London close: Equities close higher on rally in banking stocks

The FTSE 100 closed up 39.56 points to 6,395.65, lifted by the banking sector after Britain’s biggest lenders passed the Bank of England’s stress tests.

The BoE’s stress tests showed all seven of the UK’s largest banks had enough financial strength to sustain the possibility of another financial meltdown, amid a slowdown in China and emerging markets. The Royal Bank of Scotland failed to meet its individual capital guidance requirements and Standard Chartered failed to reach its so-called Tier 1 minimum capital requirement of 6% but both lenders passed the overall test.

Alongside the stress test results the Financial Stability Report was also released. Investors took confidence from BoE Governor Mark Carney's affirmation that banks would need to hold Tier 1 equity of 11% of risk-adjusted assets by 2019, which is less than the 13% that was already held in aggregate by the major banks in September.

Banks will be required to have a so-called counter-cyclical capital buffer (CCB) of 1%, equivalent to an extra £10bn.

Meanwhile, investors seemed to shrug off data that showed UK manufacturing activity growth slowed more than expected in November. The Markit/CIPS purchasing managers’ index fell to 52.7 last month from October’s 16-month high of 55.2, missing analysts’ forecasts for a reading of 53.6. A reading above 50 signals an expansion in the sector while a level below that indicates a contraction.

Earlier in the session, Chinese manufacturing data came in mixed. The official PMI fell unexpectedly to 49.6 in November from 49.8 the previous month.

Caixin’s PMI on China manufacturing, however, rose to 48.6 in November from 48.3 in October, surprising analysts who had expected no change.

Markit’s final reading on Eurozone manufacturing PMI was confirmed at 52.8 in November, as expected, compared to 52.3 in October.

Separately, official data showed the Eurozone unemployment rate fell to 10.7% in October from 10.8% in September, beating expectations for an unchanged reading.

In the US, the ISM manufacturing index fell to its lowest level since July 2009 last month. The index fell to 48.6 from 50.1 in November, remaining marginally above analysts’ expectations for a 50.5 reading.

The final reading of the Markit US manufacturing PMI for November declined from 54.1 in October to 52.8, reaching its lowest level since October 2013, although the figure was marginally above the 52.6 flash estimate released last month.

According to the Commerce Department, US construction spending increased 2.2% month-on-month compared with a 0.6% gain last month and analysts’ expectations for an unchanged reading.

On the corporate front, Hammerson gained after Goldman Sachs upgraded the stock from ‘neutral’ to ‘buy’. It said that the shares trade on 5.2% earnings yield, 62 basis points above their historical average.

Aberdeen Asset Management plunged, continuing its downward streak from Monday’s results which revealed underlying pre-tax profits at the investment house rose only slightly to £491m from £490m due to the slump in Asian and emerging market equities.

Babcock International Group declined after Citi trimmed its earnings per share forecasts for 2017 and 2018 by 2% each, lowered their target price on the stock to 1,000p and downgraded its recommendation to ‘sell’.

Home Retail Group rallied following a report that Nicholas Marshall, a former executive of the Garden Centre Group, is mulling a bid for Homebase.

Petra Diamonds jumped after buying an interest in the Kimberley Mines in South Africa from De Beers Consolidated Mines Proprietary Ltd, in a consortium with Ekapa Mining for around $7.2m.

Merlin Entertainments gained after it confirmed it is likely to end its rollercoaster year on a stable footing with full year profit forecasts expected to meet lowered expectations despite the continued significant weakness at Alton Towers since the crash on its Smiler ride in June.

Market Movers

FTSE 100 (UKX) 6,397.45 0.65%
FTSE 250 (MCX) 17,512.99 0.53%
techMARK (TASX) 3,229.97 -0.02%

FTSE 100 - Risers

Barclays (BARC) 234.15p 4.91%
Royal Bank of Scotland Group (RBS) 312.20p 3.24%
TUI AG Reg Shs (DI) (TUI) 1,137.00p 3.18%
Hammerson (HMSO) 627.50p 2.78%
Randgold Resources Ltd. (RRS) 4,141.00p 2.45%
Lloyds Banking Group (LLOY) 74.71p 2.40%
Whitbread (WTB) 4,655.00p 2.35%
G4S (GFS) 232.00p 2.25%
Berkeley Group Holdings (The) (BKG) 3,280.00p 2.15%
SSE (SSE) 1,462.00p 1.95%

FTSE 100 - Fallers

Glencore (GLEN) 94.48p -2.31%
Sage Group (SGE) 576.50p -1.71%
Babcock International Group (BAB) 1,056.00p -1.40%
Aberdeen Asset Management (ADN) 315.10p -1.35%
Vodafone Group (VOD) 222.10p -0.96%
Morrison (Wm) Supermarkets (MRW) 151.40p -0.72%
BT Group (BT.A) 493.00p -0.69%
Johnson Matthey (JMAT) 2,811.00p -0.67%
Anglo American (AAL) 406.35p -0.56%
Sainsbury (J) (SBRY) 252.70p -0.43%

FTSE 250 - Risers

Drax Group (DRX) 256.70p 14.04%
Petra Diamonds Ltd.(DI) (PDL) 72.25p 12.63%
AO World (AO.) 160.00p 7.38%
Virgin Money Holdings (UK) (VM.) 379.00p 6.49%
Serco Group (SRP) 116.70p 5.61%
Tullow Oil (TLW) 206.60p 5.19%
Acacia Mining (ACA) 182.60p 5.18%
Daejan Holdings (DJAN) 6,425.00p 4.56%
Poundland Group (PLND) 225.50p 4.54%
Pets at Home Group (PETS) 278.80p 3.99%

FTSE 250 - Fallers

Sophos Group (SOPH) 258.00p -9.03%
CLS Holdings (CLI) 1,775.00p -4.05%
Weir Group (WEIR) 1,157.00p -3.74%
SSP Group (SSPG) 303.10p -3.56%
Jimmy Choo (CHOO) 138.20p -2.88%
Premier Oil (PMO) 69.50p -2.18%
esure Group (ESUR) 247.90p -2.05%
Greencore Group (GNC) 330.90p -2.01%
Polymetal International (POLY) 527.00p -1.86%
Dignity (DTY) 2,436.00p -1.85%