Banks have led sectoral performance this year and maintain robust momentum, underpinned by a sustained Goldilocks environment. Even amid falling interest rates, revenue resilience persists, with negligible asset-quality pressures.
This strength, first evident in US banks’ stellar 3Q earnings season, has now materialised in Europe. EU banks delivered 3Q pre-tax profits c.5% above consensus, with three-quarters of institutions beating estimates. Revenue and net interest income exceeded expectations by 2%, driven by over 75% of banks outperforming forecasts, culminating in pre-provision profits c.4% ahead of consensus. In addition to the strong earnings season, many European banks have announced new buybacks, which is supportive of further momentum.
In terms of price action, the SX7E has made several attempts to break resistance over the past few months, and we propose Long SX7E Jan26 245 calls to play the breakout. (Spot ref, 238.2, Fut ref. 237.9).