London Quick Take – 16 Dec - Ukraine peace deal hopes pin defence stocks back, oil hits 7-month low

Hopes for a Ukraine peace deal sent crude oil to a seven-month low and weighed on European defence names on Tuesday morning, after European leaders said they were ready to lead a multinational force to secure a peace deal and the US pledged to support Nato-style security guarantees for Kyiv. Whilst being seen by the markets as a positive,  it leaves tricky issues unresolved, like Kyiv giving up land to Russia in return for an end to the war. BAE Systems, Babcock and Rolls-Royce came under pressure in London, while Rheinmetall, Saab, Leonardo, Hensoldt, Renk, Thales all fell. Brent crude fell below $60 to hit its lowest since May.

The UK jobs market continues to look less sure-footed by the month. Today’s data showed further weakness as unemployment neared a five-year high at 5.1%, while the number of payrolled employees fell 0.1%. Cooler wage growth meanwhile makes the case for a swift response from the Bank of England stronger. A rate cut is assured this week but persistently weak labour market data like we are seeing should portend further cuts next year.

Certainty that the BoE is on side left the FTSE 100 enjoying a sold 1.1% rally on Monday with miners and financials leading gains. The FTSE 250 also rose 0.8%, while in Europe the CAC and DAX climbed. This morning though it’s looking a little tougher as defence stocks across Europe are struggling. I still feel like any peace deal in Ukraine is just a pause - a chance for Russia to rebuild its forces and Europe will need to more than keep pace.

The AI selloff is maybe not capitulation, but it’s not stopping. Oracle, which investors are worried is going to be slow to realise revenues from its massive – and increasing data centre investment – sold off another 2.6%, while CoreWeave was down 8% yesterday. Broadcom fell another 5% or so as its post-earnings slide continued. Nvidia meanwhile bounced a touch but remains around 15% below its all-time high.

Rotation continues as investors bought into consumer discretionary stocks and healthcare names in particular. Tesla rallied 3.5% to almost reach last year’s all-time high after a remarkable bounce back since April. The moves out of tech and into other corners of the market left the broad maker marginally lower for Monday’s session, with the S&P 500 down 0.16%, while the tech-heavy Nasdaq Composite dipped 0.6%.

Today we get a raft of US data – including flash PMI surveys, ADP weekly employment numbers, retail sales and the delayed November nonfarm payrolls report.