European and UK Equity Capital Markets Review May 2025

• Equity markets continued to recover ground lost post Liberation Day as Trump rolled back on the severity of tariffs, at least temporarily, and in some cases reversed decisions (dubbed the “TrumpAlways Chickens Out” trade). As such US markets outperformed their European counterparts over May, having underperformed in April. However YTD, European markets are still far outpacing theUS with the FTSE 100 +7.3%, FTSE 250 +2.0%, FTSE AIM +4.4%, and Stoxx600 +8.1%. However, the month’s strong performance has meant some US markets are now up year-to-date too, withthe S&P500 +0.5%, S&P500 Equal Weighted +0.6%, whilst the Nasdaq sits just in the red at -1.0%. The smaller cap Russell 2000 is currently sitting down -7.3% YTD.
  
  
• Tariffs and trade policies announced by Trump continued to dominate the headlines. European markets were impacted at the latter end of the month by Trump’s proposal to impose a 50% tariff on imports from the European Union, stating that trade talks were “going nowhere”. Trump also included a threat of 25% tariffs on iPhones unless Apple moved production to the US, which sent the shares 3% lower on the day. Strong Nvidia earnings and Musk’s return to Tesla helped buoy the Magnificent 7 at the end of the month.
  
  
• Volatility has continued to fall from the levels reached in April, averaging 20.5 over the course of May, a level that supports Equity Capital markets activity. The VIX volatility index hit an intraday peak of 25.5 on 7 May after the Fed held interest rates while warning of higher inflation and labour market risks, and again on 23 May following Trump’s announcements regarding the EU and Apple. Whilst these levels were elevated, they were still considerably lower than April’s peak of 60 reached on 7 April, its highest level since 2020 and the onset of Covid.
  
  
• For the month of May, the FTSE was up 3.3%, FTSE 250 up 5.8%, Stoxx600 up 4.0%, S&P 500 up 6.2%, Nasdaq up 9.6% and Russell 2000 up 5.2%. Treasury yields moved a lot over the course of the month, initially driven by Moody’s downgrade of US sovereign debt, and subsequently as a result of weak auctions particularly for longer dated bonds as investors grow increasingly concerned on rising US federal debt and fiscal deficits. US 10-year Treasury yields finished the month at 4.40%, and UK 10-year Gilt yields at 4.65%.
  
  
• Economic data continued to be a key focus for investors. The European Commission reduced forecasts for economic growth in the Eurozone to 0.9% from 1.3% for 2025 reflecting rising tariffs and uncertainty. In the UK, the BoE cut rates by 25bps to 4.25% at the beginning of the month stating they expected inflation to peak at 3.5% inflation in Q3 2025. Subsequent data showed that higher utility and administered prices pushed UK inflation to 3.5% in April (consensus 3.3%), the highest level since January 2024, up from 2.6% in March. However, strong retail sales and robust q1 GDP figures provided the market with some relief regarding the UK economy.
  
  
• The latest BAML fund manager survey shows a continuation of positioning trends by investors, with fund managers remaining overweight Europe and underweight the US. Positively, post April, investors have become less bearish on the global economy with a reduction in fund managers’ expectations for both global CPI and for a hard landing. Most positively for the UK, the region now ranks second to Germany as the most favoured European region for allocations, with Germany supported by their plan for higher fiscal spending.
  
  
• ECM activity remained muted at the beginning of the month, following the trend seen over April, but improved as markets continued to strengthen. Total ECM volumes in May 2025 for Europe were $9.4bn vs $10.2bn in May 2024. Volumes picked up over the course of the month, with notable deals including another sell down from Galderma of $2.2bn (the fourth in the last 12 months) and another sell-down by Apollo of Lottomatica of €497m.
  
  
• As we enter the final month of 1H25, the market expects ECM activity for the EU and the UK to be second half weighted. The recovery in equity markets following the ‘Liberation Day’ tariffs and the success of deals is providing more confidence that ECM activity will continue to gradually recover back to more normalised levels.

