London close: Banks pace gains as interest rates rise

Stocks edged higher at the start of the week despite uncertainty about the new US administration's economic policies, which weighed on government bond prices around the globe and boosted the value of the dollar.

The FTSE 100 finished up by 0.34% or 22.75 points at 6,753.18 with banks and life insurers tracking the rise in government bond yields.

By the closing bell, the yield on the benchmark 10-year gilt was up by four basis points to 1.41% and cable down by 0.99% to 1.2473.

Oil prices were again lower, with West Texas Intermediate off 2.7% to $42.27 a barrel and Brent crude was losing 2.6% to trade at $43.60.

In an interview on CBS's 60 minutes programme, aired over the weekend, US President-elect Donald Trump announced he would appoint Reince Preibus, the chairman of the Republican National Committee, as his chief of staff.

Some analysts suggested that was a 'market-friendly' outcome.

However, it followed other reports that the election had already claimed its first victim, in the form of President Obama's signature trade deal, the Trans-Pacific Partnership.

Division on what Trump means for US economic policy

Against that backdrop, strategists were divided as to the most likely path for US economic policy under a Trump administration.

For analysts at Morgan Stanley, the most likely scenario meant trade protectionism would go little further than strong rhetoric and that Trump would deliver measurable tax reform and infrastructure spending that, on net, would provide a healthy lift to the economy and enable a pick-up in the pace of monetary policy normalisation.

In such a scenario, US GDP growth would be lifted by 0.3 percentage points in both 2017 and 2018, while the Federal Reserve would hike rates two times in 2017 and three times in 2018, Morgan Stanley said.

Goldman Sachs on the other hand expected growth to be somewhat weaker and inflation to be somewhat stronger than would otherwise have been the case.

Unlike Morgan Stanley, Goldman expected Trump to be able to implement part of his anti-trade policies and for immigration to slow somewhat under his presidency.

Among the more cautious views on interest rates, on 11 November strategists at HSBC upped their first quarter 2017 projection for the yield on the benchmark 10-year US Treasury note from 1.50% to 2.50%.

Yet their end-2017 forecast was kept at 1.35%, on expectations for a slowdown in the economy if yields rose.

"There are now widespread expectations of tax cuts and increased spending, particularly on infrastructure, but little clarity on how such programmes will be financed. We cannot afford to wait for more detail before changing our bond yield forecasts.

"We are cautious about how many of Mr. Trump’s pledges can be delivered, including on trade and tariffs. What we do have is analysis of the term premium, inflation expectations, and forward yields, which gives us some insight into how far the Treasury curve could reprice," HSBC's Head of Fixed Income Research, Steven Major, and Lawrence Dyer, the bank's chief US rates strategist, said.

Greencore champs at the bit

Irish convenience food group Greencore was a high riser after reporting a jump in full-year revenue and earnings as it hiked its dividend and announced the proposed acquisition of Peacock Foods for an enterprise value of $747.5m.

On the corporate front, housebuilder Taylor Wimpey advanced as it said in a trading update that the UK housing market remained resilient, despite the implications of Brexit still being unclear, and reported strong trading in the second half.

Irish distribution and business support services company DCC surged after reporting a rise in half-year revenue and saying full-year operating profit is likely to be ahead of market expectations.

Legal & General was on the front foot after announcing the completion of a £1.10bn pension buyout deal with Rolls-Royce.

Standard Life gained ground despite saying that the possible combination involving its Indian joint venture, HDFC Life, and Max Life Insurance Company, Max Financial Services and Max India, had hit a roadblock.

Bookmaker William Hill pushed higher after saying it expects full-year adjusted operating profit to be at the top end of its guidance, while Tesco rallied as HSBC upped its stance on the stock to ‘buy’ from ‘hold’.

Shares in gaming software development company Playtech rose as it agreed to buy Consolidated Financial Holdings for up to $120m – a deal it said will enhance its position as it continues to build a B2B offering in its financials division.

Market Movers

FTSE 100 (UKX) 6,753.18 0.34%
FTSE 250 (MCX) 17,472.40 0.16%
techMARK (TASX) 3,308.08 -0.04%

FTSE 100 - Risers

Barclays (BARC) 212.30p 5.23%
Royal Bank of Scotland Group (RBS) 210.40p 4.37%
Capita (CPI) 573.50p 4.18%
Tesco (TSCO) 205.85p 3.73%
Ashtead Group (AHT) 1,430.00p 3.25%
Dixons Carphone (DC.) 336.80p 3.15%
Taylor Wimpey (TW.) 150.10p 3.09%
Persimmon (PSN) 1,739.00p 3.08%
BHP Billiton (BLT) 1,336.50p 2.85%
DCC (DCC) 6,205.00p 2.82%

FTSE 100 - Fallers

Polymetal International (POLY) 795.50p -4.90%
Severn Trent (SVT) 2,095.00p -3.77%
SSE (SSE) 1,436.00p -3.17%
Associated British Foods (ABF) 2,516.00p -3.16%
National Grid (NG.) 927.00p -3.00%
United Utilities Group (UU.) 854.50p -2.79%
Mediclinic International (MDC) 740.00p -2.76%
Randgold Resources Ltd. (RRS) 5,815.00p -2.35%
Sky (SKY) 770.00p -2.28%
easyJet (EZJ) 1,032.00p -2.18%

FTSE 250 - Risers

Greencore Group (GNC) 319.70p 9.52%
Crest Nicholson Holdings (CRST) 459.60p 5.32%
OneSavings Bank (OSB) 324.90p 5.15%
Vesuvius (VSVS) 389.00p 5.14%
JRP Group (JRP) 130.00p 4.00%
International Personal Finance (IPF) 285.00p 3.64%
Shawbrook Group (SHAW) 258.00p 3.62%
Henderson Group (HGG) 239.50p 3.55%
Man Group (EMG) 127.10p 3.33%
Morgan Advanced Materials (MGAM) 275.30p 3.07%

FTSE 250 - Fallers

Hochschild Mining (HOC) 231.70p -6.12%
AO World (AO.) 162.60p -4.18%
Drax Group (DRX) 290.10p -3.94%
Centamin (DI) (CEY) 135.80p -3.76%
Pennon Group (PNN) 770.00p -3.08%
Tullow Oil (TLW) 239.20p -3.08%
DFS Furniture (DFS) 219.10p -3.05%
Acacia Mining (ACA) 440.30p -2.65%
Big Yellow Group (BYG) 680.00p -2.58%
CMC Markets (CMCX) 199.00p -2.45%