EURUSD: Low valuations of euro zone bank stocks could hamper cre
Updated
The European Central Bank (ECB) on Monday expressed concern about the low valuations of euro zone bank stocks, suggesting it could have a negative impact on future credit growth. Hybrid by imposing strict conditions on the borrower. Bank profits have increased significantly this year, thanks in part to higher net interest income due to higher ECB rates, but stock market valuations have not kept pace. Many banks appear to be trading at a discount to fundamentals.
The ECB has pointed out that this could lead to financial system instability in the long run. Banks that are undervalued by investors may struggle to raise new capital when they need it, the ECB said in its financial stability review report.
The central bank continued to insist that weak valuations directly lead to tighter financing conditions for the real economy. We find that banks' increased exposure to corporate credit risk and the perception of bank stocks as value stocks are major contributors to valuation stagnation.
However, the ECB also noted that these fundamentals do not fully explain current valuations. Increased uncertainty regarding future payments to shareholders may also be a factor. Meanwhile, some euro zone governments have introduced banking taxes and the ECB is considering raising interest-free reserve requirements, which could lead to lower revenues. The ECB argues that the tax risk on dividend income sources impacts valuations more than on growth stocks, whose cash flows are expected to be reinvested internally and returned to investors in the future. Far away.
The ECB has pointed out that this could lead to financial system instability in the long run. Banks that are undervalued by investors may struggle to raise new capital when they need it, the ECB said in its financial stability review report.
The central bank continued to insist that weak valuations directly lead to tighter financing conditions for the real economy. We find that banks' increased exposure to corporate credit risk and the perception of bank stocks as value stocks are major contributors to valuation stagnation.
However, the ECB also noted that these fundamentals do not fully explain current valuations. Increased uncertainty regarding future payments to shareholders may also be a factor. Meanwhile, some euro zone governments have introduced banking taxes and the ECB is considering raising interest-free reserve requirements, which could lead to lower revenues. The ECB argues that the tax risk on dividend income sources impacts valuations more than on growth stocks, whose cash flows are expected to be reinvested internally and returned to investors in the future. Far away.
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Note
The EUR/USD pair experienced a technical retracement and remained below the key resistance level at 1.0955. The dovish tone emerging from the Federal Open Market Committee (FOMC) minutes released yesterday supported the dollar's strength. The consensus among Governing Council members to be cautious about future interest rate hikes has hindered the dollar's recovery from two-month lows. This delicate interplay of technical factors and central bank communications continues to shape the development of currency pairs. Despite some technical retracement, the EUR/USD pair is still trading in an uptrend. The MACD is hovering flat above the zero line while the RSI has dropped out of the overbought zone, suggesting the bullish momentum has eased.
Note
In Monday's trading session, the EUR/USD pair is rising and trending confidently northward, aiming for multi-month highs around the 1.0960 area. The positive momentum was triggered by weakness in US dollar trading while the euro strengthened following Lagarde's hawkish comments. On the data front, the US released small real estate data suggesting that US new home sales in October were lower than expected, but did not provoke a major reaction from both sides. Regarding the euro, European Central Bank (ECB) President Christine Lagarde warned in her speech to the European Parliament that headline inflation may rise slightly in the near future. Lagarde also noted that economic growth is expected to remain weak. He also provided no information on how long the central bank would keep interest rates at subdued levels or when it would cut rates.
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