European shares pause after their recent high but banks outperform as investors ratchet up expectations for an ECB rate rise in December. Has this week's Fed hike called time on global easing? David Pollard reports.
After a new high for world shares on Thursday, time to ponder on Friday. While still basking in the afterglow of the Fed ... (SOUNDBITE) (German) HEAD OF CAPITAL ANALYSIS AT BAADER BANK, ROBERT HALVER, SAYING: "Mrs Yellen made it clear no one should be scared of more rate increases any time soon." Except that perhaps they should. Post-Fed, a new mood of tightening apparently taking hold outside the US. Saudi Arabia and three other Gulf banks have already raised. China too. Although news some investors now factor in an 80 per cent chance of an ECB hike in December - prompts big questions for others. SOUNDBITE (English) SENIOR FX STRATEGIST, RABOBANK, JANE FOLEY, SAYING: "Whilst the ECB last week did step back from its ultra-dovish position, Draghi retains a very cautious outlook. And that I think is likely to remain in place until we see signs of core inflation moving higher." And for the Bank of England's MPC this week: one policymaker's surprise vote for a hike doesn't mask differences over priorities. (SOUNDBITE) (English) LCG SENIOR ANALYST, JASPER LAWLER, SAYING: "Is it the drop in the pound after Brexit which is going to feed through to higher inflation ... or is that the British economy is going to eventually be affected by this uncertainty over the Brexit negotiations?" But with interest rates globally seen on the up - fiscal stimulus too - the so-called 'reflation trade' may have some way to go. Many simply shrug off worries stocks are getting overbought. (SOUNDBITE) (English) SENIOR ANALYST, HARGREAVES LANDSDOWNE, LAITH KHALAF, SAYING: "It may be that we see a pull-back from here, in the short term markets can go in either direction. But the reality is we're still living in a low-interest rate world and that's supportive of stock prices." And currently favouring banks - those shares outperforming on Friday on the hope higher rates will bring higher returns for a still battered sector.