Shares of German munitions and military equipment manufacturer Rheinmetall (RHM.DE) are gaining nearly 5% today, after Chancellor Scholz indicated that the country's domestic defense spending will significantly exceed 2% of GDP in the next few years. The company estimates 2027 sales of €20 billion and an 18% operating margin that is high for the industry, and as part of its Capital Market Days presentation indicated that it feels it is a direct beneficiary of rising arms spending in NATO and the EU. The company's shares are trading up to new historic highs today and have risen more than 20% in the past 30 days. Rheinmetall also intends to enter the U.S. market and form a joint venture with Italy's Leonardo.
- Russia has confirmed Ukraine's first strike with US long-range ATACMS missiles; 5 of the 6 missiles Russia intercepted in the Bryansk region, parts of one of which were expected to damage an arms factory. The move is likely to lead to an escalation, before the onset of winter. Kremlin spokesperson Peskov, indicated that Moscow is not surprised that the final weeks of Biden's candidacy bring an escalation in the war; to investors, this opens the door to speculation around a potential 'temporariness' in the situation, which Donald Trump has pledged to resolve;
- Russia has announced an adequate response, with Vladimir Putin today signing an 'updated' nuclear doctrine, according to which Russia can use nuclear weapons, including in the scenario of conventional attacks on Russian or Belarusian territory. The Kremlin has indicated that the use of missiles leads to the conclusion that Western countries will be seen as directly involved in the war against Russia
Positive sentiment is also seen in other stocks of defense companies in Europe, including BAE Systems, Leonardo, Dassault Aviation and SAAB. Gold is gaining more than 1%, but energy commodities without much reaction to the prospect of geopolitical tensions; gas and oil contracts are trading flat today.
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