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Markets End Mixed as Defense Loses Ground

European equity markets finished the session largely flat, masking a notable shift beneath the surface as defense stocks extended their recent decline. Investor sentiment was shaped by renewed optimism around a potential peace agreement between Ukraine and Russia following high level talks over the weekend.

The pan European Stoxx 600 closed marginally higher at 589.35 points after briefly touching an intraday record of 589.61. The index ended the day up 0.11 percent, reflecting cautious optimism rather than broad based risk taking.

National benchmarks were mixed. The UK’s FTSE edged down 0.04 percent, Italy’s FTSE MIB lost 0.38 percent, while France’s CAC 40 and Germany’s DAX each gained around 0.10 percent.

Defense Stocks Slide on Peace Signals

European defense names underperformed sharply as investors reassessed near term demand expectations. Shares of Italy’s Leonardo dropped nearly 2 percent, Germany’s Rheinmetall slipped about 1 percent, while Renk, Norway’s Kongsberg and Sweden’s Saab also ended the session lower.

The Stoxx Europe aerospace and defense index fell 1.53 percent, making it one of the weakest performing sectors of the day. Losses were most pronounced in early trading before stabilizing later in the session as broader markets recovered.

The sell off followed reports of progress in peace discussions between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskyy, raising speculation that an eventual ceasefire could slow the pace of emergency military orders tied directly to the conflict.

Long Term Defense Spending Still Intact

Despite the short term reaction, analysts caution against reading the move as a structural turning point for Europe’s defense industry. Jacob Pedersen, equity strategist at Sydbank, said any pullback is likely temporary.

He noted that European governments remain committed to significantly higher defense budgets driven by NATO obligations, aging military equipment and long term security concerns that extend well beyond the war in Ukraine. Several NATO members have already pledged to raise defense spending toward or above 2 percent of GDP, with some targeting 3 percent over the next decade.

Pedersen added that a credible peace agreement could ultimately be positive for European equities overall by reducing geopolitical risk and stabilizing energy and supply chains, even if defense stocks face short term pressure.

Commodities React to Shifting Risk Outlook

Commodity markets reflected the shifting geopolitical tone. Silver briefly surged above $80 an ounce in early trading before retreating sharply, last trading near $71.55. Gold fell 1.6 percent to around $4,355 an ounce as safe haven demand eased.

Copper prices slid 4.2 percent to $5.59 a pound, pressured by profit taking and softer global growth expectations.

Oil prices moved in the opposite direction. U.S. crude rose 2.3 percent to $58.04 a barrel, while Brent crude climbed 2 percent to $61.89. Both benchmarks had declined roughly 2 percent in the previous session.

Investors weighed the possibility that an end to the war could gradually reshape energy flows, even as uncertainty remains around timing and enforcement of any agreement.

Peace Talks Show Progress but Gaps Remain

Following their meeting in Florida, Zelenskyy said negotiators had reached agreement on roughly 90 percent of a 20 point peace framework, including security guarantees for Ukraine. Trump echoed the progress but struck a more cautious tone, estimating talks were about 95 percent complete while acknowledging several unresolved issues.

Key sticking points continue to include territorial concessions sought by Russia and the scope and duration of security assurances demanded by Ukraine.

Quiet Trading Environment Ahead

Market activity is expected to remain subdued in the coming days due to the Christmas holiday period, with several European exchanges set to close for New Year’s Day. There were no major economic data releases or corporate earnings reports scheduled, leaving geopolitical headlines as the primary driver of short term market moves.