Sector movers: Banks lead gains as strategists raise US yield forecasts

14th Nov 2016 14:40

(ShareCast News) - Shares in banks and life insurance outfits continued to pace gains as Treasury yields kept moving higher in the States on expectations for a fiscal spending boost under the new Administration, pulling interest rates across the globe up with them. For the most part, analysts appeared to be focusing on a measured approach on the part of the new Administration as a likely scenario for policy going forward.However, there were risks should that turn out not to be the case, they admitted.There were also those who were more cautious to begin with, HSBC among them.On 11 November, rates 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 in a research report dated 11 November.However, it was grocers which were doing best overall after HSBC upgraded Tesco shares from 'hold' to 'buy', hiking its target price from 195p to 250p.The pace of Tesco's recovery was increasing, meaning the company was less exposed to "whatever" ASDA did, the broker said.In a previous report HSBC had downgraded Tesco on expectations that Asda would up the ante in terms of price competition in the run-up to Christmas.The most rate-sensitive segments of the market on the other hand came under pressure as yields shifted higher.Oil producers were tracking crude futures lower as the US dollar jumped once again, propped up by the rise in Treasury yields.As of 1502 GMT, the US dollar spot index was gaining 0.93% to 100.14, while the yield on the benchmark US two-year note was up by eight basis pointgs to 1.0% - near its highest level of the year - and cable down by 1.12% to 1.2457.Top performing sectors so far todayFood & Drug Retailers 3,023.22 +2.73%Banks 3,964.80 +2.13%Life Insurance 7,413.35 +1.65%Automobiles & Parts 7,100.71 +1.37%Aerospace and Defence 4,809.91 +1.36%Bottom performing sectors so far todayElectricity 8,466.53 -2.59%Gas, Water & Multiutilities 5,723.08 -2.51%Tobacco 49,313.32 -0.95%Health Care Equipment & Services 6,671.88 -0.68%Oil & Gas Producers 7,283.93 -0.56%