I. State of the banking industry
- The banking industry has been the biggest winner in the latest stock market rally. The global top 100 banks boosted their market cap (+18.2%) and outperformed all other industries (TSR of +17.2%).
- Especially US banks benefited from increasing US rates and the market trends due to the election of Donald Trump.
II. Economic environment and key banking drivers
- Upward movements of global long-term yields as well as the latest Fed decision led to steeper EURIBOR and USD LIBOR yield curves.
- The US Dollar was further strengthened by the result of the US election and increasing US interest rates—EUR/USD exchange rate has reached the lowest value for more than 10 years.
- European and BRICS banks’ RoE shrank on average by 0.6pp to 5.7% and 0.5pp to 15.4% respectively—US banks further improved their profitability by 0.5pp to 8.9%.
III. Special topic: Trumpflation—“Make interest rates great again”?
- High expectations towards Donald Trump’s political agenda led to a sharp increase in global long-term government bond yields.
- Concrete economic consequences are not clear yet and a sustainable spillover to Europe is rather doubtful—European banks still have to deal with low interest rates and high market uncertainties in 2017.