Tuesday, 12 May 2026, at roughly 7:30 pm AEST, Treasurer Jim Chalmers will stand up in Canberra and deliver the 2026-27 Federal Budget. According to Budget.gov.au, that is when the Budget is officially released, with the Budget papers going live online at the same time.

But this is not just another Budget night.

The Treasurer is putting together a fiscal plan while rates are moving higher, not lower. That is what makes this one feel different. The Reserve Bank of Australia (RBA) lifted the cash rate to 4.35 per cent on 5 May, its third straight hike this year, in an 8 to 1 vote.

That is the part Australian market participants may not want to overlook.

Budget basics in plain English

The Federal Budget is basically the government’s plan for the year ahead. It sets out how much it expects to spend, tax and borrow, along with its forecasts for growth and inflation.

Markets usually care less about the big speech and more about the details buried in the papers. Think deficits, debt issuance, inflation assumptions, household relief, infrastructure spending and sector-specific surprises.

The Treasurer has already flagged a productivity package and a savings package. The Prime Minister has also shifted the broader message towards ‘national resilience’.

Those phrases may sound political, but they can matter for markets once the numbers are released.

The 2026–27 Budget catalyst watchlist

Budget night scenarios

None of these are predictions, rather they are frameworks for thinking about how markets may initially react once the Budget papers are released.

A short pre-budget checklist

Where it can go wrong

The Budget rarely writes the whole script. In fact, some measures may already be priced in. Offshore moves can dominate, details may be revised in coming weeks, and the RBA’s June meeting may matter more than any single line item.

Sector winners can still fall if valuations are stretched and the next inflation print may also overwrite the night’s narrative.

Takeaway

For newer Australian market participants, the key point is this: the Budget is a catalyst, not a crystal ball and the job is not to guess every measure. It is to watch how the Budget shifts expectations for rates, inflation, government borrowing, household income and company earnings.

That is the chain that moves prices, often well after the speech is over.

Join us on Wednesday morning for GO's reeaction and what it means for the Aussie dollar, the ASX and your trading.

ASX defence stocks are back on more watchlists and according to the Stockholm International Peace Research Institute (SIPRI), global military spending reached approximately US$2.718 trillion in 2024, up 9.4% in real terms.

Australia’s current defence settings are set out in the 2024 National Defence Strategy and related investment planning documents, which outline long-term capability funding priorities. Furthermore, Canberra has pointed to A$330 billion of capability investment through 2034, including added funding for surface combatants, preparedness, long-range strike and autonomous systems.

Here is the part most people miss: not all ASX defence stocks are the same trade. Some sit close to naval shipbuilding. Some are counter-drone names and some are smaller, higher-risk operators where one contract may matter much more than the market assumes.

5 volatility questions Aussie traders are asking right now

These five names are not a buy list, rather they are a practical watchlist for investors trying to understand where procurement momentum may actually show up on the ASX.

1) Austal (ASX: ASB)

Austal is one of the ASX-listed companies most directly exposed to Australia’s naval shipbuilding pipeline, although contract execution, margins and delivery timing remain important variables.

They aren't just winning random contracts; they have signed a massive legal agreement (the Strategic Shipbuilding Agreement) that makes them the official partner for building Australia's next generation of mid-sized military ships in Western Australia.

In February 2026, the government gave Austal the green light on a $4 billion project. This isn't for just one ship, it’s for 8 "Landing Craft Heavy" vessels. These are huge transport ships (about 100 metres long) designed to carry heavy tanks and equipment directly onto a beach. But here is the part most people miss, shipbuilding is a marathon, not a sprint.

As you can see in the delivery timeline, while construction starts in 2026, the final ship won't be delivered until 2038. For an investor, this means Austal has a "guaranteed" stream of income for the next 12 years, but they have to be very good at managing their costs over that long period to actually make a profit.

2) DroneShield (ASX: DRO)

If you have seen footage of small drones disrupting modern battlefields, DroneShield is building part of the "off switch". Its focus is counter-drone technology, including systems that detect, disrupt or defeat drones using electronic warfare, sensors and software-led tools, rather than relying only on traditional munitions.

By early 2026, DroneShield had moved beyond the label of a promising start-up and into a much larger commercial phase. It reported FY2025 revenue of A$216.5 million, up 276% from FY2024, and said it started FY2026 with A$103.5 million in committed revenue.

One point the market may overlook is the software layer in the model. DroneShield reported A$11.6 million in Software as a Service (SaaS) revenue in FY2025 and said it is working towards SaaS making up 30% of revenue within five years. Its subscription model includes software updates for deployed systems, which adds a growing stream of recurring revenue alongside hardware sales.

Among ASX defence stocks, DroneShield is one of the most direct ways to follow the counter-UAS theme. It is also one of the names where sentiment can swing quickly, because growth stories can rerate both up and down when order timing changes.

