BAE Systems
BA,
was a bright spot on a dark day for European stocks after the U.K.’s biggest defense company lifted its earnings forecast as the war in Ukraine helped deliver record orders.
Shares in London-listed BAE, which produces nuclear submarines, ammunition and the Eurofighter Typhoon jet, rose nearly 5% to sit just shy of the record high touched in May, after revealing it had secured £21.1 billion ($26.9 billion) of new orders in the first half of the year.
The FTSE 100 constituent said its order backlog was now a record £66.2 billion and after increasing first half underlying earnings before interest and tax by 10% to £1.3 billion it would undertake another three-year share buyback program totaling £1.5 billion.
“A strong set of first-half results have shown that BAE occupies a key space in the defense market. And with some of its biggest buyers, the U.K., U.S. and Europe, all expected to continue raising defense budgets over the coming years, the sky really is the limit for this jet-maker,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
BAE Systems shares have risen about 63% since Russia’s full invasion of Ukraine in February 2022 sparked a recalibration of defense spending by many western governments.
Gains for some U.S. defence groups have not been so impressive amid difficulties increasing capacity. Northrop Grumman
NOC,
shares are up about 13% over that period, while RTX, formerly known as Raytheon Technologies, are down about 7% after last month announcing a recall of engines powering Airbus jets.
Elsewhere in Europe the mood was distinctly sour after an unexpected downgrade of the U.S. government’s credit rating triggered selling of stocks, with the Stoxx Europe 600
XX:SXXP
index falling 0.9% in tandem with Wall Street futures.
Shares of Siemens Healthineers
SHL,
were among the worst performers in the index, dropping 6% after the company posted disappointing results in its Varian radiation oncology business.
The British pound
GBPUSD,
held near four week lows around $1.2775 ahead of the Bank of England’s policy decision due Thursday.
Kim Crawford, global rates portfolio manager at J.P. Morgan Asset Management, said she expected the BoE to raise interest rates by 25 basis points to 5.25% given recent data has been more mixed, but that it won’t be the last hike in the cycle.
“There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made. The level of wage growth and services inflation is still high, and the labor market remains tight,” said Crawford.
“We’ve recently started favoring gilts over other markets where valuations are, and have been, attractive for a while. But importantly, the fundamentals are now showing tentative signs of turning – the first signs of the UK participating in the global disinflation trend,” she added.
Ten-year U.K. government bond yields
BX:TMBMKGB-10Y
were down 1 basis point to 4.393%.
This post was originally published on Market Watch
