European Stocks Reach Record Highs: Defense and Banking Lead Rally
European stock markets extended their strong advance, pushing major indices to new all-time highs. The movement is supported by optimism surrounding corporate earnings, falling inflation, and a rotation of capital towards more cyclical sectors.
The Stoxx Europe 600 rose 0.60% to 626 points, reaching record levels, with the impetus primarily coming from defense and banking companies.
United Kingdom: FTSE 100 Marks New Highs
In the United Kingdom, the FTSE 100 reached new historic highs after advancing 0.92%. The boost came after data revealed that inflation moderated to 3.0% in January, its lowest level in nearly a year.
This data reinforced expectations that the Bank of England could soon begin to cut interest rates. The market currently discounts close to a 90% probability of a rate cut in March 2026.
Defense and Aerospace Drive Gains
Defense sector companies were at the forefront of the day’s trading.
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BAE Systems (BA.UK) advanced 3.50% after posting record profits and highlighting a massive order backlog.
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Rolls-Royce Holdings (RR.UK) also marked new highs, with a gain of 2.70%, supporting the advance of the British index.
Investors continue to reward companies linked to the aerospace and defense sectors in an environment of persistent geopolitical tensions.
Beyond defense, banking and financial stocks rebounded after recent pressure on the sector. Commodity and energy companies also contributed to the widespread bullish movement in Europe.
ECB and Euro Digital
Member of the European Central Bank’s Executive Board, Piero Cipollone, highlighted progress on the euro digital project. The initiative seeks to protect the role of European banks within the payment system and strengthen local infrastructure against large global card networks.
Meanwhile, the euro weakened moderately following reports suggesting that ECB President Christine Lagarde could leave her post before the end of her term, introducing a new factor of uncertainty.
Geopolitics on the Radar
Investors remain attentive to geopolitical developments, including peace talks between Ukraine and Russia and negotiations between the United States and Iran over the nuclear program, factors that directly influence the macro environment and risk appetite.
UK Macro Data
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Overall Inflation: 3.0% in January (versus 3.4% in December), the lowest level in almost a year.
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Core Inflation: also moderated, reinforcing the expectation of rate cuts.
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Probability of a March 2026 Cut: the market currently discounts nearly 90%.
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Unemployment: rose to 5.2%, the highest level in five years.
This set of data strengthens the argument for a more flexible monetary policy. Investors now anticipate the first Bank of England rate cut in 2026, with the possibility of additional measures if the disinflation process continues.