The defence stocks to watch: The Iran War winners & losers

3) Electro Optic Systems (ASX: EOS)

EOS builds both the "brain" and the "muscle" for military platforms. It is best known for remote weapon systems, which allow operators to control armed turrets from inside protected vehicles, and for high-energy laser systems aimed at counter-drone defence. EOS has said its unconditional backlog reached about A$459.1 million in early 2026, following a series of contract wins through 2025. That points to a much larger base of secured work, although delivery timing and revenue conversion still matter.

EOS signed a €71.4 million, about A$125 million, contract with a European customer for a 100-kilowatt high-energy laser weapon system. EOS says the system is designed for a low cost per shot and can engage up to 20 drones a minute. The Australian Government has set aside A$1.3 billion over 10 years for counter-drone capability acquisition, and EOS has disclosed that it was part of a successful LAND 156 bid team. That does not guarantee future revenue, but it does support medium-term visibility in a market the company is already targeting.

EOS reads as a rebound story, but one that still depends on execution. The company has reoriented around remote weapon systems, counter-drone systems and lasers, all areas tied to stronger defence spending. The key question is whether it can keep converting backlog and pipeline into delivered revenue while maintaining balance-sheet discipline.

4) Codan (ASX: CDA)

Codan is sometimes left out of casual defence stock lists because it is more diversified. That may be an oversight. In its H1 FY26 results, Codan said its Communications business designs mission-critical communications for global military and public safety markets. Communications revenue rose 19% to A$221.8 million. The company also said DTC delivered strong growth from defence and unmanned systems demand, with unmanned systems revenue up 68% to A$73 million. Codan said about half of that unmanned revenue was linked to operational defence applications in conflict zones.

This is where the story becomes more nuanced. In a basket of ASX defence stocks, Codan may offer a different profile, with less pure headline sensitivity, broader operating diversification and meaningful exposure to military communications and unmanned systems without being a single-theme name. That diversification may also mean the stock does not always trade like a pure-play defence name.

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5) HighCom (ASX: HCL)

HighCom sits at the speculative end of this list, and it should be labelled that way. The company says its two continuing businesses are HighCom Armor, which supplies ballistic protection, and HighCom Technology, which supplies and maintains small and medium uncrewed aerial systems, counter-uncrewed aerial systems, and related engineering, integration, maintenance and logistics support for the ADF and other aligned regional militaries.

In H1 FY26, revenue from continuing operations fell 59% to A$10.9 million, while EBITDA moved to a A$5.4 million loss from a A$1.9 million profit a year earlier. HighCom also disclosed A$5.1 million in HighCom Technology revenue, including A$3.5 million from small uncrewed aerial systems (SUAS) spare parts and A$1.6 million from sustainment services provided to the Australian Department of Defence.

So yes, HighCom is one of the more financially sensitive ASX defence stocks on the board. But it is also the kind of smaller name that can show how procurement filters down into support, sustainment and specialist protection gear.

Key market observations

• Track program milestones, not just political headlines. Contract awards, manufacturing starts, delivery schedules and sustainment work often matter more than a single announcement day.
• Separate pure-play exposure from diversified exposure. DroneShield and EOS are closer to concentrated defence technology themes, while Codan brings communications exposure within a broader business mix.
• Watch sovereign capability themes in Australia. Austal and EOS are tied to local manufacturing, integration and Australian supply chains, which supports the broader sovereign capability theme in this group.
• Pay attention to balance sheets and cash conversion. Procurement momentum can be real even when timing gets messy. HighCom's latest half is a reminder of that.

Global volatility and CFDs: how to trade after a geopolitics shock

Risks and constraints

Defence headlines can look immediate. Earnings usually are not. Austal's major naval work stretches into the next decade. EOS contracts are delivered over multiple years. DroneShield's order flow appears strong, but the company still separates committed revenue from broader pipeline opportunity. HighCom shows the other side of the coin. Exposure to procurement does not automatically translate into smooth financial execution.

References to ASX-listed defence stocks are general information only, not a recommendation to buy, sell or hold any security or CFD. These stocks can be highly volatile and are sensitive to contract timing, government policy, geopolitics, execution risk and market conditions. Backlog, pipeline and revenue expectations are not guarantees of future performance.

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On February 28, 2026, as the joint US and Israeli attack began, the numbers on the screens started moving in ways that felt clinical, even as the reality on the ground with the tragic deaths of civilian casualties in Iran, felt anything but. Markets, as they say, do not have a moral compass, rather they have a weighing machine and right now, they are weighing the transition of the entire global economy from a "just-in-time" model to a "just-in-case" cycle.

What markets were signalling

On March 2, the index tape stayed cautious while defence rose. Historically, conflicts can speed up restocking and orders but how big it gets (and how fast) still depends on budgets, approvals and delivery bottlenecks.

The Winners

1. Hanwha Aerospace (012450.KS)

Hanwha is one of the more actively traded names linked to the “K-Defence” theme, a company markets increasingly view as a scalable supplier into a tightening global artillery and munitions cycle. Capacity and delivery credibility.

