Europe Capital Markets Newsletter – 1Q26

European capital markets faced a more cautious environment in Q1 2026, as renewed US Dollar strength, rising bond yields, and energy-driven inflation pressures weighed on sentiment. Growth across Europe and the UK remained modest, while the ECB and Bank of England kept rates unchanged amid a cautious, data-dependent policy stance. Equity market performance was selective, with energy stocks outperforming on higher oil prices, while technology; banks; and other cyclical sectors lagged amid higher yields and risk aversion. Against this backdrop, investors continued to favor defensive and inflation-linked sectors in a higher-for-longer rate environment.