European markets edge lower as geopolitical uncertainty lingers; defense stocks continue rally

Shares of U.K. auto finance lenders continued their decline on Wednesday, a day after the Supreme Court rejected the U.K. government’s attempt to intervene in the motor finance scandal.

Shares of Close Brothers, Secure Trust Bank, and Vanquis Banking Group, formerly Provident Financial, began trading in the red after the decision by the U.K.’s highest court raised the uncertainty over billions in liability for the sector.

The government was worried that a lower court’s decision in October would impose heavy costs on lenders for car loans issued over many years, and potentially lead to withdrawal of credit for the sector. The Treasury Department had attempted to intervene in the case to limit losses for lenders and cap redress values for consumers.

In its 2024 ruling, Britain’s motor finance sector was found by the Court of Appeal to have “hidden” commissions for auto loans, in what could transpire to be one of the U.K.’s costliest consumer banking scandals.

Close Brothers and Secure Trust Bank stocks also fell by more than 8% on Tuesday, while Vanquis shares declined by 6.6%.

Lloyds Bank Group, one of the U.K.’s largest lenders, is also estimated to be on the hook for £4 billion ($5 billion) by analysts at Jefferies, while JPMorgan analysts believe the issue is likely to sit as an “overhang” on affected stocks until it is resolved.

“We view the rejection of the UK Treasury as a negative which we had highlighted as a key risk last…, especially given Chancellor Reeves’ comments in mid-Jan which had seemingly de-risked the extreme downside scenarios and driven share price out-performance for exposed players,” JPMorgan’s banking sector analyst Kian Abouhossein had said in a note to clients on Jan. 18.

— Ganesh Rao

Stocks tied to the regional defense sector were bolstered on Tuesday as investors continued to monitor developments on the Ukraine war and European military spending.  

The Stoxx Europe Aerospace and Defense index, which touched on record highs during Monday’s session, was up more than 1% by 9:09 a.m. London time.

German defense manufacturer Renk Group jumped 8.7%, while shares of Polish defense equipment maker Lubawa added 6.6%. German defense tech firm Hensoldt was up 4.1%.

The moves came after officials including EU Commission President Ursula von der Leyen, NATO chief Mark Rutte and U.K. Prime Minister Keir Starmer spoke publicly in recent days about boosting European defense spending. Meanwhile, European leaders met in Paris on Monday to discuss the war in Ukraine, as U.S. and Russian delegates prepared to meet in Saudi Arabia for peace talks that have so far excluded Ukrainian and other regional officials.

— Chloe Taylor

The U.K.’s unemployment held steady at 4.4% in the three months to December, data from the country’s Office for National Statistics showed on Tuesday.

The figure was flat on the previous quarter, when unemployment in the U.K. hit its highest level since the three months to May 2024. On an annual basis, the jobless rate was up by 0.5 percentage points.  

A hike in employer National Insurance contributions — a tax on workers’ income — announced by Britain’s government in October, was met with backlash as employers warned rising costs would limit their ability to take on new staff. In a November survey by the Confederation of British Industry, almost half of businesses said they planned to trim their workforces to cope with increasing expenses.

Finance Minister Rachel Reeves has defended her fiscal policies, arguing that she is “fighting every single day … to kick start the economy.”

— Chloe Taylor

European leaders gathered in Paris on Monday to discuss the path to peace in Ukraine, ahead of U.S.-Russia talks on ending the war that have so far excluded Ukrainian and other regional representatives.

After the emergency summit in the French capital, British Prime Minister Keir Starmer told reporters the war in Ukraine was an “existential question for Europe as a whole.”

“I’m prepared to consider putting British forces on the ground, alongside others, if there is a lasting peace agreement,” he said on Monday evening. “But there must be a U.S. backstop – because a U.S. security guarantee is the only way to effectively deter Russia from attacking Ukraine again.”

Starmer also addressed Europe’s role in bolstering its own defenses, something the Trump administration has been pressuring regional leaders to commit to in the form of increased defense spending. On Monday, European defense stocks rose to a record high after the weekend’s Munich Security Conference saw officials discuss hiking their defense budgets.

“President Trump has long expressed the wish for Europe to step up and meet the demands of its own security,” Starmer said on Monday. “Today’s informal meeting was a vital first step in responding to that challenge. On defense, it’s clear the U.S. is not going to leave NATO — but we Europeans will have to do more … Europeans will have to step up, both in terms of spending and the capabilities that we provide.”

Starmer told reporters he would travel to Washington next week to meet Trump.

— Chloe Taylor

European markets are expected to open broadly higher Tuesday.

The U.K.’s FTSE 100 index is expected to open 3 points higher at 8,768, Germany’s DAX up 64 points at 22,857, France’s CAC flat, down 1 point at 8,194 and Italy’s FTSE MIB 185 points higher at 38,587, according to data from IG.

Earnings are set to come from Capgemini and the InterContinental Hotels Group. On the data front, French inflation data is due, as is the latest ZEW survey of economic sentiment in Germany and Europe.

— Holly Ellyatt