JPM Europe Equity Research Today’s Morning Meeting

Europe First to Market 17 August 2026

Today’s Morning Meeting | Also Published Today | Key Changes | JPM Events | Upcoming Earnings

Today’s Morning Meeting Equity Strategy (Mislav Matejka, CFA)

We maintain a positive stance on the equity market, expecting continued supportive Growth - Inflation tradeoff, with corporate earnings a tailwind. Internal participation is broadening, and Cyclical sectors are likely to keep rallying. We look for new highs at index level into year end, including for SXXP. In the report, we update on key themes, with a focus on Europe: 1) Energy security, Grid upgrade, Renewables and Nuclear. The post-REPower EU drive to cut strategic energy dependence, alongside critical raw materials and net zero industry measures, is actively pushing domestic capacity higher. 2) German fiscal expansion and Infrastructure upgrade. Germany’s constitutional debt-brake release has unlocked greater funding for defence and infrastructure projects, anchored by the EUR 500bn special infrastructure and climate fund. 3) Strategic Technologies. The focus is on AI buildout and industrial automation. 4) Defense Modernization. Rising NATO spending commitments and EU-level joint procurement and defense-industrial initiatives, such as ReArm Europe / EDIP-type programs and common munitions replenishment contracts. In terms of our stance on Defense sector, ever since last summer we have been arguing for a rollover, given that the theme became overowned. Given that Defense stocks spent more than a year struggling to perform, and saw a meaningful derating, we believe that risk-reward for the group is turning better going forward, but with a focus on new capabilities, rather than on legacy businesses. 5) Increased EU protectionism. On protectionism and sovereignty, Europe’s preference for standards and regulation over simple tariffs is already visible in the Carbon Border Adjustment Mechanism (CBAM), local content requirements in wind, grids, defense, foreign subsidy screening, and anti-subsidy actions on EVs, solar and wind. Out of other potential themes, even as they might not be a focus in the short term, we mention Aging Population and Ukraine Reconstruction and Eastern European Buildout.

European Capital Goods (Phil Buller/Akash Gupta/Chitrita C Sinha)

OW Sector Thesis and Strategy Theme Alignment

Our Strategy team updated their key themes this morning with a focus on Europe (see here), which highlights that Europe is attempting to move from an efficiency and economies of scale model toward a greater focus on security, resiliency, and strategic autonomy. We agree with their assertions that the implication of this being a longer lasting, policy-supported capex cycle which spans defence, energy systems, grids, industrial capacity, digital infrastructure, and selected critical supply chains – this closely aligns with our positive bottom-up view on EU Industrials/Capital Goods (see here). Relative to the US, Europe starts from a deeper underinvestment in the aforementioned verticals, so the catch up could be meaningful. We would also argue that PMI’s and Q2 results are already starting to show early evidence of a sequential acceleration (see figures 6 & 8), which is far from being reflected in relative valuations (see figures 2, 3 & 4). We remain bullish on H2 and the outlook into 2027 for the sector as a whole.

Rheinmetall (David H Perry, CFA) (RHM GR, N)

EMEA Equity Research AC Europe Equity Research ( August 2026 JPMORGAN

Strong Q2 26 results, but growing uncertainty over the medium-term

On Aug 6th RHM reported strong Q2 26 sales and EBITA, although FCF was much weaker than expected (Table 1). More importantly, RHM made two significant changes to its FY26 guidance which cause us some concern. First, it cut its guidance for its end 2026 order backlog to “>€100bn” from “>€135bn” reflecting the cancellation of the F126 frigate and a smaller than expected initial contract for the Boxer armoured vehicle. Second, it cut its guidance for 2026 capex to 8-9% of sales from 16% and said its 2027-28 capex would also be lower than expected. In our view, these developments should imply that RHM’s 2027- 30 sales will be lower than expected (although RHM…