MARKET REPORT: Banking stocks soar after US Federal Reserve chairman Jerome Powell hints towards more base rate rises

Banking stocks were boosted as traders predicted higher interest rates from central banks following hawkish comments from US Federal Reserve chairman Jerome Powell last week.

NatWest soared 9.5 per cent, or 22.24p, to 257.55p, Barclays rose 1.6 per cent, or 2.6p, to 164.7p, Lloyds edged up 0.2 per cent, or 0.08p, to 43.75p, HSBC climbed 1.2 per cent, or 6.5p, to 529.5p and Standard Chartered lifted 0.8 per cent, or 4.4p, to 594p. 

Higher interest rates mean banks can charge more for loans, helping to boost their profit margins.

Banks boosted: NatWest soared 9.5%, Barclays rose 1.6%, Lloyds edged up 0.2%, HSBC climbed 1.2%, and Standard Chartered lifted 0.8%

‘The Federal Reserve, the Bank of England and the European Central Bank have signalled that they are intent on trying to root out entrenched inflation,’ said Hargreaves Lansdown analyst Susannah Streeter, setting the stage for more rate rises.

But she warned sharp interest rate hikes, while good for bank profits, would leave many households and firms facing a ‘double whammy’ of rising borrowing rates and surging bills.

The boost for the banks came after Powell vowed to ‘keep at it’ to reduce inflation, signalling more rate rises in the US.

Speaking at the Jackson Hole conference in Wyoming last week, he said bringing down inflation would bring ‘unfortunate costs’ – but not acting would mean ‘far greater pain’.

While Powell only provides insight into the next moves of the US central bank, it is thought other chiefs will follow suit, including Bank of England Governor Andrew Bailey.

Despite mounting fears of a recession, the blue-chip index got off to a steady start following the Bank Holiday weekend, boosted by the weak pound, which tends to benefit large firms that make lots of their money overseas. But gains fell away during the day.

The FTSE 100 dropped 0.9 per cent, or 65.68 points, to 7361.63 and the FTSE 250 slid 0.1 per cent, or 20.07 points, to 19,149.65.

Stock Watch – Diurnal

Small-cap pharma firm Diurnal more than doubled in value after signing a takeover deal with a US rival.

The group announced it had come to an agreement with Neurocrine that will offer Diurnal investors 27.5p per share in cash, valuing the company at around £48.3million.

The price tag is a 144 per cent premium to the company’s closing price on August 26, the last trading day before the deal was announced. 

The news sent the shares soaring 134.7 per cent, or 15.15p, to 26.4p.

Despite starting stronger, oil stocks ended on the back foot. Shell edged up slightly by 0.2 per cent, or 5.5p, to 2339.5p while BP slipped 1.9 per cent, or 8.55p, to 449.25p.

Pharma giant AstraZeneca delivered more positive news from a study of its heart failure drug Farxiga. 

A trial of the treatment showed it reduced the risk of cardiovascular death by 14 per cent and death from any cause by 10 per cent.

The firm also revealed its Evusheld antibody treatment for Covid-19 had been approved for use in Japan. AstraZeneca shares were down 3.5 per cent, or 394p, to 10970p.

Drinks bottler Coca-Cola HBC edged up 0.6 per cent, or 11p, to 1991p after analysts at Barclays raised their target price on the stock to 2600p from 2000p. 

The investment bank said shares in the group had ‘near-term upside potential’ and that forecasts for its 2022 performance were ‘too low’. 

Barclays also hiked the target price of insurer Aviva (down 0.8 per cent, or 3.3p, to 417.2p) to 555p from 553p and tobacco group BAT (down 0.2 per cent, or 6p, to 3456.5p) to 4500p from 4400p.

Blue-chip gold miner Endeavour tumbled 6.9 per cent, or 123p, to 1659p as it reeled from an attack on a convoy near one of its projects in Burkina Faso. 

Over the weekend, it was reported armed men had killed six civilians and injured two others who were returning from Endeavour’s Boungou mine last Thursday, raising fears an Islamist insurgency in the country will weigh on production.

Meanwhile, other major mining stocks fell amid fresh concerns a recession could dent global metal demand. 

Mexican metal miner Fresnillo sank 5.1 per cent, or 37p, to 691.2p, Glencore was down 3 per cent, or 14.95p, to 483.95p, Anglo American dropped 4.7 per cent, or 136p, to 2786.5p, Antofagasta fell 5.6 per cent, or 66p, to 1108p and Rio Tinto eased 3.3 per cent, or 165p, to 4815p.

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