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Europe’s banks rise then roll on LTRO

Can Europe’s ailing banks really count on Draghi?

  • European banks are direct recipients of ECB’s new ‘QE-lite’ TLTRO programme of long-term funding at attractive rates.
  • Bank stocks duly rose—at least at first—on the announcement which was a partial surprise as the ECB gave details of timing (September 2019 to March 2021) and scope sooner than widely expected.
  • But that didn’t last. The Euro STOXX Banks index has plumbed 4-year lows, down as much as 4%
  • TLTRO III came with multiple negative trimmings. Some—like a big cut of growth the ECB expects in 2019 (now just 1.1% from 1.7%)—are alarming to investors in already struggling banks
  • The ECB also surprised by pushing out the date of its first hike in a decade to "through the end of 2019, and in any case for as long as necessary" from a previously vague though at least earlier, ‘through the summer’ guidance.
  • For some of the weakest global banks, many domiciled in the Eurozone, the news is little short of a revenue warning at the margin.
  • Deutsche Bank stock is infamously in a possible ninth possible annual decline in 12 years.
  • Since December though, shares have tacked on as much as 10%, as the market sizes up the revamp plan of its new CEO
  • Technically, the appearance of a rising wedge pattern in a downtrend can be interpreted as bearish
  • Recently established support at €7.70 looks far less convincing than the kickback low near €7.10 from early February. Breach of €7.70 could be the first sign that QE-lite won’t be as bullish news for Deutsche Bank and other laggardly banks as it appears

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