Europe Capital Markets Newsletter – 2Q25

European equities maintained strong momentum in Q2 2025, with the STOXX Europe 600 and FTSE All Share index rising 9.3% and 8.9%, keeping pace with the S&P 500’s 10.2% gain. Defense stocks like Rolls-Royce (+32%), Airbus (+23%), and Safran (+15%) led the charge, supported by higher NATO defense budgets and growing geopolitical tensions. Industrials performed well on the back of solid policy support, while rate cuts from the ECB helped lift real estate and utilities. Although, GDP forecasts have been revised down and the valuation gap with the US has widened, easing inflation and signs of stronger consumption in Germany and France suggest a gradual recovery. European defense and high-tech firms, in particular, stand to benefit from sustained government spending and long-term budget commitments.