European defense stocks fell after Trump and Zelensky's meeting. What's next?

Shares of defense companies in Europe fell sharply after talks between Donald Trump, Vladimir Zelensky and European leaders at the White House. Strategist Christopher Smart notes that further events may develop according to different scenarios - from increased European support for Ukraine to a possible diplomatic split and tougher sanctions from the USA.

Defense stocks fared the worst in the pan-European Stoxx 600 index on the morning of August 19, as investors reacted to the outcome of the White House talks, CNBC writes.

The STOXX Europe Total Market Aerospace & Defense index, which tracks the sector, was down 1%. Shares of German tank component maker Renk fell almost 8%. Italian defense concern Leonardo also lost 7.9% of capitalization. Quotes of Swedish Saab fell by 7%.

The managing partner of the geopolitical consulting company Arbroath Group, Christopher Smart, noted Europe's serious interest in resolving the war in Ukraine, Barron's wrote.

If the talks result in Europe resuming its support for Ukraine with expanded military, financial and technical assistance, it could push up defense stocks in Europe and the U.S., as well as boost economic growth in Europe through increased spending, Smart said.

Should the U.S. push Ukraine and the Europeans to accept an unacceptable agreement (e.g., ceding territory to Russia or limiting military aid), Europe could respond by renegotiating its increased NATO spending commitments, diverting some of those funds to help Ukraine, Smart said. Such a military and diplomatic split, he said, would likely shake up markets - at least initially.

On the other hand, if the meeting pushes Trump to increase pressure on Russia, the main question is how far the U.S. is willing to go, the strategist notes. We are talking about possible tightening of already existing sanctions and implementation of threats, such as imposing 25 percent duties against India for Russian oil purchases, which are due to come into effect on August 27, Barron's specifies.

At Monday's meeting, which was closely watched by global markets, Trump said peace talks could begin even if fighting is still ongoing, dropping his previous demand for a cease-fire. He also said security guarantees for Ukraine would be "provided" by European countries "in coordination with the United States." Trump announced his intention to organize separate high-level talks between Ukraine and Russia.

Zelensky, for his part, said that a package of much-needed security guarantees for Ukraine - which is expected to include a large-scale purchase of U.S. weapons - will be "put on paper within a week to 10 days."

This article was AI-translated and verified by a human editor