Banks Boost FTSE Higher
City Index November 28, 2017 2:00 PM
All seven of the UK’s largest have passed the stress test. The annual test is designed to assess whether the UK bank’s balance sheet could handle a doomsday economic scenario without being bailed out?
All seven of the UK’s largest have passed the stress test. The annual test is designed to assess whether the UK bank’s balance sheet could handle a doomsday economic scenario without being bailed out. The BoE have said that the UK banking system is resilient and could handle a severe economic stress event, such as a disorderly Brexit. No banks needed to take remedial action because of what they have already done to shore up their capital this year. The central bank confirmed that the banking system could absorb £350 billion worth of losses over the next few years and still continue to lend.
Whilst all the big names passed the test, this year Barclays and RBS were identified as the weakest, both showing capital ratios would fall below the minimum requirements in a more extreme stress event.
Overall the tests showed that the British banking system has a solid base and is which is reassuring for investors. Knowing that the central bank believes that they can handle a disorderly Brexit will increase investor confidence in banking stocks as we head towards Brexit. Leaving the EU will be a key risk event and there will almost certainly be stresses on the financial system that these tests just don’t cover.
The stress test results worked their magic on the open and the FTSE pushed higher. Investors expressed their delight at the news by buying into the likes of HSBC, Standard Chartered, even RBS quickly reversed early losses. Going into the test, there was a large question mark over whether RBS would be able to pass and, so we are seeing investor relief show through, which has helped the share price. Barclays hasn’t been so fortunate in early trade, with investors punishing the UK bank for its disappointing performance in the more extreme test.
Aviation stocks higher; miners weigh
Elsewhere on the FTSE aviation stocks are dominating the upper reaches, a pull back in the price of oil is supporting the likes of EasyJet and British Airways. Meanwhile, weighing on the blue-chip index are commodity stocks such as the miners, which are tracking the base metal prices lower.
In the FX markets, the pound moved slightly lower versus the US dollar on the release of the stress test results. GBP/USD is trading at $1.33320.
US Fed Chair Powel in the hot seat
Looking ahead across the day GBP/USD is expected to stay in focus as Jerome Powel nomination hearing as he testifies in front of the US Senate Baking Committee. There is a good probability that he will have to handle some tough questions on inflation and more specifically why it refuses to budge higher. Investors will be watching carefully to ascertain Powel’s thoughts in order to start piecing together expectations for the path of rate rises next year. But with so many Fed vacancies yet to be filled, there are a lot of uncertainties and this has been weighing on the dollar and could continue to keep the buck under pressure going forwards.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.