Sector movers: Aerospace and Defence pace gains

(Sharecast News) - Aerospace and Defence issues paced gains come Tuesday as the broader stock market appeared to find its footing. Nevertheless, many analysts continued to display a degree wariness.

Against that backdrop, shares of BAE Systems rose to within a whisker of their all-time highs, alongside a move in Rolls Royce back towards its 52-week highs.

Stoking gains in the latter, ratings agency Standard&Poor's raised its rating on the engineer's long-term debt to BB with a positive outlook.

In a further boost to Rolls Royce, analysts at Citi hiked their target price on the shares to 255.0p, telling clients they foresaw a "strong" improvement in the company's underlying cash flows for over the next five years.

The recovery in the market for wide body jets was turning the civil aerospace business they said, adding that several other factors had the potential to increase upside potential in the share price by a further 65p.

In the background, traders in the States had moved to nearly price back in a 25 basis point interest rate hike by the Federal Reserve at its 21-22 March meeting, according to Fed funds futures.

However, that was seen as being the central bank's last tightening move with a first rate cut, by as soon as September, deemed increasingly likely.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that further rate hikes were not necessary in order to lower inflation back to the Fed's 2.0% target.

But so long as markets remained calm and no more lenders failed then he believed the Fed would go ahead and hike rates by 25bp during the following week.

Echoing the main remaining concern of market participants at the time, reports said that on Monday evening analysts at Moody's, another of the top three US ratings agencies, had cut their outlook on the US banking system from 'stable' to 'negative'.

"Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital," Moddy's said

"We expect pressures to persist and be exacerbated by ongoing monetary policy tightening, with interest rates likely to remain higher for longer until inflation returns to within the Fed's target range," Moody's added.

"US banks also now are facing sharply rising deposit costs after years of low funding costs, which will reduce earnings at banks, particularly those with a greater proportion of fixed-rate assets."

Worth noting too, core US consumer price data for February released during the same session had printed at 0.5% month-on-month (consensus: 0.4%), prompting concern among analysts at the likes of Berenberg and Unicredit around the stickiness of underlying inflation.

For his part, Mickey Levy at Berenberg Capital Markets highlighted the acceleration seen in core services inflation, which he said was consistent with ongoing robust increases in service sector wages and employment costs.

Furthermore, the Berenberg analyst saw upside risks to the outlook for shelter inflation on the basis of January's data for newly signed leases which in turn, he explained, were tightly correlated to conditions in the jobs market and wages.

That, he said, could keep "rent increases uncomfortably high absent a sharper deterioration in labor markets."

Top performing sectors so far today

Automobiles & Parts 1,911.38 +5.53%

Aerospace and Defence 6,160.14 +4.05%

Industrial Engineering 14,705.97 +3.09%

Travel & Leisure 7,250.85 +2.88%

Electronic & Electrical Equipment 9,409.27 +2.26%

Bottom performing sectors so far today

Tobacco 32,653.88 -0.45%

Gas, Water & Multiutilities 6,016.09 -0.02%