BofA Upgrades Saab and Dassault, Downgrades Babcock and Renk

JPMorgan said in a note Wednesday that European defense investors are favoring companies with long-duration order books and hard-to-replace products, while marking down those whose technology could be displaced. The European defense sector has underperformed local markets by about 6% this year on average, though with wide variation between individual stocks, analyst David Perry noted. JPMorgan rates BAE Systems, Leonardo and Babcock Overweight, saying all three have those defensive characteristics, while investors have significantly de-rated companies such as Rheinmetall, CSG and Renk on fears their technology could be displaced. JPMorgan placed MTU Aero Engines and Leonardo on Positive Catalyst Watch, ahead of MTU's capital markets day on Nov. 30 and Leonardo's industrial plan update in March 2027, and put Rheinmetall on Negative Catalyst Watch, saying it does not expect the company to cut its 2030 sales goal of 50 billion euros even though the bank's own forecast is 36.9 billion euros. Perry said the debate over technology displacement is complex and the answer will not be clear for many years, making investor events at Rheinmetall on Nov. 27 and Renk on Dec. 8 important, and added that Rolls-Royce and Safran should remain strong performers over the medium term and are core holdings.

US President Donald Trump has denied an Axios report stating that his administration had offered to ease sanctions on Iran, including allowing access to frozen funds, in exchange for Iran softening its stance on its nuclear program. Trump said via social media that the story was untrue and that he had offered nothing to Iran, and he called on Axios to retract the report immediately. Xinhua reported that the Axios report came after Trump rejected a ceasefire proposal put forward by the Iranian side over the past weekend. The peace deal proposed by Iran called for the United States to halt its maritime blockade of Iranian ports in the Strait of Hormuz, in exchange for Iran reopening the remaining sections of the strait and reviving negotiations over its nuclear program. Iranian Foreign Minister Abbas Araghchi said on Sunday, September 27, in response to Trump's rejection of the peace proposal, that it was up to President Trump to choose between diplomacy and continuing war, stressing that Iran was fully prepared if war were to break out again and would stand firm against any form of aggression, even if it led to an apocalyptic war.

President Xi Jinping's official visit to the United States from September 23 to 25 produced an announcement of eight points of consensus reached jointly with President Donald Trump, spanning strategic stability, global trade, security and technology cooperation. At the heart of the first point is the building of a constructive relationship based on mutual respect, fairness and reciprocity, while the two leaders support each other in hosting the year-end leaders' meetings, with China hosting APEC in November and the United States hosting the G20 summit in December. On the economic and trade front, working teams from both countries reached agreement to establish a trade committee, or Board of Trade, and reciprocal tariff reductions worth 30 billion dollars, alongside cooperation on law enforcement. The two sides also agreed to set up a joint consultation mechanism on artificial intelligence in November, open an emergency communication channel for AI-related incidents, and draw up a memorandum of understanding on military communications to prevent crises and reduce the risk of confrontation. The United States also welcomed two giant pandas to Zoo Atlanta.

The dollar index held steady near a two-month high, supported by a stalemate in peace talks between the United States and Iran, which pushed oil prices sharply higher and increased the likelihood that the Federal Reserve will raise interest rates. As of 11:05 p.m. Thailand time, the dollar index was up 0.24% at 101.210 and was on track for a 1.7% gain this month, which would be its largest monthly increase since June. Meanwhile, investors increased their bets that the Fed will raise rates twice more this year, with the CME Group's FedWatch Tool indicating that investors now assign a 68.1% probability to a 0.25% Fed rate hike to a range of 4.00-4.25% at the October meeting, up from 57.6% a week earlier, and a 55.1% probability of another 0.25% increase to 4.25-4.50% in December, up from 44.1%. In global oil markets, crude prices surged more than 3%, with West Texas Intermediate crude breaking above 95 dollars per barrel and Brent crude topping 108 dollars per barrel, after President Donald Trump rejected Iran's conditional peace proposal to open the Strait of Hormuz and told aides he expected the United States to strike Iran again after the November midterm elections. Investors are also watching several economic data releases this week, including the August personal consumption expenditures price index due on Wednesday, manufacturing figures on Thursday, and the September nonfarm payrolls report on Friday.