European Banks Are Falling Out of Favor With Equity Strategists

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(Bloomberg) -- If you ask stock strategists, European banks are no longer a unanimous buy.

Deutsche Bank AG on Friday lowered its recommendation on lenders to underweight, citing weaker economic momentum and falling German bond yields. The downgrade comes two weeks after a strategist at HSBC Holdings Plc said the bank has been cutting its position on European financials, predicting U.S. 10-year Treasury yields will retreat.

Betting on lenders was a popular trade going into 2018 on speculation rising yields and U.S. tax cuts will spur more gains, but that optimism has been fading of late. After outperforming the Stoxx Europe 600 Index in the last year, the Stoxx 600 banks index has fallen more than the broader benchmark in the past one month.

Economic reports and recent bond-market moves lend support to the strategists’ stance. Data this week showed the Purchasing Managers’ Index for euro-area manufacturing fell for a second month. A slowdown in export orders to the weakest in almost a year means growth could moderate further, IHS Markit said Thursday.

German bund yields have dropped from February highs, and the prospect of 10-year Treasury yields climbing to as high 3 percent dimmed this week as they retreated following U.S. President Donald Trump’s vow to impose tariffs on foreign metals. Banks in Europe dropped 1.8 percent on Friday, more than the broader benchmark.

©2018 Bloomberg L.P.

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