Ukraine peace deal hopes rock Footsie: BAE Systems, Rolls-Royce and Shell among the many losers

Hopes of peace in Ukraine knocked billions of pounds off the value of the FTSE 100 yesterday as defence stocks fell and the oil price tumbled below $60 a barrel.

Britain’s biggest defence contractor BAE Systems fell 1.7 per cent, or 29p, to 1664.5p and Babcock dropped 3.6 per cent, or 45p, to 1214p.

Engine maker Rolls-Royce and Melrose – owner of GKN Aerospace – also both went into reverse. Rolls-Royce fell 1.4 per cent, or 16p, to 1098p and Melrose dipped 1.9 per cent, or 10.4p, to 550p.

Major defence companies in Europe and the US also fell. Germany’s Rheinmetall slid 4.1 per cent, Sweden’s Saab fell 4.8 per cent and Italy’s Leonardo slumped 3.9 per cent.

America’s Lockheed Martin was nearly 2 per cent lower shortly after the close in London while Raytheon and Northrop Grumman also dropped.

On the oil markets, Brent crude dipped by as much as $1.84, or 3 per cent, to $58.72 a barrel. It was the first time it has gone below $60 since May.

Closing in: Volodymyr Zelensky and Donald Trump in Washington. The Ukrainian president said proposals for a deal to end the fighting could be finalised within days

That helped send the FTSE 100’s oil majors Shell and BP lower. Shell dropped by 2.7 per cent, or 72p, to 2626.5p and BP slipped 3.4 per cent, or 14.95p, to close at 422.5p.

The combined declines for the FTSE 100 defence stocks and oil firms added up to £9billion – mostly accounted for by the oil giants.

They helped drag the overall index lower, closing down 0.7 per cent, or 66.52 points, at 9684.79.

It came after Ukrainian president Volodymyr Zelensky said proposals being negotiated with US officials for a deal to end the fighting could be finalised within days. US President Donald Trump said: ‘I think we’re closer now than we have been ever.’

Progress could yet be halted by the response in Moscow, which may baulk at proposals including post-war security guarantees that would be given to Ukraine.

But the market reaction suggests traders are repositioning for the possibility of peace.

Oil prices are being impacted because of speculation that sanctions on Russia – a major oil exporter – may be eased.

And defence companies are being hit despite it being widely accepted that Europe will need to spend more on rearming even if the war ends.

Vladimir Putin’s aggression, combined with the apparent reluctance of Trump’s America to come to Europe’s aid, has highlighted the Continent’s vulnerability. Defence firms are still sharply higher than when Russia’s attack began in 2022.

But Dan Coatsworth, head of markets at broker AJ Bell, said that while peace in Ukraine would be positive after nearly four years of fighting, it would have ‘negative consequences for the oil and defence sectors’.

Oil prices were hit as ‘a peace deal with Ukraine could potentially see more supplies fed into the oil network, acting as a drag on price’, he added.

And any deal could also serve to change the narrative for investors in defence firms, Coatsworth said.