European and UK Equity Capital Markets Review January 2026

• After a strong 2025, equity markets have continued that momentum into 2026, despite an increase in geopolitical tensions. Small caps in particular have performed well in January, with the FTSE 250 outperforming the FTSE 100 (+3.5% vs +2.9%), and the Russell 2000 outperforming the S&P 500 (+5.3% vs +1.4%). There is further evidence of this in the UK, with the FTSE AIM 100 up 6.1% and FTSE Small Cap up 3.7%. Concerns over an AI bubble and capex spend in Big Tech has continued, with the Nasdaq up just 0.9% in January, whilst the equal weighted S&P 500 closed up 3.3%.
  
  
• Market speculation regarding threats to the Fed’s independence and dollar weakness saw strong rallies in commodities, particularly in gold and silver, with both hitting all time highs – however, there was a sharp price reversal towards the end of the month on the announcement of Kevin Warsh as President Trump’s choice for the new Fed Chair, a candidate perceived to be as more hawkish than some of the alternatives. Speculative money likely amplified the reversal.
  
  
• The outlook for 2026 remains one of cautious optimism particularly on an improving global growth outlook, however, concern over the Fed’s independence, dollar weakness and volatility in the US administration's policies may see some corrections in the equity and wider markets. Geopolitics remains a theme and was in focus in January, with escalating tensions in the Middle East and increasing noise from the US regarding Greenland. Fresh tariff threats against European nations who were opposed to Trump’s interest in Greenland, and their subsequent withdrawal after President Trump's meeting with NATO's Mark Rutte at the Davos’ World Economic Forum, saw a spike in intramonth volatility above 20 but a retreat back towards month end.
  
  
• In the UK, economic data has shown a strong start to the year. PMI data came in above consensus expectations and marked a 21-month high, with gains seen across the manufacturing and services sector. Meanwhile the UK also saw an improving trend in its retail sales with reported retail sales growth stronger than expected in December and lifted substantially in Q1, Q2 and Q3 of last year. Whilst UK CPI data surprised to the upside for December, increasing to 3.4% from 3.2%, core inflation remained at 3.2%. Sterling was relatively unfazed by the upside inflation surprise, as markets seemed to take comfort from the fact that the 3.4% inflation was below the BoE’s projection made at the time of the November meeting.
  
  
• After a run of policy decisions from the BoE, ECB and Fed in December, January was relatively quiet, with the Fed the only one of these three to hold a policy meeting. In December, the ECB held rates at 2%, stating that policy remains appropriate for current conditions. In the UK, following a narrow decision to hold rates in November, the BoE cut rates by 25bp in December, as was widely expected. In the US, the Fed also delivered a 25bp cut in December, noting that rates are now at the upper end of neutral and that it is well positioned to pause and assess economic developments. As such the Fed held rates at 3.50-3.75% in January, with comments from Powell indicating that the Fed was in no rush to adjust policy anytime soon.
  
  
• Following another strong year for equity markets and increasing secondary ECM activity in 2025, the UK and Europe look well positioned for continued recovery in IPOs and overall ECM issuance in 2026. ECM markets have started the year well, with ECM issuance above the 10-year average for January, and IPO markets are also off to a strong start with CSG and ASTA Energy Solutions priced in January. Both IPOs were oversubscribed and have performed well in the aftermarket. The US is expected to see good IPO volumes this year, with SpaceX, OpenAI and Anthropic all rumoured IPO candidates.
  
  
• In the UK, ECM activity is off to a slightly slower start. There was $326m of issuance in January vs $4,674m in January 2025, however removing the impact of the Haleon and British American Tobacco ABBs ($3,055m and $1,490m) sees just $129m of issuance in January 2025. The UK IPO market looks set to continue its momentum in the current year, with several large IPOs rumoured for 2026.
   

• Equity markets have begun 2026 well, with all key equity indices finishing up in January. Continuing the trend seen in 2025, Europe outperformed the US as headlines regarding tariffs and the new Fed chair heightened volatility. Increasing escalation in Middle East tensions and tariff tension surrounding Greenland saw a rally in European defence and commodity names. In safe-haven assets, gold rallied above $5,000 an ounce and silver rallied to over $100 an ounce – however, a reversal in Trump’s initial stance on Greenland saw a pull back in commodity stocks towards the end of the month.
• Trump’s pick of Kevin Warsh for the next Fed Chair saw US markets weaken – Warsh, whilst an advocate for lower rates, is viewed as a relatively hawkish pick given his previous expressions of caution over excessive monetary easing and the size of the Fed’s balance sheet.
• This volatility, along with US$ weakness and greater commodities exposure, drove continued UK and European outperformance. On an LTM basis to the end of January, the FTSE All Share closed January up 17.0% and the Stoxx 600 up 13.2%. In the US, the S&P500 closed up 14.9% (4.0% in GBP terms), the S&P500 Equal Weighted up 9.2% (-1.1% in GBP) and the Nasdaq up 19.5% (8.2% in GBP).
• In the UK, the more domestically focused FTSE 250 outperformed its more internationally exposed FTSE 100 counterpart finishing the month up 3.5% as dollar weakness weighed on blue chip earnings translation. The FTSE 100 was up 2.9%, the FTSE AIM 100 up 6.1% and FTSE Small Cap up 3.7%. Elsewhere in January, the Stoxx600 was up 3.2%, S&P 500 up 1.4%, Nasdaq up 0.9% and Russell 2000 up 5.3%.
   

