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Sept. 28, 2017, 12:43 p.m. EDT

U.K. stocks log slight gains as bank shares rally on interest-rate hopes

RBS, however, underperforms bank sector following downgrade

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By Sara Sjolin and Carla Mozee, MarketWatch


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Barclays posts the biggest gain in the FTSE 100 on Thursday

The U.K. stock market posted slight gains in muted action on Thursday, although banks shares proved a standout, finishing higher on hopes of a lift in interest rates in the U.K. and the U.S.

Shares of Barclays PLC /zigman2/quotes/208409333/delayed UK:BARC -2.00%   /zigman2/quotes/206581728/composite BCS +3.20%  closed up 1%, Standard Chartered PLC /zigman2/quotes/200125072/delayed UK:STAN -2.76%  picked up 1.1% and HSBC Holdings PLC /zigman2/quotes/203901799/delayed UK:HSBA -1.99%   /zigman2/quotes/208272822/composite HSBC +4.57%   /zigman2/quotes/202687335/delayed HK:5 +0.40%  tacked on 0.2%.

The benchmark FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -1.42%  closed up 0.1% at 7,322.82 after a choppy session.

Rate route: The positive moves for the sector came after the Bank of England’s Chief Economist Andy Haldane late Wednesday in a Sky News interview said Brits should not fear higher interest rates, sparking speculation that the first rate hike in a decade is imminent. A rate hike would be a “good news story” for the U.K. economy as it would reflect improvement, he said.

Haldane also reiterated the message from the BOE’s September meeting that “we could be nearing the point where a reduction in some degree of monetary stimulus might be warranted in the coming months.”

Higher rates tend to boost the banking sector as it means banks can charge more for their loans. Across the pond, expectations for a rate hike in 2017 are also up after Federal Reserve Chairwoman Janet Yellen said this week it would be “imprudent” to leave monetary policy on hold for too long. That helped push U.K. bank stocks rise during Wednesday’s session.

After London trading closed Wednesday, Boston Fed President Eric Rosengren said he backs ‘regular and gradual’ interest-rate rises. Meanwhile, U.S. President Donald Trump’s tax cuts proposal presented on Wednesday was also seen as reinforcing expectations for a rate rise in December.

In London, shares of building materials supplier CRH PLC /zigman2/quotes/201759252/delayed UK:CRH -0.07%  and equipment-rental company Ashtead PLC /zigman2/quotes/200232063/delayed UK:AHT -1.26% picked up 2.4% and 2.2%, respectively.

The shares “are being helped by Donald Trump’s plans to make the U.S. tax system more pro-business. Both companies derive are large amount of their revenue in the U.S., and a more business-focused U.S. economy could see both companies ramp up earnings,” said CMC Markets analysts David Madden in a note.

The “FTSE continued to lack any momentum whatsoever, sitting flat just above the 7,300 mark. To be fair, on the U.K.’s most pressing concern—Brexit—the pound and FTSE received some seriously mixed messages this Thursday,” said Connor Campbell, financial analyst at Spreadex, in a note.

“[U.K. Brexit Secretary] David Davis claimed that ‘decisive steps forward had been made’ during the latest round of negotiations, only for his EU counterpart Michel Barnier to argue that they were ‘not there yet in terms of achieving significant progress,’” said Campbell.

Read: Brexit talks haven’t made enough progress to start discussing trade, says Barnier

Also: Dispute between U.K. and Boeing over Boeing’s Bombardier complaint escalates

Stock movers: Royal Bank of Scotland Group PLC /zigman2/quotes/209265718/delayed UK:RBS -2.36%  fell 1.6% after a ratings downgrade to sell from hold at Investec, which noted RBS shares were trading around a 12-month high. “But we expect £150 million of equity issuance and a £1.8 billion reported loss,” in the second half of 2017, analyst Ian Gordon wrote in a research note.

Shares of Imperial Brands PLC /zigman2/quotes/208789104/delayed UK:IMB -2.30%   /zigman2/quotes/206232937/composite IMBBY -0.71%  stumbled 4%. The tobacco company said it’s on track to meet its full-year targets and that it’s working on a rescue deal for struggling wholesaler Palmer & Harvey Holdings PLC.

TUI AG /zigman2/quotes/207049334/delayed UK:TUI -1.99%  slipped 0.2% after the travel operator said recent hurricanes had affected its Caribbean operations. The company, however, still backed its 2017 fiscal guidance and said the summer 2017 season is closing out almost fully sold at 97%.

On the FTSE 250 index /zigman2/quotes/210598417/delayed UK:MCX -0.40% , Balfour Beatty PLC /zigman2/quotes/202863772/delayed UK:BBY +1.06%  climbed 5.6% after Peel Hunt upgraded the construction services company’s rating to buy, saying management has significantly reduced investment-related risks.

Shares of Stagecoach Group PLC /zigman2/quotes/206082799/delayed UK:SGC +2.40% advanced 2.5% after the transportation group reaffirmed its per-share profit guidance.

The FTSE 250 closed up 0.6% at 19,678.46.

Click to Play

Trump's tax plan: What you need to know

President Trump touted his tax plan as a 'middle class miracle' and as a way to spur economic growth. Here's what you need to know about the Republican plan to overhaul taxes. Photo: Associated Press

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Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin. Carla Mozée is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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