This week’s UK Index winners are those investor favourites; the Banks and Miners. This comes thanks to US markets extending their Trump inspired rally to fresh record highs and the European Central Bank  (ECB) saying that extraordinary stimulus measures are here to stay for another year at least. Probably two or three. Markets were already excited about the prospect of a US President Trump introducing a raft of stateside fiscal stimulus (tax cuts), infrastructure spending and deregulation, to help build on existing US growth and recovery. Especially as it would represent the first true effort by an advanced economy to draw a line in the sand post-crisis and move away from all those years of reliance on central banks to do all the heavy lifting. And if it encouraged others to follow suit then all the better. A rising tide….

ECB President Mario Draghi confirmed that quantitative easing (QE; bond buying designed to keep borrowing costs a low) was here to stay, extending the Eurozone’s current stimulus programme by an additional nine months rather than six. The pace of purchases may slow  form March (€60bn month to €80bn), but this is by the by for us. He obviously sees more value in 25% less bond-buying stimulus but for 50% longer as the region recovers more slowly than hoped. Much more slowly. And it’s a case of the longer the better for equities as the cash from QE tends to find its way back to higher yielding shares.

Positive China PMI and Inflation data also helped this week to inspire confidence in the world’s #2 economy, helping buoy metals prices while Oil held up around its highs on hopes that OPEC and non-OPEC (Russia et al) will come to a production cut agreement in Vienna tomorrow to support prices. At this stage, Miners sit at the top of our four key performance tables for the year. Santa Rally (since 15 Nov; up 7-14%), Trump election (since 8 Nov, up 13-30%), Brexit (since June 23, up 56-100%) and of course Year to date (since 31 Dec, up 60-300%). This as the UK Index ’s December rally extends to 4.5% with barely more than a week gone.

The Banks are also placed well in our tables, with decent gains if not as salubrious, supported by hopes that Trump deregulating a sector highly constrained and far less profitable post crisis.  His plans could allow the key sector to operate a more freely and generate better returns for shareholders, lending more to help businesses do more. The model for growth. And this week the sector got a real boon from hopes that troubled Italian bank Monte dei Paschi di Siena would receive assistance of some sort to avoid it collapse. While Europe has said no to delaying the deadline for urgent action, this sounds like it will result in Rome bailing it out over the weekend, even if it is now against EU rules. It may be against the rules but making already unhappy Italian households take a loss on their savings is not a good idea when it risks adding fuel to an the already fiercely burning right wing anti-establishment fire.

Avoiding a bank collapse is never a bad thing for a sector allergic to contagion risk. And the fact that major bourses ate holding near highs into the weekend is a strong message about investor risk appetite. Is it set to extend yet further next week? Will a bank resolution and positive OPEC meeting see US bourses march ever higher, pulling the European peers with them? Will a Fed rate rise next week (Weds) send the USD back to its highs, denting Sterling and the Euro but help extend the UK Index and DAX uptrends after breakouts this week. In trading they say that  the trend is your friend. Take a look at the charts that are provided in our research by getting access now!

Enjoy your weekend,

Mike van Dulken, Head of Research, 9 Dec