Defense stocks power European markets to latest record closing high; Saab soars 16%

European stock markets regained positive momentum on Monday, with the Stoxx 600 index closing up 0.59% at an all-time high of 555.65.

Germany's DAX led major bourses with a 1.26% gain, while France's CAC 40 and the U.K.'s FTSE 100 were 0.13% and 0.41% higher respectively.

— Jenni Reid

David Groman, global equity strategist at Citi, weighs in on the outlook for European equities.

Ironing out the 2026 budget of the euro zone's second-largest economy will prove a "demanding" task, French Finance Minister Eric Lombard told CNBC's Charlotte Reed on Monday, after lawmakers earlier this year finally agreed 2025's financial plan after a spate of tumultuous, government-toppling attempts.

"2026, yes, it is a very demanding budget, because we will continue to diminish the deficit and to be below, of course, below 5.4%, and probably below 5%," the finance minister told CNBC on Monday, noting the government had yet to define the latter target figure, but that it plans to utilize the same methods that brokered the financial agreement for 2025.

— Ruxandra Iordache

The chief executive of Italy's Leonardo has called for the creation of "EU defense giants" to fix the "fragmented and inefficient" military hardware development sector in Europe.

"The European defense industry is currently too fragmented and inefficient, with each country pursuing its own strategy and developing its own weapons systems and platforms," said the defense firm's CEO Roberto Cingolani. "While European companies are large, they are not sufficiently powerful in the current context. The creation of EU defense giants is essential. For this reason, Leonardo is deeply committed to fostering alliances within the European defense industry." 

"The company is actively promoting international cooperation through industrial partnerships, such as the one established with Rheinmetall, with the strategic goal of acting as a catalyst for the strengthening of the European defense sector," Cingolani added in a statement to CNBC.

Shares of the defense contractor are up 6%.

— Ganesh Rao. CNBC's Virginia Vitalone contributed reporting.

British employers plan to reduce their headcount and make redundancies in 2025 due to the impending increases to National Insurance Contributions (NIC) and increasing National Minimum Wage, a new CIPD survey of over 2,000 U.K. employers found.

Almost a third of employers plan to reduce headcount through redundancies or by hiring less, with 25% intending to make redundancies by March 2025, according to the survey.

The survey's net employment balance, which measures whether employers expect an increase or decrease in staff levels in the next three months, significantly decreased from +21 last quarter to +13 this quarter.  

The U.K.'s labor government announced its new budget plan in October 2024, which will see a 6.7% rise in the minimum wage for over 21-year-olds to £12.21 ($15.4). Meanwhile, employer NI contributions will rise from 13.8% on earnings above £9,100 per year to 15% on salaries above £5,000 a year.

"These are the most significant downward changes in employer sentiment we've seen in the last ten years, outside of the pandemic," Peter Cheese, CIPD CEO said. "If the Government's plans are to succeed, it's vital they set out how they will help businesses to support growth and investment.  And it's important this support is felt across the economy."

However, a recent poll by the Chartered Management Institute of 1,219 managers, shared with CNBC, shows that despite rising employment costs, 55% of managers said their organization would be unlikely to scale back enhanced maternity or paternity pay, and over a third said it would very unlikely.

At least 30% of managers polled reported that their organization already offers enhanced maternity and paternity pay.

— Sawdah Bhaimiya

U.K. and euro area bond yields were broadly higher as traders weighed the potential for higher national defense spending following the Munich Security Conference, and as European leaders meet for emergency Ukraine talks in Paris.

The 10-year yield on U.K. government bonds, known as gilts, was 5 basis points higher at 4.553% at 11 a.m. in London. The 2-year yield was up nearly 3 basis points at 4.231%.

Writing in the Telegraph newspaper in an article published late Sunday, U.K. Prime Minister Keir Starmer said he was heading to Paris with a message that Europe must show it is "truly serious" about its own defense.

"We have talked about it for too long – and president Trump is right to demand that we get on with it. As European nations, we must increase our defence spending and take on a greater role in Nato," Starmer wrote, adding that Britain was willing to put troops on the ground in Ukraine if necessary.

The yield on German 10-year bunds, seen as the euro zone benchmark, was nearly 7 basis points higher at 2.493%. Italian and French yields also rallied.

"There is seemingly more urgency now to increase defence spending and this is something European leaders seem to be coalescing around to some degree," analysts at Deutsche Bank said in a Monday morning note.

