Deutsche Bank has lowered its recommendation on European banks to sell, pointing to fading regional growth momentum as a headwind for the sector in coming months.
The level of growth implied by strong recent Purchasing Managers' Index (PMI) data is around 3 percent which far exceeds Deutsche Bank research's internal forecast of 1.8 percent, according to analysts at the German bank in a note published Tuesday.
"If PMIs fade back to the levels consistent with our economists' projections (at around 53), this would imply PMI momentum (i.e. the six-month change in PMIs) turning negative over the coming months," said the analysts.
"Banks are among the sectors most sensitive to swings in euro area PMI momentum and tend to underperform when it turns negative," added the note, observing that current valuation levels do not offer any further support to the sector's stocks given their ramp up in price in recent months.