Falling policy rates? Not a trigger to sell the banks!
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FALLING POLICY RATES? NOT A TRIGGER TO SELL THE BANKS!
With the European Central Bank and the Federal Reserve both expected to deliver a rate cut this month, the market may believe that falling policy rates are a trigger to sell banks stocks.
"We think that's wrong," said UBS in a note on Monday, "given valuations, the confidence we have in our terminal EPS forecasts and the historical record which shows that banks generally outperform a rising market when rates decline."
The rising trend for net interest income among European lenders could be mostly over as borrowing costs decrease, but banks continue to perform well operationally.
In the second quarter, four banks out of five reported higher than consensus income, driven by non interest revenues, while impairments remained low despite a sluggish European economy.
With such balance sheet strength and aggregate sector profits likely to be broadly stable over 2024-2026, UBS stays positive on the sector and believes that the risk premium is too high in a soft landing scenario.
Following the recent market volatility, it notes that conferences in the next weeks will set the tone in banks for the last months of 2024.
Given the dispersion among the best and the weakest stocks (Monte dei Paschi di Siena BMPS.MI has a total year-to-date return of more than 60% while Societe Generale SOGN.PA has been falling almost 8%), "there's much to play for," UBS says.
(Matteo Allievi)
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EARLIER ON LIVE MARKETS:
SPIRITS: TIME TO BUY OR TIME TO SELL? CLICK HERE
INFLATION BACK TO PRE-COVID LEVELS, BUT NOT RIGHT AWAY CLICK HERE
TECH LEADS THE REBOUND CLICK HERE
EUROPE SET TO BOUNCE BACK CLICK HERE
CHINA STILL BUSY EXPORTING DISINFLATION CLICK HERE
Spirits makers suffer post-COVID hangover https://reut.rs/3XlrkLK
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