Sector movers: Banks lead gains as Gilt yields resume rise

3rd Jan 2017 15:02

(ShareCast News) - Banks spearheaded gains as government bond yields jumped back following the declines seen at the end of 2016 amid stronger-than-expected readings on economic activity and prices on both sides of the Atlantic.As of 1543 GMT the yield on the benchmark 10-year Gilt was up 11 basis points to 1.35% on the heels of PMI survey data for December revealing a sharp pick-up in UK factory sector activity, with a gauge tracking new orders hitting a two-and-a-half year high.Similar survey data also released on Tuesday on the other side of the Pond was just as strong.In parallel, strategists at JP Morgan reiterated their 'overweight' stance on banks, with Mislav Matejka telling clients that: "we advise staying constructive as activity remains robust, earnings visibility is improving and global HF beta remains subdued. Bonds have seen eight straight weeks of outflows. Flows have not entered equities yet, but this might change."Banks/Staples sector rotation remains perfectly consistent with the bond yields direction to date. It is key for bond yields to resume rising for the rotation to continue. Reiterate our double upgrade of Autos from early December. Stay OW Banks.""Importantly, the delay means that the Trump administration, which has in the past suggested it wants to relax banking regulation, will now be involved in signing off the new proposals. The proposals are already contentious, but whether they will be weakened remains to be seen," said Nicholas Hyett at Hargreaves Lansdowne.Also helping gains among lenders was news that global regulators had delayed the sign-off of new rules on bank capitalisation.However, rising bond yields cut both ways and were a chief factor behind weakness in interest rate sensitive corners of the market such as Construction & Materials or Real Estate Investment & Services.To take note of, Sterling was noticeably weaker too, retreating 0.56% to 1.2220, mimicking the post-Brexit pattern of weakness in Gilts alongside selling pressure on the pound.Retailers were also lower ahead of a trading update out of Next scheduled for 4 January, with analysts at HSBC having told clients that adverse conditions for clothing retail were expected to continue.To take note of, weakness in Sterling also tends to translate into higher consumer prices, denting the purchasing power of shoppers.Adding to the sector's woes, Springboard Insights reported that nationwide footfall dropped 13% year-on-year over the weekend, in part due to the snap of cold weather, which some observers said might signal a portentous start to the new year."2017 is likely to be a more challenging year for European general retailers with demand likely to soften. This is particularly likely in the UK, which remains the most important market for the sector. Retail stocks are typically early-cycle but there are risks a prolonged downturn means many could be value traps, particularly as the sector is typically showing average rather than extreme valuations. We like growth retailers and those with self-help, whilst we are a little wary of apparel retailers and find online stocks generally too expensive," analysts at Deutsche Bank chipped in in a research note sent to clients and dated 1 January.In that same note, the broker downgraded its recommendation on shares of Next from 'buy' to 'hold' and lowered its target price fron 5950p to 5300p.Top performing sectors so far todayBanks 4,241.42 +2.50%Fixed Line Telecommunications 4,238.07 +1.44%Oil Equipment, Services & Distribution 16,552.39 +1.43%Industrial Engineering 10,375.30 +1.18%Financial Services 9,400.75 +1.06%Bottom performing sectors so far todayGeneral Retailers 2,548.55 -1.61%Industrial Metals & Mining 2,211.60 -1.61%Construction & Materials 6,714.88 -1.56%Real Estate Investment & Services 2,434.91 -1.45%Food Producers & Processors 7,920.26 -1.44%