Banks lead FTSE higher

Banks lead FTSE higher
by Brenda Kelly

Weakness in mainland Chinese stocks after both the official and Caixin PMIs showed manufacturing remains subdued. The official Purchasing Managers’ Index (PMI), which tracks activity in the crucial factories and workshops sector, fell to 49.6 and was the lowest print since August 2012. The market appears to be taking this as a signal that further easing is now on the cards from Beijing. To be fair, this has been a recurring theme in market movements post crisis.

Certainly it would appear that the Reserve Bank of Australia is unconcerned about the Chinese demise as it left the cash rate at 2% for the 7th consecutive month. The Aussie dollar is higher despite the bank leaving the door open for a cut next year.

Eurozone PMI data was fairly good and with manufacturing gaining some pace in November. Italy seems to be undergoing something of a mini-boom over the past number of months as its’ PMI hit a 4 month high. Italian unemployment also fell to its lowest since 2012 with a rate of 11.5% observed.

The need for circumspection in the face of these data is that while Spain posted a 3 month high for its manufacturing in November, it had slumped to a 21 month low in October. Ireland took up the mantel of a lower than previous number coming in at 53.3 for the month – this was a 21 month low.

Germany appears to be recovering it’s ‘core’ credibility as unemployment levels were better than expected. Exports there also saw their strongest increase since February 2014. The weak euro is finally starting to bear fruit.

Ironically, the single currency has recovered the $1.06 level on the back of all this.

Equity indices, following yesterday’s upside are slightly softer this morning. Despite an overtly bullish sentiment out there, many are willing to pre-commit ahead of the ECB and of course the Non-Farm Payrolls later this week.

The UK bank stress tests are the key highlight for the FTSE this morning. Royal Bank of Scotland and Standard Chartered were the weakest of Britain's seven largest lenders as it was found that under the assumed conditions that they had insufficient capital. Given the latter’s exposure to emerging markets, it was likely subjected to greater scrutiny.

All 7 banks were told they would have to set aside capital to protect their UK exposures as part of a new measure the bank is phasing in called a 'countercyclical capital buffer'.

The financial sector is outperforming in any case this morning.