Financial market research and analysis

FTSE investors make bank

A resurgent belief that the United States is setting the stage for a higher interest rate environment had a mixed response across European markets. Britain’s benchmark FTSE 100 reached the highest since January 17, the day after it reached a record high.

Hints at higher interest rates, a positive for lending margins, propelled bank shares higher. Lenders with a US presence including Barclays and HSBC were top risers on the FTSE 100. UK bank shares are in the best shape they’ve been in for 18 months. The FTSE 350 Banks index at its highest since June 2015. We suspect some individual bank share gains could come a cropper when earnings are reported later this month.

Shares of TUI were top fallers on the FTSE 100, unwinding the bulk of its earnings-induced gains from Tuesday. The losses came following a German court ruled the travel company should fully compensate customers for cancelled flights. The argument that cabin crew staged an unofficial walkout in response to possible job cuts didn’t ‘fly’ with judges. It’s a one-off but does knock TUI off track for meeting the 10% earnings growth it promised a day earlier.

Mid-cap winning streak

Brexit fears have been proven unfounded and Europe faces its own election risk so the UK-focused FTSE 250 has been one of biggest beneficiaries. PM Theresa May’s more transparent approach to Brexit has seen the pound stabilise and investors rotate out of multinational shares and back into more UK-focused companies.

Economic data on Wednesday continued to show the resilience of the UK economy, adding to the demand for FTSE 250 shares. The number of people claiming unemployment benefits unexpectedly fell while wages continue to expand at a healthy clip and well above inflation. The British pound dipped after the data since average earnings slightly missed expectations, but later made up the losses.

There are still many big firms with large foreign operations in the FTSE 250 so it’s not the best gauge of domestic sentiment. Still, the resurgence of domestically dominated sectors such as retail and homebuilding across big and midcaps would suggest investors are comfortable investing in the UK again.

Fed could up the pace if Trump delivers

Janet Yellen repeated her pre-prepared remarks on Wednesday. She really didn’t give too much away but it only takes a small intonation to nudge markets one way or the other. Saying it would be ‘unwise to wait too long’ to hike rates indicates the Fed thinks its on course for the three rate hikes this year implied by its ‘dot plot’ forecasts.

One of the biggest catalysts for the strength of the US dollar was saying policymakers are making no assumptions about fiscal policy. Yellen has basically inferred a faster pace of rate rises should Donald Trump make good on his infrastructure spending and tax cutting plans.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits