The Federal Reserve just made its first rate hike in four years and expects to raise 11 quarterly points this cycle. Lending is also on the rise as consumers burn through savings built up from stimulus checks and additional unemployment benefits. So it’s time to get into finance, right?
The surprising response from the managers of the Franklin Mutual Financial Services Fund TFSIX, -0.16%, is not necessarily, at least in the US.
Of course, the rise in rates is a good background, as banks raise the cost of loans faster than they raise deposit rates. But a lot is already in place, portfolio managers Andrew Dinnhaupt and Luis Hernandez say.
They see opportunities in Europe. “Europe is left behind the United States both in terms of economic recovery and in terms of when the first interest rate hike might occur,” they say.
What about the war raging on their doorstep? “While greater economic uncertainty in Europe, linked to a spike in energy prices and any reliance on Russia and Ukraine, could dampen the outlook in the near term, especially if banks are forced to increase their bad debt reserves, we expect any push is likely. refer to bank income and not to banks’ capital. Moreover, we believe the recent sell-off of banks across the region is exaggerated given the potential impact,” they say.
Even a slightly less negative interest rate environment in Europe should improve the earnings outlook for banks, and the European Central Bank will eventually follow the Fed in raising rates, they said. In addition, there are opportunities for several European banks to benefit by improving their efficiency and selling assets.
The SPDR S&P Bank ETF KBE, -1.17%, has held steady this year, compared to a 6% drop for the iShares MSCI Europe Financials ETF EUFN, -0.24%.
The fund managers did not name companies in their analysis. Their two largest assets at the end of January were American banks: Wells Fargo WFC (-1.86%) and Citizens Financial CFG (-1.65%). (They said “large-cap US banks that improve their business offer good opportunities for value investors.”) Their European presence included Spain’s CaixaBank CABK, -1.06%, France’s largest lender, BNP Paribas BNP, +0 .09%. , the British bank Barclays BCS, -1.35%, the Dutch bank and insurance company ING ING, -0.95%, and the German Deutsche Bank DB, -0.57%.
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Is it too early for investors to buy the dip? Analysts at the British hedge fund Man Group say their leading indicator points to slower growth, though not a recession, in the US: “Buying a dip is not a bad strategy in itself. But our analysis shows that it is best to wait patiently for the best entry point,” they said.
Buzz
US President Joe Biden and Chinese President Xi Jinping are scheduled to have a telephone conversation at 9 a.m. ET after the US said Russia was asking China for military equipment. Russian strikes on Friday hit the western city of Lvov as well as the Ukrainian capital Kiev, but there has been no diplomatic breakthrough yet.
China has separately eased COVID-19 restrictions at a key manufacturing hub in Shenzhen.
FedEx FDX, -5.04%, reported weaker-than-expected financial third quarter results and kept its full-year guidance largely unchanged.
Meme-trading video game retailer GameStop GME, which gained 2.96%, posted a windfall in the fourth quarter.
Louis Fed President James Bullard, in a statement explaining why he was the only one to vote for a half-point rate hike, says rates should rise above 3% this year.
Existing home sales data are expected to show a slowdown in home deals.
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U.S. equities futures ES00, +0.24% NQ00, +1.02% fell ahead of the expiration of key contracts, and the S&P 500 SPX is up nearly 6%, +0.38% over the past three days.
Crude oil futures CL.1, +1.58% traded near $104 a barrel.
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