— Jenni Reid

The Stoxx Europe Aerospace & Defense index hit a record high on Monday after the Munich Security Conference hosted in Germany over the weekend.

See stocks rising on Monday

Shares of defense contractors in Europe rose after European Union President Ursula von der Leyen said member states will be allowed to increase their spending on defense and security without breaching the bloc's rules on budget deficit spending.

Under ordinary circumstances, the European Union's fiscal rules require countries to keep their annual spending under 3% of their gross domestic product.

"In previous extraordinary crises, look at what we did. We empowered Member States with extra fiscal room by activating the escape clause," von der Leyen told the conference on Feb. 14. "I believe we are now in another period of crisis which warrants a similar approach. This is why I can announce that I will propose to activate the escape clause for defence investments. This will allow Member States to substantially increase their defence expenditure."

JPMorgan analysts suggest that every 50 basis point increase in European defense spending is worth about $115 billion annually, of which 40% is likely to be spent on weapon systems. Of the equipment spend, they expect 30% to head toward U.S. defense contractors.

CNBC's analyst of FactSet data reveals that Howmet, Woodward and GE Aerospace are among the U.S. companies with the biggest revenue exposure to Europe.

 — Ganesh Rao

Shares of British health-care property firm Assura jumped 15% by 10:15 a.m. in London on Monday, after it emerged that the company had rejected a £1.56 billion ($1.96 billion) takeover bid from U.S. private equity giant KKR and pension fund Universities Superannuation Scheme.

KKR said Monday it had now made four indicative, non-binding proposals to the Assura board. The latest proposal, valuing the firm at £1.56 billion, priced the company's shares at a 28.2% premium on its closing price on Feb. 13 — the date the bid was made.

"KKR is considering whether there is any merit in continuing to try and engage with the Board," the investment firm said. "There can be no certainty that any firm offer for the Company will be made."

— Chloe Taylor

Regional defense stocks rose to a record high on Monday, with the Stoxx 600 Aerospace and Defense Index gaining 2% by 9:22 a.m. London time after surging higher at the open.

Germany's Renk Group was up 11% during morning deals. Swedish defense manufacturer Saab gained 7.6%, and German arms maker Rheinmetall was up 7.5%. Many other stocks in the sector also made significant gains.

European leaders are gathering in Paris on Monday, where an emergency summit is being held to discuss upcoming U.S.-Russia talks on ending the war in Ukraine — plans for which have so far excluded Ukrainian and other European officials.

The meeting comes after the Munich Security Conference over the weekend, where some officials showed willingness to ramp up Europe's defense spending.

— Chloe Taylor

Anglo American Platinum said Monday that it would pay out an additional cash dividend before a demerger that will see it become a standalone company.

The additional dividend will amount to 59 South African rand ($3.21) per share, with the payout totaling 15.7 billion rand. It will be in addition to the 2024 shareholder payout, which will amount to 800 million rand.

If approved by shareholders at Anglo American's annual general meeting in April, Anglo American Platinum will be spun off into a standalone unit in June. The company will have a primary listing on the Johannesburg Stock Exchange and a secondary listing in London, it said on Monday.

Anglo American intends to retain a 19.9% share in Anglo American Platinum, Anglo American CEO Duncan Wanblad said in a news release on Monday.

Anglo American Platinum on Monday reported a 40% year-on-year drop in profit on Monday, with full-year profit for 2024 coming in at 8.4 billion rand. A decline in South African platinum prices were cited as driving the decline.

Anglo American shares were up 0.4% at 8:16 a.m. London time.

— Chloe Taylor

Good morning from London, and welcome to CNBC's live blog covering all the action and business news in European financial markets on Thursday.

Futures data from IG suggests a generally positive open for European indexes, with London's FTSE 100 seen opening 0.15% higher, France's CAC 40 and Germany's DAX are seen opening around the flatline, and Italy's FTSE MIB slightly higher.

The pullback in sentiment among European bourses comes ahead of the latest indicator of the state of health of major regional economies, with gross domestic product readings from the U.K. and European Union on Thursday.

European markets had ended the day higher on Wednesday, with the pan-European Stoxx 600 index rising 0.55% after the S&P 500 and Nasdaq Composite rallied to new records yesterday. Investors are gearing up for more inflation data to assess the state of the U.S. economy.

The producer price index, due Thursday, will be significant factors in the direction interest rates take at the Federal Reserve's next meeting in September.

— Holly Ellyatt