This translation has been automatically generated and has not been verified for accuracy.The biggest U.S. banks are expected to kick off the earnings season on a sour note next week due to falling interest rates, which may have pressured net interest margins enough to cause the sector’s first year-over-year earnings per share decline in three years.
“Overall it’s shaping up to be a pretty challenging quarter because of the net interest rate environment,” said Fred Cannon, director of research for Keefe, Bruyette & Woods in New York, citing the flattening and temporary inversion of the U.S. Treasury 2-year/10-year yield curve during the quarter. Part of the problem is U.S. Federal Reserve interest rate cuts in July and September. And futures traders are betting on more Fed rate cuts going forward, including one in October.
Mortgages may be another silver lining to lower rates in third-quarter numbers and future quarters as borrowers avail of cheaper rates. Refinancing, which accounts for most mortgage applications, has more than doubled from a year ago, according to Mortgage Bankers Association data released on Wednesday.
But investors will also be on high alert for signs slowing U.S. economic growth is hurting debt repayments, said Mike Cronin, investment manager at Aberdeen Standard Investments.