Market wrap: European indices set new highs 🚀

• European stock markets continued their strong rally, pushing major indices to fresh record highs, supported by optimism around corporate earnings, falling inflation, and capital rotation toward cyclical sectors.

• The Stoxx Europe 600 index is gaining 0.60% to 626 points at new record levels, driven primarily by defense and banking stocks.

• In the United Kingdom, the UK100 index (FTSE 100) reached new record highs, rising 0.92% after inflation slowed to around 3.0%, the lowest level in nearly a year. This reading strengthened expectations that the Bank of England may soon begin cutting interest rates.

• Defense companies were among the main drivers of today’s rally. Shares of BAE Systems (BA.UK) are up 3.50% following the release of record profits and news of a massive order backlog.

• Rolls-Royce (RR.UK) also hit new highs, gaining 2.70% and supporting the advance in the UK100. Investors are rewarding companies linked to the aerospace and defense sectors.

• Beyond defense, banking and financial stocks also rebounded, supporting the broader upward move in Europe after previous pressure on the sector. Commodity and energy companies also contributed to the gains.

• ECB Executive Board member Piero Cipollone highlighted progress on the digital euro project, which is intended to safeguard the role of European banks in the payments system and strengthen local payment infrastructure against global card networks.

• The euro weakened moderately following reports that ECB President Christine Lagarde may step down before the end of her term, introducing an element of uncertainty.

• Geopolitical developments remain in focus for investors, including peace talks between Ukraine and Russia and US–Iran negotiations over the nuclear program, which are shaping the broader macro risk backdrop.

United Kingdom macro data

• Consumer inflation in the UK fell to 3.0% in January (from 3.4% in December), reaching its lowest level in nearly a year and easing cost-of-living pressures.

• Core inflation (excluding the most volatile components) also slowed, reinforcing expectations that the Bank of England may begin cutting interest rates as early as March 2026. Markets are currently pricing in around a 90% probability of such a move.

• The UK unemployment rate rose to around 5.2%, the highest level in five years, further strengthening the case for monetary easing.

• Investors are now expecting the first BoE rate cut in 2026, with the possibility of additional cuts if the disinflation process continues.