LIVE MARKETS European banks: great expectations ahead of Q4

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  • Major U.S. indexes higher; Nasdaq out front
  • U.S. Dec existing home sales < estimate
  • All major S&P sectors green: tech leads
  • Euro STOXX 600 index up ~0.3%
  • Dollar, crude ~flat; gold, bitcoin rise

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Betting on the recovery of European banks has proved a mighty popular and lucrative trade, with the sector's index doubling since the November 2020 vaccine breakthrough, and then most of the world's central banks entering a tightening cycle.

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The consensual "buy" rating on the sector seems here to stay unless a dramatic and nasty trend emerges from the earnings season.

Most of the banks listed on the pan-European STOXX are expected to report Q4 2021 results in February and the prospects are pretty good.

The broad financial sector as defined by Refinitiv is expected to show profits jumped 61.9% year-over-year, even higher that the average 48.6% seen for the STOXX 600.

In a note published today, Citi analysts provided clients with a rather long list of reasons to believe in European lenders:

1) The Fed will hike rates this year and the ECB should follow suit from 2023.

2) The direction of travel for yields is up

3) Rotation towards value stocks should provide a boost

4) Banks are trading on a discount both on their own historic average and against the broader market

5) Return on tangible equity is rising toward the cost of capital

6) Dividends and buybacks are on the way up

Here's the latest Refinitiv data for the different sectors of the STOXX 600:


(Julien Ponthus)



Wall Street's main indexes are higher on Thursday as results from American Airlines and Travelers kept the positive momentum going for the fourth-quarter earnings season, a day after the tech-heavy Nasdaq index plunged into correction territory.

This, as the U.S. 10-Year Treasury yield , has now deflated to the 1.8300% area after hitting a high of 1.9020% on Wednesday. With this, growth (.IGX) is enjoying its best day vs value (.IVX) in more than a month.

Indeed, tech (.SPLRCT), and FANGs (.NYFANG) are among outperformers in the early going. NYFANG index member Netflix will be reporting earnings after the close.

Meanwhile, as the Nasdaq Composite (.IXIC) attempts to recover, it faces resistance at its 200-day moving average, which now resides at about 14,750.

Here is where markets stand in early trade:


(Terence Gabriel)


S&P 500: ENOUGH ALREADY? (0900 EST/1400 GMT)

In the 11 trading days from its January-3 record close, the S&P 500 index (.SPX) has declined 5.5%. read more

Meanwhile, the 5-day moving average of the CBOE equity put/call (P/C) ratio, which can be viewed as a contrarian measure of sentiment, rose to 59% on Wednesday, or its highest level since a 59.2% reading on May 14 of last year. That high was just after the SPX completed a 4% slide, although in that case, over just three trading days:


So far, in premarket trade on Thursday, equity index futures are higher , and the P/C measure is ticking down to 58%.

Of note, since bottoming at 40.2% in June 2020, the P/C measure has ranged between high-30% and low-60% readings. If this pattern is to continue, then the measure could now be signaling that market sentiment may have become sufficiently bearish. If so, the SPX may have found, or could be very close to, a low of some form.

However, also of note, for around 20 years, from 2000 to 2020, the measure's range was mostly in the 50% to 90% area. It has only been post the COVID-crash, that the P/C measure's range has shifted down to similar levels that led up to the tech-bubble peak in 2000.

Therefore, traders will be watching to see if the P/C measure is to oscillate back down toward, or below, 40%. read more

A breakout much above the low-60% area, however, may signal panic. The measure peaked at 105% on March 17, 2020, in what would prove to be a more than 30% S&P 500 collapse.

(Terence Gabriel)



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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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