• US equity valuations saw a strong recovery post-Liberation Day, driven by a strong performance of Big Tech, but Europe’s rally into the end of 2025 saw the valuation gap reduce. Whilst the headline valuation differential between US and UK / EU equity markets remains significant, after adjusting for growth (and sector skew therefore...) that differential significantly reduces.
• Whilst UK equity market valuations do trail those in the US, adjusting for growth it is arguably fewer higher growth opportunities rather than an inability to value growth that drives the differential.
• A large part of the valuation differential across geographies can be attributed to large cap Tech valuations. As can be seen in the latest BAML fund manager survey concern about AI driven tech valuations remains a key ‘tail risk’ for investors, but investors are hesitant to reduce their exposure too far for “fear of missing out” (FOMO).
• The solid performance of the FTSE over 2025 has started to close the valuation gap to US markets, but there is still a long way to go particularly for the FTSE 250. However, the more domestic focused FTSE 250 will be less affected by continued dollar weakness, supporting earnings growth on a relative basis vs large caps.

• UK December CPI inflation surprised to the upside, increasing to 3.4% y/y from 3.2% in November, and above consensus calls for 3.3%. Service sector inflation increased to 4.5% from 4.4%. However, importantly core held steady at 3.2%, in line with consensus.
• Eurozone inflation fell to 1.9% in December from 2.1%, whilst core fell to 2.3%. In the US, CPI inflation for November held steady at 2.7%, with core inflation coming in at 2.6%.
• At its December meeting, the ECB maintained the Deposit rate at 2.00% noting that it felt monetary policy was well suited to the current economic environment. In the UK, December’s MPC meeting saw rates cut by 25bps to 3.75%, as widely expected. Having held rates at the November meeting with the vote split 5-4, the Governor represented the swing vote in December. Given lingering concerns regarding inflation, and commentary that policy rates are closer to ‘neutral’ but anticipating inflation to cool further this year our Economists expect a Bank rate of 3.25% at the end of 2026.
• Having cut rates at its December meeting, the Fed held rates at 3.50-3.75% in January. The Fed now judges the Fed Funds target range to be at the upper end of estimates of the neutral rate. As such the Fed is now "well positioned" to wait and see how the economy evolves, although the nomination of Kevin Warsh as the next Fed Chair amid ongoing threats to Fed independence leaves some extra dimensions of uncertainty.

• After a turbulent year in 2025, investor sentiment on the outlook for Europe is strong, with investors remaining overweight Europe, and the majority of investors expecting Europe to outperform the US over the next 12 months. This sentiment has been aided by strong global growth expectations and bullish profit expectations.
• Geopolitics has risen to become the biggest tail-risk for investors but has not stopped the decline in cash levels which hit a 12-year low of 2.8% among European survey participants, and an all-time high of 3.2% for global survey participants.
• A record net 95% of participants in the latest BAML investor survey project upside for European equities over the coming twelve months – with German fiscal stimulus the main catalyst.
• The UK Budget on 26 November introduced a couple of months of uncertainty to the UK market, but has been taken positively in the months since.

IPO issuance in Europe

• US$4,813m raised from 7 IPOs in January 2026 across Europe, with an average deal size of US$687m. There were 2 IPOs greater than US$50m including Czech industrial-technological holding company Czechoslovak Group (CSG) (US$4,470m), and Austrian copper-based power generation company ASTA Energy Solutions (US$198m).
• Both IPOs were well covered and received cornerstone support. Both IPOs came at attractive discounts to their listed peers and have seen strong performance in the aftermarket.
• CSG’s IPO is most notable due to its size, and is the largest European IPO since Porsche in 2022 (including full exercise of the greenshoe), and a powerful opener for European IPO markets in 2026.
• In 2025, there were 49 IPOs greater than US$50m, raising $17.8bn in total, with an average issue size of $363m (vs 47 IPOs in 2024, generating $17.9bn, with an average of $381m). Most core European IPOs have traded higher post issue; this has provided investors with positive returns and created a constructive feedback loop for those issuers looking to come to market over coming quarters.
• Changes to the FTSE UK Index Series will heighten the attraction of a UK listing, allowing non-sterling denominated securities index inclusion, and a faster entry threshold for larger companies (free float greater than £1bn and market position greater than 225th).
• Additionally, changes to the prospectus rules saw the prospectus exemption threshold for further issuances of listed securities raised from 20% to 75% of existing share capital within 12 months.
• The pipeline for European IPOs in 2026 is robust, with several flagship assets expected to come to public markets. Defence is expected to remain a key theme.