The European banking sector is currently facing economic pressures due to a deteriorating economic outlook. Despite some banks, including ING, reporting better-than-expected financial results for the third quarter, their share prices have remained under pressure since early October.
Concerns over potential decline in bank earnings, exacerbated by expectations of interest rate cuts from the European Central Bank (ECB), are contributing to this trend. Analysts suggest that up to €600 billion in net interest income could be at risk in the first half of 2025 if the ECB follows through with its planned rate reductions. Market sentiment is anticipating at least three additional rate cuts by the ECB by mid-2025, which may be adjusted further due to the slowdown in the European economy.
ING"s share price performance is closely tied to upcoming economic indicators such as GDP growth, retail sales, industrial production, and unemployment rates across the eurozone. These metrics will shape investor sentiment and expectations for the banking sector in the near term.
From a technical perspective, ING shares are currently testing a crucial support level at €14.50, which has previously served as a rebound point in April and August. A decline below this threshold could signal a significant bearish reversal, potentially leading to a correction in the share price down to €12. While the fundamental outlook for ING remains bullish, caution is advised for market participants. A breach of the bearish trend line connecting the highs from July and September would be a more favorable signal for potential buyers. Until such a bullish indicator emerges, a more defensive strategy is recommended given the current economic headwinds facing the European banking landscape.
Looking ahead, European banks could outperform if advancements are made in the Capital Markets Union or if deregulation measures are implemented. The ongoing discussions surrounding the Draghi report, along with the challenges posed by the current economic climate and geopolitical factors, may create opportunities for the banking sector. These developments could lead to strategic announcements that bolster investor confidence and improve market conditions. The interplay between economic indicators and regulatory changes will be crucial in determining the trajectory of European banks. Investors will closely monitor these factors as they could significantly influence the performance of institutions like ING in the coming months. The ability of banks to navigate these challenges and capitalize on potential opportunities will be key to their resilience in a shifting economic landscape.