Why did US Banks rally 3.5%?
1. the bank complex traded very well on Mon and led its cyclical peers higher.
2. The fundamental driver for the strength was better-than-feared presentations from mgmt. teams at the Barclays conf.
3. Investors were worried about gloomy mid-Q updates given the trajectory of rates but that didn’t happen. Citigroup, CMA, and WFC either explicitly or implicitly talked down NIM/NII expectations but all three stocks saw healthy gains.
4. The Citi NII guidance tweak was particularly mild (from +4% to +3-4%) and BK actually said it would still hit its prior NII outlook despite the dramatic intra-Q move in rates.
5. The WFC cut was larger (they now see NII down ~6% Y/Y in ’19 vs. the St -3.6%) but investors took that update as a relief (the fact WFC shares shrugged off the NII outlook cut earlier in the Mon session flashed a green light for the group to rally).
6. Beyond NII/NIM, it sounds like trading is performing decently too (Citigroup said FICC/equities trading would be down only “slightly” Y/Y w/trends better than in H1; BAC said IB fees would be up LSD Y/Y w/equities up a bit and FICC down small).
7. Bottom Line: the BKX is still in a strict multi-month range and will need to clear ~103ish to mark a clear break-out but the updates at Barclays are a relief and helping to fuel the pro-cyclical rotation underway in the market.