Lenders pull European equities down after EBA stress test

Lenders dragged down European equities amid investor scepticism even as stress-test results showed most of the institutions would keep an adequate level of capital in a crisis.

The Stoxx Europe 600 Index slipped 0.6 per cent while in Ireland the Iseq Overall Index closed down just more than 1 per cent at 5,806.68 on a quiet day of trading due to a public holiday.

Dublin

Much of the focus was on bank stocks, given the results of the European Banking Authority’s (EBA) capital stress tests on Friday evening.

AIB and Bank of Ireland were among the worst performers under an adverse scenario applied by the EBA to capital ratios applying at the end of 2018.

Bank of Ireland closed down 6.5 per cent at 17.3 cent with AIB finishing up almost 13 per cent at €7.34. However, only 1,000 shares traded in AIB, which is listed on the junior ESM market and is 99.9 per cent owned by the State.

Permanent TSB, which was not part of the EBA's test, finished up 0.8 per cent at €2.15.

Building materials group CRH closed down 1.5 per cent at €27.06 as a peer in the United States missed its earnings estimates while Smurfit Kappa declined by 1.7 per cent to €20.64.

Airlines were weak across Europe, with Ryanair down 1.4 per cent at €11.765. Kingspan was one of the main gainers on the day, up 2 per cent at €20.965, with drinks group C&C up 1.8 per cent at €3.67.

Europe

UniCredit SpA, the second-worst performer in the EBA's exam, sank 9.4 per cent while Britain's Barclays Plc and Deutsche Bank AG slid more than 1.8 per cent.

Energy producers also weighed on the market amid losses in oil, with Royal Dutch Shell Plc down 3.2 per cent.

“Investors are sceptical about everything these days,” said Peter Garnry, head of equity strategy at Saxo Bank A/S in Hellerup, Denmark. “The problem with the stress tests is that they were too soft, only assuming a mild to moderate recession. This means that the data doesn’t tell us much, and it’s not too surprising that most banks passed.”

While European equities had their biggest monthly gains since October in July – with lenders jumping the most since February 2015 – the Stoxx 600 remains down 7.1 per cent for the year.

Among other stocks moving on corporate news, Air Liquide SA declined 2.4 per cent after the French industrial gas company said earnings fell in the first half of the year, missing analysts' estimates.

Heineken NV lost 3.7 per cent as the brewer reported sales growth that missed projections. Casino Guichard-Perrachon SA slid 5.2 per cent as Oddo said its sees the supermarket chain's 2016 French forecast at risk and lowered its rating on the stock to the equivalent of a sell.

London

London’s FTSE 100 index tumbled below the 6700 mark as investors baulked at a bleak economic update from the UK manufacturing industry. The index slipped 30.5 points to 6693.95 after the manufacturing sector, which accounts for around 10 per cent of the UK economy, endured its sharpest fall for more than three years.

The closely watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) fell to levels last seen in February 2013, as it hit 48.2 in July, down from 52.4 in June and below economists’ expectations of 49.1. A reading above 50 indicates growth.

Banks and housebuilding stocks suffered after the PMI update amid fears that UK economy growth is grinding to a halt following the Brexit vote. Taylor Wimpey was the biggest faller on the London market, off more than 4 per cent or 7p to 147.7p, while Barclays dropped 2 per cent or 3.2p to 151.4p.

New York

Wall Street was little changed in early afternoon trading but a slight advance earlier in the session allowed the S&P 500 to post a fresh intraday record high. The index has remained in a very tight range over the past 13 sessions and is struggling for direction.

Growth in US gross domestic product in the second quarter came in below expectations on Friday, fuelling speculation that the Federal Reserve may not pull the trigger on raising interest rates anytime soon.

On Monday, data showed that US manufacturing activity slowed in July as orders fell broadly, while a drop in construction spending in June suggested a downward revision to the second-quarter economic growth estimate.

– Additional reporting by Bloomberg