European equity markets advanced on Wednesday, edging closer to record levels. The pan-European STOXX 600 index rose 0.5% to reach 626.71 points, supported by a significant rally in the defense sector. Defense stocks surged more than 2% following a standout performance from the UK’s BAE Systems. The company reported a 10% increase in full-year sales to a record £30.7 billion, while underlying operating profit climbed 12% to £3.32 billion. BAE Systems shares jumped nearly 6% as the firm highlighted a record order backlog of £83.6 billion. Investor interest in the sector was further bolstered by reports that Germany is considering a minority stake in KNDS, the manufacturer of the Leopard tank, ahead of its planned listing. The market also processed reports regarding potential leadership changes at the European Central Bank. Financial Times reports suggest President Christine Lagarde may step down before the 2027 French elections to allow for a structured succession. Despite the news, market reaction remained calm. The ECB currently maintains its benchmark interest rate at 2.0%, with inflation projections stabilizing near the 2% target for 2026. Investors do not anticipate immediate shifts in monetary policy. Wider market moves were also influenced by earnings in other sectors. Carrefour shares dropped 5% after the retailer reported a decline in operating profit. Conversely, the German DAX climbed 0.8% and the UK's FTSE 100 gained 0.3%. Investor focus now shifts to the release of Federal Reserve minutes for further signals on the global interest rate outlook. In the UK, factory gate inflation eased to 2.5% in January, its lowest level in seven months, providing some relief to the broader economic narrative.