Defence groups set to rake in record cash as military spending soars

Good morning. We start the week with updates on hostilities in the Middle East and Ukraine, including a visual deep dive into Ukraine’s Kursk incursion.

The conflicts have led to a surge in cash for the defence industry, which is benefiting from a sharp increase in government orders for new weapons, our top story shows.

The world’s leading 15 defence contractors are forecast to log free cash flow of $52bn in 2026, according to analysis by Vertical Research Partners for the Financial Times — almost double their combined cash flow at the end of 2021. 

In Europe, national champions BAE Systems, Rheinmetall and Sweden’s Saab, which have benefited from new contracts for ammunition and missiles, are expected to see combined cash flow jump by more than 40 per cent. Here’s how the industry could spend its record levels of cash.

• Defence start-ups: Y Combinator, the San Francisco incubator that launched Airbnb, Reddit and Stripe, is backing a weapons company for the first time.

Here’s what else I’m keeping tabs on today:

• Economic data: Ifo publishes its business climate index for Germany, while Spain releases its July producer price index.

• Markets closed: England, Wales and Northern Ireland observe the summer bank holiday.

Thanks for reading. Do you have questions about today’s news on the defence industry, or about FirstFT? Email us at [email protected] or hit “reply” and remember to include your name and where you’re writing from. We’ll answer as many as possible in a special weekend edition of the newsletter.

Five more top stories

1. Israel’s military launched a wave of air strikes in southern Lebanon yesterday in what it said was an attempt to foil an “extensive attack” by the Hizbollah. The sharp escalation of hostilities between Israel and the Iran-backed militant group was their biggest exchange of fire since they fought a 34-day war in 2006.

2. Telegram says its chief executive Pavel Durov “has nothing to hide” after he was arrested in France, prompting criticism from Russian lawmakers. The Russia-born billionaire, a dual French-Emirati citizen, was arrested at the Paris-Le Bourget airport after French authorities began a preliminary probe into whether a lack of moderation on his platform had facilitated criminal activity.

• War in Ukraine: A member of a Reuters news team was killed and two others were injured after a Russian missile attack on their hotel in the eastern Ukrainian city of Kramatorsk.

• Russian finance: A complex scheme to swap Russian and western investors’ frozen assets has met less than 10 per cent of the Kremlin’s original target.

3. Central bankers left their Jackson Hole gathering cautiously hopeful about a soft landing for the economy as they now turn their attention to lowering borrowing costs. The heads of both the Federal Reserve and the Bank of England signalled they were still on course to avoid a global recession. But here’s why challenges remain to correctly pacing rate cuts.

4. Exclusive: Ikea has launched a peer-to-peer marketplace for secondhand furniture to take on the likes of Ebay, Craigslist and Gumtree. The platform will be tested in Madrid and Oslo until the end of the year with the aim of rolling out the buying and selling platform globally. Here’s what Ikea Preowned means for the Swedish retailer.

5. China’s tech giants have doubled capital spending this year as they splurge on AI infrastructure despite US sanctions. Alibaba, Tencent and Baidu said the focus was on buying processors and hardware related to powering the training of large language models for artificial intelligence. Read the full story.

• US-China relations: After a Chinese spy balloon flew over the US last year and sent ties to a low point, a secret backchannel stabilised relations. The Financial Times reveals how this channel came about and the details of how it operated.

Visual story

For months, Ukrainian forces had been losing ground to Russia and morale was low. Then on August 6, they blasted through the border to become the first foreign army to seize Russian territory since the second world war. In 10 days Kyiv’s forces turned the tables, transforming the Kursk region into a war zone. Our latest visual story explores how they pulled off a spectacular counterpunch against Moscow.

We’re also reading . . . 

• Rise of ‘the rest’: An emerging market revival has begun, writes Ruchir Sharma, but investors have yet to take heed of the dramatic global implications.

• Nuclear arms race: The world’s nuclear non-proliferation regime is under greater pressure than at any time since the end of the cold war, the head of the UN’s watchdog told the FT.

• Société Générale: Shares have fallen 19 per cent since chief executive Slawomir Krupa announced his strategy of focusing on capital rather than growth.

• Nigerian scams: The country is keen to help global law enforcement crack down on online “sextortion” after more than 63,000 fake Instagram and Facebook accounts were removed.

Chart of the day

Mining bosses have warned against plunging into the M&A market and repeating mistakes of the past as forecasts mount that the industry is on the verge of a dealmaking boom. “I have no fomo,” Rio Tinto’s chief told the FT, referring to the fear of missing out on deals.

Take a break from the news

What happened to having a “brat” summer, the mood set by Charli XCX’s chartreuse-coloured album of the same name? Now everyone’s talking about being “very demure, very mindful”. TikTok memes may be silly, writes Jo Ellison, but they are the great social emollient of our times.

Additional contributions from Benjamin Wilhelm