Peace Overtures Drag European Defense Stocks Lower

European defence equities retreated on Tuesday after fresh diplomatic signals suggested a potential de-escalation of two major conflicts that have buoyed the sector for more than three years. The Stoxx Europe Total Market Aerospace & Defence Index slipped almost 2%, trimming its year-to-date gain of more than 50%. Shares in key arms makers led the fall: Germany’s Rheinmetall dropped about 3.6%, Italy’s Leonardo shed roughly 5%, while Sweden’s Saab and Britain’s BAE Systems each lost around 3%. Sensor specialist Hensoldt slid more than 5% at one stage. The sell-off followed U.S. President Donald Trump’s announcement that he is arranging a meeting between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy, with a subsequent trilateral session including the United States. The White House discussions also advanced work on security guarantees for Kyiv, fueling investor speculation that large-scale weapons orders could slow if hostilities ease. Adding to the pressure, Hamas said it would accept the latest Egyptian-brokered cease-fire proposal for Gaza, further denting the appeal of defence stocks as geopolitical risk hedges. Broader European equities rose modestly, suggesting the pullback was concentrated in the defence complex.