Diverging Signals: Bullish Banks, Bearish Sentiment

It's a sign of our postmodern times... banking up, investor confidence down....!

European Banking's Unilkely Bull Run...
At the start of August 2025, European banks experienced something a boom, the likes of which they hadn't seen for a decade. The STOXX 600 Banks index rose by nearly 40% in the year to August 2025, driven by a wave of good profits and investor enthusiasm.

All of this seemed to have substantial underpinnings, fueled by robust earnings and rising interest-rate margins.

So at the beginning of last month everything was well with the European banking sector, with confidence high and investor sentiment generally positive.

But then the EU–US Trade Deal
But against this backdrop of banking euphoria, investor sentiment in the eurozone as a whole crashed.

The Sentix sentiment indicator fell from +4.5 in July to –3.7 in August after the EU signed a trade agreement with the U.S, a deal which was/ is widely seen as being in America's favor with a blanket tariff of 15% on EU imports.

Manfred Hübner, Sentix head, labelled the deal as "devastating for the eurozone," adding that both sentiment and expectations were falling sharply.

As you might expect, Germany, the EU's economic powerhouse, was affected the most: investor sentiment there fell from –0.4 in July to –12.8 in August.

OUCH!

Final thoughts....
The divergence is bizarre!

Banks are experiencing a performance rally, but macro-level sentiment has soured.

The contrast highlights the broken investment picture. European financials benefit on one side from in-house factors such as good margins, improved credit profiles, and investor rotation. While at the same time geopolitical tensions around trade create a mood of economic pessimism.

Overall I'd say it just increases uncertainty, so if you're in the mood for a Vest in European industry or banking, close your eyes and stick a pin in yer list!

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