European Stocks Surge Amidst Defence Rally & Steady ECB Rates

European shares saw an uptick on Thursday, bolstered by a strong rally in defence stocks. This fiscal optimism emerged as investors digested the European Central Bank's expected decision to leave interest rates unchanged. The pan-European STOXX 600 climbed 0.51% to settle at 555.13 points, with the aerospace and defence index achieving an unprecedented peak, rising by 2.5%.

The surge in defence stocks was largely influenced by geopolitical stress in Eastern Europe, following a recent incident involving Poland shooting down a suspected Russian drone. Notable gainers included BAE Systems with a 6.3% rise, Rheinmetall up by 2.3%, and Rolls-Royce advancing by 2.1%. The ECB maintained its current interest rates, leaving future moves dependent on emerging data, while lowering inflation forecasts for 2027 below its previous targets.

In other market developments, the construction sector jumped 1.4% after JP Morgan upgraded ratings for key European firms. Automaker Stellantis made significant strides with a 9.1% increase, driven by new leadership and model reintroductions. Meanwhile, broader market indicators were affected by U.S. consumer price data and the potential influence of future Federal Reserve rate cuts.