The ECB Maintains a Wait-and-See Stance as Inflation Eases, Sending Signals of Looser Policy

In February 2026, the European Central Bank (ECB) maintained its interest rate stability policy that has been in place since July 2025. At its monetary policy meeting on the 5th, it kept the deposit facility rate at 2.00%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%—marking the fifth consecutive hold decision. The policy statement emphasized that the euro area economy remains resilient amid global trade uncertainties and geopolitical tensions, with low unemployment, robust private sector balance sheets, and public spending on defense and infrastructure collectively supporting growth momentum and reducing the need for emergency rate cuts. Sustained cooling of inflation has provided a solid foundation for the ECB’s wait-and-see stance. According to the second estimate released by Eurostat on February 25, the euro area inflation rate fell to 1.7% in January, down 0.3 percentage points from 2.0% in December 2025, hitting its lowest level since September 2024 and falling below the ECB’s 2% medium-term target for the first time. Core inflation also dropped to 2.2%, the lowest since October 2021, while service sector inflation slowed to 3.2%. The comprehensive easing of inflationary pressures has gradually raised market expectations for medium-term policy loosening. The ECB’s Q1 Professional Forecasters Survey shows that overall inflation is expected to reach 1.8% in 2026 and rebound to 2.0% in 2027, with core inflation stabilizing at 2.0% across all time horizons, closely aligning with the central bank’s target.​

European stock markets in February exhibited a pattern of "stable indices and divergent sectors." The STOXX Europe 600 Index closed roughly flat on February 27 but extended its monthly upward trend, on track for an eighth consecutive month of gains, as capital continued to flow from U.S. stocks to core European markets including Germany, France, and the UK. Among major indices, France’s CAC 40 rose 0.81%, Germany’s DAX gained 0.4%, and the UK’s FTSE 100 advanced 0.42%, supported by solid economic fundamentals. Sector rotation emerged as a key market feature this month. Dragged down by a 5.5% plunge in U.S.-listed NVIDIA, European chip equipment giant ASML Holding fell 4.3%, but capital quickly shifted to AI risk hedging segments, with the UBS EU AI Risk Basket Index surging 3.8% in a single day. Sectors such as software, advertising, and professional publishing recovered earlier losses. Meanwhile, the chemicals and utilities sectors performed strongly—Spain’s Endesa SA jumped 7.1% on better-than-expected results, while auto and mining stocks also outperformed the broader market. In contrast, bank stocks pulled back following a warning from JPMorgan Chase CEO Jamie Dimon about a "deteriorating credit cycle." Individual stocks saw notable moves: London Stock Exchange Group soared 9.1% after announcing a share buyback program, and Spain’s Indra Sistemas surged 21% on beat earnings, becoming one of the best-performing blue chips of the month. On the flip side, Vodafone Group dropped 6.8% on February 5—its largest one-day decline in a year—after reporting weaker-than-expected 0.7% growth in German market service revenue. Despite reaffirming its full-year guidance and launching a €500 million share repurchase program, investor concerns persist over sluggish growth in its core markets.​

The most landmark event in Europe’s financial sector in February was the £9.9 billion acquisition of the UK’s Schroder Group by U.S. asset management giant Nuveen. Under the terms announced on February 12, Schroder shareholders will receive 612 pence per share (including 590 pence in cash and 22 pence in dividends), representing a 29% premium to the previous day’s closing price. Upon completion, Schroder will end its 222-year history of family control, and the combined asset management scale of the two firms will approach $2.5 trillion, ranking them among the world’s top active asset managers. Notably, the Schroder brand will be retained, London will serve as the non-U.S. headquarters of the merged group, and 3,100 jobs will be preserved—an arrangement interpreted by the market as recognition of Europe’s financial market status. Meanwhile, a financial risk incident has raised concerns: UK mortgage lender Market Financial Solutions (MFS) entered insolvency proceedings on February 25, with its £2 billion loan exposure affecting institutions including Barclays Bank and Apollo Global Management’s Atlas. Atlas faces potential losses on its £400 million exposure, and allegations of fraud and duplicate asset pledges mentioned by the judge have heightened worries about lax credit standards. Barclays has frozen related accounts, and the incident may exert short-term pressure on liquidity in Europe’s credit markets.​

Looking ahead, Europe’s financial markets will be characterized by "gradual policy loosening, steady economic recovery, and deepening structural divergence." While the ECB has kept rates unchanged for now, the sustained decline in inflation and resilient economic recovery have laid the groundwork for a rate-cut cycle starting in the second half of 2026, with the market widely expecting the first 25-basis-point cut to occur in September. In terms of economic growth, the ECB projects euro area GDP to expand by 1.2% in 2026 and 1.4% in 2027, while the unemployment rate will gradually fall from 6.3% to 6.1%. The steady improvement in economic fundamentals will provide support for stock markets. Regarding investment opportunities, sector rotation is likely to continue—sectors benefiting from policy support such as infrastructure and defense, as well as undervalued financial blue chips, deserve attention. Meanwhile, AI industry risk hedges and utilities stocks with stable earnings are expected to act as safe havens for capital. For global investors, Europe’s stock markets—with their undervaluation and recovery potential—are becoming increasingly attractive in global asset allocation, and capital inflows are expected to strengthen further.