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Thursday, 22 September 2016

FTSE buoyed by banks after BoJ policy overhaul


Britain's top share index rose on Wednesday, buoyed by its banks after the Bank of Japan overhauled its monetary policy framework, with Barclays leading gainers after a broker upgrade.

The FTSE 350 bank index was up 1.5 percent after the Bank of Japan (BoJ) shifted key policies to establish control over interest rate yield curves, instead of its money-printing programme.

It recommitted to reaching its elusive 2 percent inflation goal as quickly as possible. Easy monetary policy, low interest rates and low growth have hit bank profitability in recent years.

"There's a follow through from the BoJ statement today, so financials are bid on that. The yield curve benefit from Japan in the banks today is quite a strong one," said Zeg Choudhry, managing director of LONTRAD.

"The market was pretty tired of the lack of benefit from existing policies. So they had to do something different."

HSBC and Standard Chartered, which have substantial Asian exposure, rose 1 and 1.2 percent respectively.

Top riser was Barclays, which received the additional boost of an upgrade to "buy" from "neutral" by HSBC.

British banks have suffered since the country voted to leave the European Union, with the Bank of England cutting interest rates again. The number of "buy" ratings on Barclays has dropped to 9 from 16.

"The deleterious impact of low or negative interest rates ... has been the principal investment theme for UK banks since the EU referendum," said analysts at HSBC in a note.

"We believe bank equity investors are too negative on negative rates."

However, Royal Bank of Scotland went the other way, down 1.4 percent and the top FTSE 100 faller, after the Financial Times reported that Banco Santander has pulled out of talks to buy its Williams & Glyn unit.

LONTRAD's Choudhry said that RBS was the only big UK-listed bank which lacked catalysts to sustain a rally.

Britain's FTSE 100 rose 0.4 percent to 6,859.54 points by 0829 GMT, up for a third straight session

Anglo American and Rio Tinto rose 2.7 percent and 2.1 percent after target price upgrades, while mid-cap Kaz Minerals rose 5 percent after it was upgraded to "equal weight" from "underweight".

Barclays said that the re-introduction of dividends earlier than expected was "an increasingly likely and powerful catalyst", echoing other analysts who see scope for a rise in dividends in the sector.

Anglo-Dutch publisher Relx fell 1.1 percent after Macquarie cut its rating on the stock to "underperform".


Reference: Alistair Smout

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