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Europe's Banking Sector Hits Rock Bottom: When (and Why) the Rout Really Began

by Nico Isaac
Updated: June 11, 2020

I'm Nico Isaac and THIS is Chart of the Day

Europe's Banking Sector Hits Rock Bottom: When (and Why) the Rout Really Began

Here's a chart of the European Stoxx 600 Banks Index over the past four years...

but, let's change the perspective via a fast "zoom in," and instead see it since January of this year.

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This perspective helps show where the mainstream story about Europe's "beaten down" banking sector begins. It's a story of being "hit hard" , of credit losses which exceed those in the 2008 financial crisis , and finally, the onset of "more pain" in the future --

ALL thanks to the coronavirus.

After falling 43% since the start of 2020, one May 18 Bloomberg said Europe's banking shares "still can't find takers."

"While every other sector index has bounced since lows hit in March, banks are hitting rock bottom again. Despite trading at their cheapest levels on record... the focus has moved to... prospects of long-term economic damage from the virus.

Okay, now let's shift the focus again, to see that Europe's bank sector "beat down" actually dates to early 2018 -- many months before the first reported case of coronavirus in December 2019.

Back then, the Euro Stoxx 600 was a top-performer and stood at a two and a half-year high.

So: outside news didn't cause bank stocks to fall. The turn lower shows the internal patterns of social mood, which unfold as Elliott wave patterns.

On April 6, 2018, our European Short Term Update showed a version of this chart, which labeled waves c-d-and e of a multi-year long Elliott wave triangle as complete at the January 2018 peak.

We also showed subscribers this red line down for emphasis and said,

QUOTE: "If our wave analysis is correct, banks have a long way further to fall. Stay immediately bearish this sector." END QUOTE

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From there the sector plunged 40-plus percent, thru September 2019. A rally into the New Year was met with renewed optimism as "Europe's bank stocks poised for best start to a year since 2013."

Our January 2020 European Financial Forecast wasn't convinced. It identified a toxic threat to Europe's banking sector: the disease known as non-performing debt. We said:

QUOTE: "Over the past five years, regional banks have off-loaded more than 300 billion euros of bad debt, but they cannot get out from under the burden of defunct loans.

"As the economy contracts, the burden will grow much heavier, and it will begin to weigh down the Continent's largest lenders." END QUOTE

Days later, our January 13, 2020 European Short Term Update identified a completed countertrend advance on the Banks Sector index and warned "it should decline directly. "

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From there, the sector again hit the skids, in a sell-off to levels not seen in more than a decade.

Don't miss the complete picture of where Europe's key economic sectors are headed in the weeks, months, and years ahead. See below for more.

The Elliott Wave Pattern Told the Stoxx 600 Bank Index Story Before It Happened

Indeed, our forecast anticipated major declines for Europe's banks when the financial press the opposite. The charts and forecasts in our European Financial Forecast put subscribers on the right side of the trend. See for yourself what your missing, before it happens. Follow the fast steps below.