Wall Street’s fourth-quarter results are set to be dogged by sluggish trading activity as Europe’s economic woes and rising competition deprived banks such as Goldman Sachs and Morgan Stanley of a key source of profits, executives and analysts said.

Lacklustre earnings in fixed income trading in the past two quarters of 2010 after a robust first half will put pressure on banks to pay smaller bonuses to traders. Last year – as the financial crisis receded – star traders in the bond, foreign exchange and commodities markets received large pay-outs on the back of surging profits.

Concerns over earnings in fixed income, currency and commodity (FICC) trading has led several analysts to cut their fourth-quarter earnings forecasts for Goldman and Morgan Stanley, which are due to report results next month.