Uncertainty ahead of ECB meeting weighs on banking sector

September 09, 2021 10:04

Market attention this week is focused on today's European Central Bank meeting, after concerns about the economic recovery have been steadily increasing over the past few hours.  

In recent weeks we have witnessed a deterioration in the global economy, reflected by a decline in German investor confidence, as we discussed in our analysis on Tuesday, which once again demonstrates the economy’s dependence on the measures implemented by central banks.  

The market expects the European Central Bank to follow the Federal Reserve's lead by confirming that it could begin to end the sovereign debt purchase programme by the end of year. Christine Lagarde is not expected to go a step further by confirming the start date, as after last week's bad unemployment data in the United States this could be a long way off.  

Specifically, the US created 235,000 jobs in August compared to the 665,000 expected, and if we take into account that the preliminary US GDP figure for the second quarter was worse than expected (6.6% compared to 6.7%), it seems likely that the announcement regarding the beginning of the withdrawal of stimulus will be delayed until November.  

The market's main fear is that this decision by the Federal Reserve or the European Central Bank will be made hastily. The withdrawal of stimulus with macro data that is not entirely positive and without having the pandemic fully under control could cause sharp corrections in the main stock market indices.  

During yesterday's session, one of the hardest hit sectors due to this uncertainty was undoubtedly the banking sector, where we saw widespread declines, with falls of 2.31%, 1.31%, 0.46% and 1.53% in Banco Santander, BBVA, Deutsche Bank and BNP Paribas respectively.  

After yesterday's declines, Banco Santander fell back to the important support level represented by the red band in the area near its 200-session moving average in red. This moving average acts as the main support level since the last time the price faced it at the end of January, after which it began moving through an important upward channel that it lost in July and entered its current sideways movement.  

If this uncertainty continues, this correction could be prolonged and the loss of this important support level could trigger a strong bearish impulse, whose first target would be the range of 2.75/2.85 euros per share.   

We cannot expect a new upward impulse as long as the price does not manage to break above its medium-term downtrend line, which started in June after reaching an annual high of around 3.5 euros per share. 

Depicted: Admirals MetaTrader 5 – Santander Daily Chart. Date Range: 17 June 2019 – 8 September 2021. Date Captured: 8 September 2021. Past performance is not a reliable indicator of future results. 

Evolution of the last five years: 

  • 2020: -28.99% 
  • 2019: -6.12% 
  • 2018: -27.04% 
  • 2017: 13% 
  • 2016: 9.91% 

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Roberto Rojas
Roberto Rojas Financial Analyst, Admirals Spain

Roberto is a Financial Analyst with a European Financial Advisor certificate and a Double Degree in Business Administration and in Actuarial and Financial Sciences. In 2013 was graduated as an Expert Manager in Equities