Bank earnings are coming, and everyone's talking about one thing

US banks are set to release their second-quarter earnings, starting with JPMorgan Thursday, and analysts are all talking about one thing: interest rates.

“Does the global economy slow? If so, that’s going to put pressure on longer term rates, and generally that’s not a good thing for bank stocks,” said KBW’s Brian Kleinhanzl at an event on Tuesday.

The big story during the second quarter was the UK’s decision in June to leave the European Union, which sent shockwaves through markets and could deter central banks from raising interest rates anytime soon.

At KBW, analysts have removed all interest rate increases from their estimates through 2017.

On the other hand, Brexit’s immediate impact — heightened market volatility — was likely a boon for banks in the second quarter as it meant improved trading conditions.

JPMorgan and Morgan Stanley, for example, posted record trading volumes in the hours following the EU referendum. At one point, JPMorgan was processing 1,000 trading tickets per second, according to CEO Jamie Dimon.

But the referendum’s long-term effect is a different story.

Here’s what other Wall Street analysts had to say about interest rates:

  • Goldman Sachs’ Richard Ramsden: “While 2Q results should be ‘OK,’ we believe forward EPS are at risk from low rates and uncertainty around capital markets. […] We estimate there could be 7% downside risk to estimates in ’17 and 13% in ’18 if long-term rates were to stay at current levels and we don’t get any additional fed rate hikes.”
  • Barclays’ Jason Goldberg: “The rate backdrop has certainly become more challenging with the probability of a Fed hike pushed out (from over 50% at the time of 1Q16 EPS calls to less than 15% currently) and rates declines (10yr at all-time low, 2s/10s at 8.5yr low).”
  • Macquarie’s Piers Brown, Vardhman Jain, Daid Konrad, and Zev Zaretsky: “Increased uncertainty regarding new negotiations between UK and EU is expected to take its toll on global growth and also adversely changes the interest rate outlook.”
  • S&P Global Market Intelligence’ Erik Oja: “Bank revenues are driven by interest rate spreads and asset growth, and helped by credit quality, plus fee income. Unfortunately, low interest rates appear to be with us for the foreseeable future. […] Low interest rates and a shallow yield curve are a long-term headwind, heightened by the recent Brexit vote. U.S. long-term interest rates have been pushed downwards for years by a continuing bond market rally, and short-term interest rates reflect the Fed’s reluctance to raise rates during this period of global political turmoil.”

JPMorgan will report earnings around 6:45 a.m. ET Thursday, followed by Citi and Wells Fargo Friday, Bank of America Merrill Lynch Monday, Goldman Sachs Tuesday, and Morgan Stanley Wednesday. We’ll be back with results as they roll in.

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