European defence stocks hit record as geopolitics lift dollar, oil

The broader pan-European STOXX 600 was down 0.2%. Japan's Nikkei lost 1.6% overnight amid rising tensions with China and Wall Street futures eased 0.2%

European defence stocks jumped to a record high and oil prices and the dollar both made ground on Thursday, as the rumbling geopolitical tensions from Venezuela to Greenland kept traders guessing.

The seizure of two Venezuela-linked oil tankers in the ‍Atlantic came alongside news US Secretary of State Marco Rubio ​will meet Denmark's leaders to discuss Greenland next week, while there was some mixed economic data thrown in too.

Europe's record high STOXX aerospace and defence stocks index jumped nearly 2 per cent early on in a fifth straight day of gains that has already seen them surge 13 per cent this year - and more than 260 per cent since Russia's 2022 invasion of Ukraine. 

 

The euro, meanwhile, was on track for its eighth straight drop against the dollar, though mixed US economic data on Wednesday was keeping the dollar bulls in check ahead of Friday's closely watched non-farm payrolls report. 

"What investors are realising is that the threat of geopolitics is not going away," Peter ​McLean, Head of Multi-Asset Portfolio Solutions at Stonehage Fleming Investment Management, said.

"While it is unlikely we see military action in Greenland there is clearly an impetus to increase defence spending in Europe."

Oil prices have slid this week on the prospect of higher Venezuelan crude output, though they recovered on Thursday, with Brent futures clawing back above $60 a barrel and US crude rising 0.5 per cent to $56.30 a barrel,

Top US officials said on Wednesday the country needs to control Venezuela's oil sales and revenue indefinitely to stabilise the latter's economy, rebuild its oil sector and ensure it acts in America's interests.

"The market's negative reaction to the Trump comments on controlling Venezuela's oil looks a little misplaced," said Daniel Hynes, ANZ's senior commodity strategist.

"US control of oil sales could actually mean ongoing sanctions or restrictions remaining in place in the short term, which would be bullish for oil prices. I suspect that is why prices are recovering."

Elsewhere, stocks mostly traded lower following a strong start to the New Year that lifted markets globally.

The broader pan-European STOXX 600 was down 0.2 per cent. Japan's Nikkei lost 1.6 per cent overnight amid rising tensions with China and Wall Street futures eased 0.2 per cent. 

"It seems the Asian markets are just taking a breather after a strong start to 2026," said Charu Chanana, chief investment strategist at ??Saxo.

"Geopolitical headlines are in the driver's seat," Chanana said, pointing to China's dual-use export ban to Japan, and talk of potential rare earth risk.

Shares in Japanese chemical manufacturers had fallen in Tokyo although those of ‌their Chinese rivals jumped after China's commerce ministry said it was launching ​an anti-dumping probe into imports of chemicals used in chipmaking.

PAYROLLS UP NEXT

Geopolitics aside, investors also had their eye on the US weekly initial jobless claims coming later and the intensely watched non-farm payrolls jobs report due on Friday, which could provide further clarity on the Federal Reserve's rate outlook.

Analysts ??at Goldman Sachs said they are forecasting an above-consensus 70,000 rise in nonfarm payrolls in December, while expecting the unemployment rate to edge down to 4.5 per cent.

Wednesday's slew of ??data had painted a mixed ‍picture with JOLTS labour market figures bolstering the "no hire, no fire" view on the jobs market, while ISM services index for December hit a reassuringly-robust 14-month high.

The readings did little to alter market expectations of two more Fed cuts this year. Ten-year Treasury yields were muted at 4.15 per cent and ‍Germany's 10-year bund ‌yields were at ​2.8 per cent, still down over 7 bps this week.

Back in the currency markets, sterling last bought $1.3458, Japan's yen rose ‍slightly to 156.67 per dollar.

Safe-haven gold dipped 0.5 per cent to $4,420 an ounce and silver and platinum dropped 2.6 per cent and 3.2 per cent respectively after their recent surges.

"One of the big ‍risk ‍factors this year is the direction of ‌bond yields," Stonehage Fleming's McLean said. "If the 10-year Treasury yield does fall below 4 and then fall further I think that would be a real positive."