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FTSE falls on US rate rise hints, with mining shares down but banks higher

Discussion in 'Market News' started by Lily, May 19, 2016.

  1. Lily

    Lily Forum Member

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    Banks outperform on hopes that higher rates will support balance sheets

    The market is caught in a two way pull, with banking shares moving higher but commodity companies on the slide.

    It is the prospect of a US rate rise next month, as suggested by the minutes of the last Federal Reserve meeting released on Wednesday, which is responsible for both trends. Banks are buoyed by the idea that higher rates will bring some relief to their balance sheets, but mining companies are being hit by the prospect that a dearer dollar will push down commodity prices and also possibly curb economic growth.

    The FTSE-100 is sporting some notable losses in early trade with concern over the disappearance of that Egyptian airliner overnight compounding an already downbeat market which last night was left weighing up the prospect of another US interest rate hike being seen as soon as next month. Commodity stocks have been left languishing once again as although we’ve only seen a muted reaction from the dollar so far, further appreciation for the greenback would serve to depress global demand for resources.

    Only a handful of stocks are finding positive territory this morning with the banking and insurance sectors being in favour as the prospect of interest rate hikes is certainly something worth cheering here.

    Interim results [were] slightly ahead of expectations; shares offer material upside on recovery grounds. Like-for-like sales declined by 1.6%, but due to improved margins, EBIT increased by 2%, with pre-tax profits up 9%.

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