSE 100 - Risers
BAE Systems (BA.) 1,611.50p 14.58%
Rolls-Royce Holdings (RR.) 776.80p 4.41%
Rightmove (RMV) 699.20p 4.20%
St James's Place (STJ) 1,101.00p 4.06%
IMI (IMI) 2,074.00p 3.60%
Haleon (HLN) 410.60p 3.06%
Marks & Spencer Group (MKS) 364.70p 2.79%
Antofagasta (ANTO) 1,780.50p 2.71%
Intermediate Capital Group (ICG) 2,340.00p 2.54%
Convatec Group (CTEC) 265.20p 2.24%
FTSE 100 - Fallers
Bunzl (BNZL) 3,072.00p -8.79%
Severn Trent (SVT) 2,435.00p -2.72%
BT Group (BT.A) 156.30p -2.19%
International Consolidated Airlines Group SA (CDI) (IAG) 345.20p -2.02%
Sainsbury (J) (SBRY) 253.40p -2.01%
National Grid (NG.) 957.20p -1.83%
Spirax Group (SPX) 7,150.00p -1.72%
United Utilities Group (UU.) 963.60p -1.69%
Taylor Wimpey (TW.) 111.60p -1.54%
Informa (INF) 846.00p -1.51%
FTSE 250 - Risers
Wood Group (John) (WG.) 41.88p 12.94%
QinetiQ Group (QQ.) 456.40p 12.91%
Senior (SNR) 175.40p 8.54%
Indivior (INDV) 753.50p 7.72%
Chemring Group (CHG) 401.00p 7.36%
Babcock International Group (BAB) 710.50p 5.97%
FirstGroup (FGP) 168.60p 5.57%
Ferrexpo (FXPO) 78.20p 4.69%
Me Group International (MEGP) 197.80p 2.91%
TP Icap Group (TCAP) 268.50p 2.87%
FTSE 250 - Fallers
Spectris (SXS) 2,638.00p -8.34%
Oxford Nanopore Technologies (ONT) 105.10p -6.66%
Baltic Classifieds Group (BCG) 323.00p -6.10%
Wizz Air Holdings (WIZZ) 1,573.00p -5.81%
B&M European Value Retail S.A. (DI) (BME) 267.70p -3.60%
Raspberry PI Holdings (RPI) 576.50p -3.11%
Man Group (EMG) 207.40p -2.63%
Pennon Group (PNN) 408.40p -2.48%
Ithaca Energy (ITH) 139.60p -2.38%
IP Group (IPO) 42.05p -2.32%
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