When replenishment becomes urgent, the ability to produce at scale often matters as much as the platform itself. Export demand tied to systems like the K9 Thunder and Chunmoo has reinforced the narrative of durable order flow even when outcomes still hinge on budgets, approvals and delivery timelines.

Key things that can move sentiment: order-book updates, production cadence, and any follow-on export announcements.

‍2. Northrop Grumman (NOC)

Northrop moved into focus as investors repriced exposure to strategic modernisation and large, long-running programs. Defence markets often seen as mission-critical can persist across cycles. It’s less about one quarter and more about whether momentum stays steady if modernisation priorities remain in place (and whether timelines shift if they don’t).

Key variables that can move sentiment: Procurement pace, contract timing, and program-related funding language.

3. RTX Corporation (RTX)

RTX returned to the centre of the tape as investors priced an interceptor replenishment cycle and the economics of high-tempo air defence. Attrition is expensive and when usage rates rise, governments typically have to replenish inventories and, in many cases, fund production expansion which can extend backlog and lift revenue visibility.

Key variables that can move sentiment: Replenishment orders, manufacturing expansion indicators, and delivery throughput.

4. Lockheed Martin (LMT)

Lockheed drew attention as markets focused on missile-defence demand and the question every procurement desk faces in a high-tempo environment: how fast can inventories be rebuilt? If utilisation stays elevated, the winners tend to be the contractors best positioned to scale production and deliver reliably. Lockheed’s missile defence exposure keeps it closely tied to that replenishment narrative.

Key variables that can move sentiment: production ramp signals, unit economics, and budget-driven order cadence.

5. BAE Systems (BA.L)

With an £83.6 billion backlog and a central role in the AUKUS submarine program, BAE moved into focus as parts of Europe signalled higher defence spending ambitions. The stock rose 6.11% to a 52-week high amid a “risk-off” rotation, with traders watching AUKUS milestones and European air and missile defence procurement, including “Sky Shield”.

Key variables that can move sentiment: A potential catalyst is any clear step-up in German spending that lifts order flow across BAE’s European units, while key risks include a sharp spike in UK gilt yields, renewed pound sterling volatility, or “threat of peace” profit-taking.

The Losers: not every ‘war stock’ rises

6. AeroVironment (AVAV)

AeroVironment surged 18% at the open before falling 17% intraday after reports that the US Space Force was reopening a US$1.4 billion contract. The move highlights how procurement processes and contract risk can drive volatility, even in supportive thematic environments.

7. Kratos Defence (KTOS)

Kratos sits in the drone and loitering munition theme that gained attention as the Middle East conflict intensified. The stock still sold off after earnings, highlighting a common defence-sector risk. Kratos announced a large follow-on equity offering in the US$1.2 billion to US$1.4 billion range, the move strengthens the balance sheet and can support future program investment.

For traders focused on short-term “conflict premium” narratives, dilution can quickly change the setup. Even when demand conditions appear supportive, the market may reprice the stock if each shareholder ultimately owns a smaller portion of the business.

8. Intuitive Machines (LUNR)

Some speculative space-tech names lagged as investors appeared to favour companies with more established defence-linked revenue.

9. Boeing (BA)

Boeing was down around 2.5% on the session. While its defence division is meaningful, its commercial business can be more sensitive to aviation demand, airspace disruptions and oil-price moves.

10. Spirit AeroSystems (SPR)

Spirit AeroSystems remains closely tied to the global aircraft production cycle as a major aerostructures supplier. Recent results showed widening losses despite higher sales, reflecting ongoing production cost increases on major aircraft programs. These pressures have weighed on investor confidence in the near-term outlook. The planned acquisition by Boeing may ultimately reshape the company’s position in the supply chain, but execution risk and production stability remain central to how the market prices the stock.

What to watch next

• Escalation vs de-escalation: A shift toward diplomacy or ceasefire discussions can quickly change sentiment around defence stocks.
• Oil and shipping: Energy spikes can tighten financial conditions and pressure cyclical sectors.
• ‍Budgets and awards: Price moves can sometimes precede contract decisions, with clarity arriving when awards are finalised.
• ‍Production capacity: Companies with proven production and delivery track records often attract the most investor attention.
• Supply chain constraints: Rare earths, propulsion and electronics remain potential bottlenecks that can limit how quickly production scales.

The longer term lens

The 2026 Iran conflict is first and foremost a human tragedy. For markets, it may also represent a shift in how national security spending is prioritised within fiscal frameworks. If defence spending remains elevated over a multi year horizon, companies with scalable manufacturing capacity and integrated technology stacks could attract sustained investor attention. That said, markets move in cycles. Structural themes can persist, but they can also reprice quickly when assumptions change. Staying analytical and risk aware remains critical.

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^{References to specific companies, sectors or market movements are provided for general market commentary only and do not constitute a recommendation, offer or solicitation to buy or sell any financial product.Market reactions to geopolitical or macroeconomic events can be volatile and unpredictable, and outcomes may differ materially from expectations.}