The U.K. has endured a slew of weak economic data lately, convincing many that the Bank of England will be forced to cut interest rates this month.
But strategists at Jefferies disagree and are staying constructive on domestically focused banks, with buy ratings on Lloyds Banking Group LLOY, +0.02% LYG, -0.33%, Royal Bank of Scotland Group RBS, +0.17% RBS, +0.00% and Barclays BARC, -0.48% BCS, +1.33%. Those shares were all up around 1% each on Thursday.
The biggest economic blow came with retail sales falling again in December, which has increased expectations that a rate cut is coming on January 30, notes a team of strategists led by Sean Darby, global equity strategist at Jefferies.
“Realistically, January is the only window where the BoE could deliver a rate cut as investment data is expected to be positive in Q1 [first quarter] 2020 alongside the budget which would pave the path for fiscal expansion from March 2020. Jefferies expects the BoE to stand pat,” he said.
The “macro data can surprise in terms of loan growth and rising interest rates—neither of which is in anyone’s estimates, so there is scope for an earnings surprise,” from the banks, said Darby. He notes a recent survey of company finance chiefs indicated higher capital expenditure and increased hiring plans. Within that bullish stance on U.K. equities, they like the FTSE 250 index slightly better than the FTSE 100.
The FTSE 100 index UKX, -0.44% itself fell 0.3% to 7,549.60, while the pound slipped 0.1% to $1.3125. On the Brexit front, the government cleared its last hurdle in Parliament on Wednesday after the House of Lords gave up on trying to amend it. That leaves the U.K. on a path to leave the EU next week.
Across stocks, mining names were weaker, as China is a big user of natural resources and its spreading coronavirus has rattled investors. Wuhan, considered the epicenter of the virus that has killed at least 17 people and infected hundreds, has been quarantined by Chinese officials, with no travel in or out of the city. That comes amid reports two more cities may be on lock down.
Shares of Rio Tinto RIO, +0.92% RIO, -2.63% fell 1.6%, BHP Group BHP, -2.28% was down 1.3% and Anglo American AAL, -1.94% dropped 1%. Anglo American said on Thursday that it produced less copper in the fourth quarter due the drought in Chile.
Travel-related stocks were weaker as tourist-related stocks world-wide were seeing pressure from the coronavirus, which has coincided with China’s busy holiday for travel, Lunar New Year. Shares of International Consolidated Airlines Group IAG, -3.25% fell 2% and easyJet EZJ, -2.72% lost 2% as well.