Let’s start with the Chart of the Week – all the credit here goes to @fwred

Not new here but with a good chart we can clearly see the obvious: there has been a massive correlation between the performance of European Banking Sector and yields (or bund here).

Negative yields are not helping (euphemism) European Banks.

Meaning that for turning positive on European Banks, you need to turn bearish on the Bund = yields going up.

And this is what you are going against:

As some of you know:

But I have some indicators that tell me it could be different this time.

First, one of the best traders I know, told me on the 12th of September during the last ECB meeting that bund was probably making a decent top. Then we had a reversal on that day. And guess what? we have not seen new highs since then.

The second indicator is for me the tiering decided by the ECB (on that same day) which should massively be helping the European Banks by offseting negative interest rates. On top of that, since it has been announced, my view was that tiering will mechanically bring selling pressure on the Bund as they could now park their money at 0%.

But I agree: a lot of theory so far and price action is midly convincing. Both on a Sector Level:

Where we recently retested the 115 lows.

Or when you look at charts of Commerzbank, Deutsche Bank, Societe Generale…

So yes long term chart is not great and fundamentals have not changed. But both are improving and to say that investors are underweight that sector is another euphemism.

I am not calling for this time is different but at least 115 as a stop offers a good risk management with limited downside.

Finally if you want to do some intra sector building, you could be looking at this:

I hope it helps,

Gregoire