Austria election, US bank results
The FT's Josh de la Mare has the key stories in the coming week, with big US banks announcing results, Austria’s presidential election testing the influence of the far right and the European Commission is to scrutinise eurozone countries’ budgets.
Filmed by Rod Fitzgerald. Produced by Josh de la Mare. Written by Ralph Atkins, Ben McLannahan and Tony Barber. Edited by Filip Fortuna.
Hello. And welcome to The Week Ahead from the Financial Times in London. Here are some of the big stories we're watching this week. The big US banks bring out their results. An election in Austria is the next test of the influence of the far right. And the budgets of France, Italy, and Spain come under scrutiny by the European Commission.
The big US banks are preparing to report their numbers for the third quarter, from July to September. JPMorgan Chase, Citigroup, and Bank of America will be showing how they've been dealing with lower volatility and volumes on Wall Street, bond yields, and the prospects for loan growth after the election of President Donald Trump. The consensus among analysts is for a subdued set of results. US Banking Editor, Ben McLannahan sees three main reasons for this.
The first is that Wall Street has been pretty quiet. Volatility is down. The volumes are down. At Jefferies, which is the mid-tier investment bank with a different year end, that's already reported its third quarter. And there, I think, fixed income revenues were down about 20% year-on-year. So that-- extrapolate that to the likes of Morgan Stanley, Goldman Sachs, it's not going to be very pretty.
Second reason is interest rates, which are vital for bank profitability. Particularly the big retail banks with the enormous networks over here. Particularly the gap between the 2-year and the 10-year bond yield has compressed almost to a post-crisis low. And that's not good news for the banks. A final reason is loan growth. Again, a vital catalyst for earnings. And since President Trump got elected in November, with promises of, you know, galvanising the world's biggest economy, it hasn't really come to pass.
The year-on-year rates of aggregate loan growth has been disappointing. And there was no exception in this period under discussion. So put all that together, and you're set for a pretty subdued set of results.
Now. Since the French presidential elections in May, the possibility of a far-right populist insurgency across Europe has appeared to recede. But elections in Austria could be a wake up call for establishment politicians. Austria's youthful foreign minister, Sebastian Kurz, is widely expected to become his country's Chancellor, after elections on Sunday, October the 15th. But these could also see the right-wing nationalist Freedom Party back in power.
This comes just three weeks after the success of the far right in taking more votes in Germany's election. Mr. Kurtz's center-right People's Party has a clear lead in opinion polls. He's pushed for tougher controls on refugees seeking to restart their lives in Austria, and been accused of stealing some of the populist rhetoric of the Freedom Party, which, in turn, has tried to pitch itself as the party of ordinary workers. Switzerland and Austria Correspondent, Ralph Atkins, has more.
If the center-right People's Party gets the most votes, and Sebastian Kurtz becomes Chancellor, the Freedom Party is its most likely coalition ally. During this year's election campaign, the Freedom Party has stopped short of threatening Austria's membership of the eurozone, let alone of the EU. But the party remains nationalistic and anti-immigration.
Its sympathies with governments in countries such as Hungary and Poland could also reinforce Europe's awkward squad in opposing Berlin and Paris, especially on issues such as the migration crisis. Remember, when the Freedom Party joined the government coalition in 2000, Austria was ostracised by other EU countries. Nevertheless, Mr. Kurtz himself captures a reformist streak, which we have seen in other European countries, including with the election of Emmanuel Macron, in France.
Staying in Europe, this week is also the deadline for eurozone countries to send their draft national 2018 budgets to the European Commission, for prior examination and advice. The Commission will check whether they are in line with EU rules. Member states are free to ignore Commission's recommendations, but risk EU legal action by doing so, and could end up under strict surveillance. In recent years, the focus was on the Greek budget. But this year, our Europe Editor, Tony Barber, says it's Spain, France, and Italy where pressures on finances are perceived as being greatest.
Spain, because the government in Madrid had to withdraw its 2018 budget from parliamentary consideration, partly owing to the crisis in Catalonia. France, because, although the budget deficit for next year is expected to go below the 3% of GDP threshold, the deficit is predicted to go back to 3% in 2019. Italy, because there is always a concern in the Commission about the very, very high levels of public debt in Italy, and because economic growth levels, since its eurozone membership, have been well below the average for the region.
Meanwhile, Greece, for once, will not be under the closest scrutiny from Brussels, because it's running a fiscal surplus, and is expected to emerge from its third emergency bailout in the middle of 2018.
And that's what the week ahead looks like from the Financial Times in London. Goodbye.