Ukrainian military personnel prepare a Leopard 2A4 tank ahead of a training exercise conducted by the Spanish military, at the San Gregorio military base outside Zaragoza, Spain, on Monday, March 13, 2023.
Paul Hanna | Bloomberg | Getty Images
LONDON — European defense stocks extended losses on Wednesday, after talks between U.S. President Donald Trump, Ukrainian President Volodymyr Zelenskyy and European leaders raised hopes for a pause or end to the conflict.
The Stoxx Europe Aerospace and Defense index finished 1.13% lower following a 2.6% loss on Tuesday, which Deutsche Bank's Head of Macro and Thematic Research Jim Reid attributed to "speculation about a diplomatic breakthrough."
Defense declines came amid a mixed performance for European bourses. The U.K.'s FTSE 100 jumped 1.08% to notch a second straight record closing high. The index was led by medical technology company Convatec, which launched a share buyback of up to $300 million.
However, France's CAC 40 and Germany's DAX closed 0.08% and 0.6% lower, respectively. Technology was another of Europe's worst-performing sectors, down 0.5%, mirroring losses on Wall Street.
FTSE 100 index.
Markets were also reacting to U.K. inflation, which came in at a hotter-than-expected 3.8% for July. Despite rising expectations that the Bank of England could keep interest rates on hold for the rest of the year, the British pound slipped by around 0.3% against both the U.S. dollar and the euro.
In a note after the inflation data was released, Sanjay Raja, chief U.K. economist at Deutsche Bank, attributed the upside surprise to Britain's Office for National Statistics collecting its price data later than usual, meaning it coincided with school summer holidays.
"Prices for airfares and sea-fares tend to be more volatile later in July as demand picks up," he said. "In fact, according to the ONS airfares were up a staggering 30% m/m – the highest monthly increase going back to 2001."
He argued that this would likely unwind within the next month or so, but conceded that "there's more upward momentum left."
That, Raja added, left the Bank of England grappling with "an uncomfortable trade-off," where its policymakers were weighing high price momentum against a sluggish labor market.
Stateside, investors braced for the release of minutes from the Federal Reserve's July meeting. At the time, policymakers once more held steady on interest rates, but Fed Governors Christopher Waller and Michelle Bowman dissented, marking the first time two voting Fed officials have done so since 1993.
Traders are also focusing on key speeches from Fed officials when they convene in Jackson Hole, Wyoming, for the Fed's annual economic symposium on Thursday.
The Fed funds futures market is indicating an 84.9% chance for a quarter-point rate cut at the Fed's next policy meeting in September, according to CME's FedWatch tool.
— CNBC's Alex Harring contributed to this report.
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