This week will go down in the history books, if not for the temporary disabling of Donald Trump’s Twitter account then at least for the first Bank of England rate increase in over a decade.

As a result, the question that almost all of my clients have asked me is how might this affect the UK Banks?

As something that hasn’t happened in so long, many traders – both new and experienced – will not have been present in the market the last time the Bank raised rates. Perhaps the key to understanding how the banks might react is to look at what they do.

Typically, they make money through credit cards, mortgages or other loans, in which they charge interest on the repayments based on the Bank of England base rate. Rising interest rates would mean that clients would have to pay back more.

So far this year, the Royal Bank of Scotland is +24.7% YTD – already above Brexit levels – however Lloyds remains 8.9% away from pre-Brexit levels while Barclays, having fallen 17.4% this year, is now 17.9% away from where it was last June.

Could the interest rate hike provide the catalyst for the banks to get back to pre-Brexit levels? Or will it take more than just a single hike to take them higher?

With mortgages being a key component of the UK economy that will likely be impacted by an interest rate change, a sector that may also feel the influence of the BoE’s historic decision could be the UK Housebuilders.

The Housebuilders have had a great run so far this, year some of them even making fresh record highs. Persimmon currently leads the pack, trading 60% higher YTD, followed by Barratt Developments at +41.8% YTD, Taylor Wimpey at +34.4% YTD and Berkeley Group at +31.6%.

However the change in the interest rate was not something that was expected back in late August and early September, when many names in the sector were plumbing fresh highs. With this be the turning point with some see profit taking coming into play? Or might the Housebuilders follow a similar path to global indices?

Major global indices in the US, Europe and Asia have all notched some impressive record highs this year, none more so than the Dow Jones Industrial Index – one of the most widely followed indices in the world.

The index, made up of 30 of the largest US companies, has notched an incredible 55 new record highs, including a fresh one overnight as Apple pushed ever closer to becoming the first ever company valued at $1 trillion. With sales of the iPhone X apparently ‘off the chart’, the company posted a fresh all-time record high its 30th of the year and a market cap of $900bn.

But it’s not just the United States’ indices that have notched more record highs. The UK’s UK 100 has enjoyed 18 new record closing highs while Germany’s DAX has made an impressive 24 new record closes.

Just because something is trading at record highs does not mean it must come down, even if many traders are clamouring for a turnaround.

The stats above prove that the “trend is your friend”. Many of those that have been sitting on the sidelines all year, waiting for a correction at the least and a crash at the most have missed out on a lot of opportunities so far this year.

Perhaps now it’s time to change their tune.

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Ben Vartia, Trader, 3 November 2017