The idea of this blog is not to add tension, doom and gloom to the existing environment. After the big sell-off in equities and the rally in Bonds I just wanted to get a better picture of how European Sectors performed and if there are important levels to watch.

Like I did recently with Asset Performances in the U.S. let’s look at how European Sectors have been performing recently.

With bonds yields dropping so much recently and similarly to the U.S., Utilities have been outperforming massively. Same for the other sectors benefiting from lower yields or the defensive ones.

For the Utility Sector, that translates into this huge breakout that happened last December – DJ STOXX 600 Utilities:

At the end of the spectrum and if we put aside the sectors massively impacted by the Coronavirus, like Travel & Leisure, Auto, Oil, Basic Ressources, the Banking Sector has been flashing red.

The DJ STOXX 600 Bank Index is now down 15% on the year, almost twice more than the benchmark: the STOXX 600.

It is getting closer to a strong support at ~115 or roughly 5% from here. It really feels like we will soon retest those levels.

In October 2019, I looked at Banks when the sector was trading ~130 with at the time was offering decent risk/return: https://gregoiredupont.com/european-banks-is-there-any-hope-here

It never felt like the Sector was out of the woods but decisions took by ECB in September momentarily helped the sector.

In the meantime it went up more than 10% but without any doubt situation has changed recently and the price action is worrying.

Below are the fundamentals for European Banks vs Other Banks:

Price Action in Europe has not been much worst than the sector globally but the problem is that it is getting closer to very important technical levels.

The only small relief is that it appears a bit oversold vs the recent Bund move. But looking at how the U.S. Treasury has been behaving recently that might only be for the Bund to catch-up.

The bottom line is that the Coronavirus sell-off has created big moves across asset classes where safe heavens played their roles and there has been dispersion between sectors.

As the DJ STOXX Bank Index is getting near key level that should be one of our top sectors to monitor in our watchlist. (But again I guess it never really went out from our “Scary Watchlist” in recent years).

I hope it helps,

Gregoire