London Midday: FTSE Pushes Higher as Banks Rally

Summary:

London stocks rose at midday as major banks rallied after passing the Bank of England’s stress tests, lifting the FTSE 100 by 0.4%. Fresh Nationwide data showed UK house prices continued to grow in November, while retailers cut prices ahead of Black Friday.

London stocks had pushed higher by midday on Tuesday, with banks leading the gains after they cleared the Bank of England’s stress tests.

The FTSE 100 was up 0.4% at 9,740.07, following a flat start to the session.

Investors were mulling the latest data from Nationwide, which showed house prices continued to rise in November, although the pace of growth eased slightly.

House prices grew by 1.8% year-on-year, down on October’s 2.4% spike but ahead of expectations for a 1.4% uplift.

Month-on-month, seasonally adjusted growth was 0.3%, also ahead of consensus, for 0%.

The average house price now stands at £272,998.

Robert Gardner, Nationwide’s chief economist, said: "Against a backdrop of subdued consumer confidence and signs of weakening in the labour market, this performance indicates resilience, especially since mortgage rates are more than double the level they were before Covid, and house prices are close to all-time highs."

In last month’s Budget, chancellor Rachel Reeves announced a council tax surcharge for properties valued at more than £2m.

However, Gardner said the so-called mansion tax was unlikely to have a "significant" impact on the housing market.

"The surcharge, which is not being introduced until April 2028, will apply to less than 1% of properties in England, and around 3% in London," he noted.

Looking forward, Nationwide said housing affordability was set to to improve "modestly", should income growth continue to outpace house price growth, as expected.

Gardner said: "Borrowing costs are likely to moderate a little further, if Bank Rate is lowered again in the coming quarters.

"This should support buyer demand, especially since household balance sheets are strong."

Investors were also digesting the latest shop price monitor from the British Retail Consortium and NIQ, which showed that shop prices fell in November as retailers started to launch their Black Friday deals and promotions.

In equity markets, Lloyds, Barclays, Standard Chartered and NatWest were among the top performers after the Bank of England said all seven of the biggest lenders passed its stress tests.

In its half-year Financial Stability Report, the Bank flagged increased risks to the UK’s financial system, including sky-high valuations of tech companies, while also trimming the amount of capital banks need to hold in reserve.

However, despite the heighted risk climate, the BoE opted to cut capital requirements for the UK’s biggest banks after they passed its latest stress tests.

It found that the sector was well capitalised, and that UK household and corporate aggregate indebtedness remained low. As a result, the BoE lowered the appropriate benchmark for the level of Tier 1 capital requirements to 13% from 14%, the equivalent to a CET1 ratio of around 11%. Analysts had been largely expecting the reduction.

Russ Mould, investment director at AJ Bell, said: "The UK banking sector has passed the Bank of England’s stress test with flying colours.

"The industry and authorities learned some valuable lessons from the global financial crisis in 2008 and banks have subsequently become stronger entities. No-one wanted a repeat of what happened 17 years ago when various banks had to be bailed out. That crisis led to UK banks being pushed to have more capital to withstand any shocks.

"The latest stress test means that major UK banks would be able to cope with a severe decline in the economy and provide ongoing support to consumers and businesses.

"Importantly, the stress test results have given the Bank of England confidence to cut its estimate of how much capital banks need to hold. The government will no doubt welcome this news, given its desire to encourage more lending to drive economic growth."

Elsewhere, Ladbrokes owner Entain rose after an upgrade to ‘overweight’ from ‘neutral’ at JPMorgan.

Persimmon and Taylor Wimpey were both high risers after an upgrade to ‘outperform’ from ‘sector perform’ by RBC Capital Markets. In a broader note on the UK housebuilding sector, RBC said the vital statistics of the UK housing market are in good shape.

"Mortgage approvals for house purchase and housing transaction levels suggest a normal market and house prices are surprisingly stable," it said. "The UK housing market, like many of us, has been fitter in the past, but it is certainly a long way from being on life support."

British Land advanced after Panmure Liberum upgraded the shares to ‘buy’ from ‘hold’ and lifted the price target to 490p from 424p, citing rent reversion upside.

Victrex shot to the top of the FTSE 250 as the polymers group said it has launched a "profit improvement plan" targeting £10m of savings, after underlying earnings dropped 21% over the 12 months to 30 September.

On the downside, Berkeley and Barratt Redrow lost ground after RBC Capital downgraded the stocks to ‘underperform’ from ‘outperform’ and to ‘sector perform’ from ‘outperform’, respectively.

Source: Sharecast

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