• European equity markets continue to outperform their US counterparts YTD, with markets globally continuing to be affected by the ongoing uncertainty regarding tariffs since ‘Liberation Day’. However, markets have now recovered the majority of those losses. President Trump’s at least temporary suspension of many of the original proposals (the so-called “TACO trade” –Trump Always Chickens Out), plus the US court’s ruling that the tariffs could not be imposed under the legal basis cited, although now under appeal, has led to a rally in equity markets. Towards the end of the month, Nvidia’s strong earnings saw improved sentiment towards the US – despite this investors have increasingly looked to diversify portfolios away from the US since Liberation Day.
• Whilst headlines continue to be dominated by President Trump’s policy agenda, volatility has continued to subside since the peak in the days following Liberation Day. The VIX moved from 25 to 19 over the course of the month.
• In the UK over May, the FTSE 250 outperformed its larger cap counterpart finishing the month up 5.8%, vs the FTSE 100 which finished up 3.3%, partly due to the FTSE’s larger exposure to the dollar and US earnings. The blue chip index remains ahead YTD. For the month of May, the FTSE was up 3.3%, FTSE 250 up 5.8%, Stoxx600 up 4.0%, S&P 500 up 6.2%, Nasdaq up 9.6% and Russell 2000 up 5.2%.
   

• Following the movement in markets over the course of April, US equity valuations have now recovered much of their losses. The headline valuation differential between US and UK / EU equity markets remains significant, however after adjusting for growth (and sector skew therefore...) that differential significantly reduces.
• Until recently Economists and Strategists predicted positive returns for global equities over 2025, including more modest gains for US equities (relative to prior years). Following the fallout from ‘Liberation Day’, global investors’ views on the US have significantly pivoted, with many pulling money from the US and into European (inc. UK) equities, cash and bonds as well as into gold.
• 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 FTSE250. Despite this improvement, as at the end of May, the FTSE All-Share still sits at a 40% discount to the S&P, and a 24% discount on an equal weighted basis (at a headline level).

• UK inflation for April jumped to 3.5% y/y from 2.6% in March above consensus estimates of 3.3%. Service sector inflation climbed to 5.4% from 4.7%. Core rose to 3.8% from 3.4%, higher than consensus of 3.6%. A number of administrative price changes took place in April, notably a 26.1% surge in water and sewerage charges, plus in other service sector areas. Airfares saw a sharp jump around Easter.
• Eurozone CPI data flatlined in April remaining at 2.2%. In the US, CPI fell to 2.3% y/y in April from 2.4% in March.
• Following recent tariff announcements and market volatility, markets have reassessed the rate outlook. Currently they price in one more rate cut in the Eurozone and two additional cuts in the UK and in the US by the end of 2025. Fears of a US slowdown and weaker activity elsewhere due to tariffs remain, balanced in the case of the US by concerns about potentially higher price pressures.

• Tariffs have increased uncertainty globally, although investors have pared back from their peak bearish views in April over the course of May. The latest BAML survey showed 59% of investors were bracing for a global slowdown, down from 82% in April, and 30% expected global CPI to be higher in 12 months’ time, down 26ppt from April (the largest decline since May 2022). It is evident that investors remain unclear on the outlook given the wide range of possible outcomes.
• European equities have continued to be net beneficiaries of improving fundamentals and a growing view amongst investors that US exceptionalism has peaked. German fiscal stimulus and budgetary reform continue to be viewed as a core catalyst for an improving growth outlook for the European economy. The latest BAML fund manager survey indicates that a net 38% of global investors are overweight European equities (up from 22% in April), and a net 38% underweight US equities.
• Behind Germany, the UK is now the favoured European market, particularly given the country’s exposure to the banking, insurance and utilities sector - the sectors most overweight by investors.

IPO issuance in Europe

• US$520m raised across five IPO’s in May 2025 across Europe, at the end of the month the UK’s Cobalt Holdings announced its IPO of $230m, however the IPO was subsequently aborted.
• The May IPOs greater than $50m were German management consultant innoscripta ($215m), German technology company Pfisterer ($186m) and Greek fintech Qualco Group ($111m).
• There were four IPOs over US$1bn in 2024, with Asker Healthcare the largest IPO of 2025 at US$886m, surpassing HBX Group’s IPO of US$772m.
• Recent volatility has pushed a number of potential IPO launches from H125 into H225.
• In the UK IPO volumes are expected to be second half weighted; so far in 2025 UK IPO’s have been well received, for example MHA is currently trading up 6.0%. We continue to think that the FCA Listing Rule reforms will be helpful tailwinds for UK IPOs.
• 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 (market capitalisation greater than £1bn and market position greater than 225th).

^{Source: Company announcements; FactSet; Practical Law
Note: Scorecard includes competing offers and withdrawn of companies subject to the Takeover Code quoted on AIM or the Main Market. Formal sales processes are not included unless a buyer has been identified. Only newly announced offers in the month are included in the count (i.e. possible offers announced in December 2025 will be included in that month even if it becomes a firm offer in January 2025).}