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The UK Index ’s financial contingent is driving the index higher this morning, banks in particular. This after hawkish testimony from Fed chair Yellen which is supportive in terms of higher interest rates to boost net interest margins – the difference between what banks can charge for loans and what they pay for deposits.
This has helped the likes of LLOY and RBS to post-Brexit highs while BARC, which still has much investment banking activity and thus exposure to global economic growth, is again flirting with Dec/Jan 14-month highs.
Thereafter, the more Asia-focused and defensive STAN and HSBC continue to push on with recoveries from 2016 lows, the former trading 18-month highs; the latter at its best in 3.5yrs. All this just days before the quintet report Q4/FY results next week (HSBC Tues, LLOY Weds, BARC Thurs, RBS+STAN Fri).
With UK names having watched US majors drive stateside bourses higher after consensus beating Q4/FY profitability, the prospect of Fed rate increases, hopes of an economic growth boost from Trump stimulus and of course optimism about banking sector deregulation, could UK banks already be feeling the gentle breeze of a second wind that ultimately sends both them and the UK Index further north?
Mike van Dulken, Head of Research, 15 Feb 2017
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