Expectations that a number of European banks would fail the latest stress tests, the results of which were announced after the close, curbed appetite for financials and a broader range of risky assets in Friday trade.
During the trading day, UK-listed banks felt the direct pressure of the looming test result announcement, with Barclays (BARC), Lloyds Banking Group (LLOY) and Royal Bank of Scotland (RBS) closing 1.0%-2.5% lower.
As financial sector concerns added to the sovereign debt fears which have been rattling markets all week, U.K. large caps were left treading water. The FTSE 100 index closed 0.1% or 3 points lower at 5,844, bringing blue chips’ weekly losses to 2.5%. The FTSE 250 index dipped 0.2% or 31 points to 11,748 Friday, down 2.7% on the week.
Shortly after the close of trade on the London Stock Exchange, the European Banking Authority announced that one Austrian, two Greek and five Spanish banks have failed to demonstrate core tier one capital sufficient to pass the stress test, while 16 more EU banks only barely met the requirement.
With signs of financial sector weakness aplenty, the common currency found it difficult to hold its ground and hit a four-moth low against the dollar.
“As fears surrounding the sovereign debt crisis continue to weigh on market sentiment, a dismal outcome is likely to exacerbate the bearish sentiment underlying the single-currency, and the [European] central bank may continue to soften its hawkish tone for monetary policy as the heightening risk for contagion bears down on the overall economy,” commented David Song, Currency Analyst for DailyFX.
Among individual market movers on the London Stock Exchange, miners joined major banks on the casualty list. BHP Billiton (BLT), Kazakhmys (KAZ) and Vedanta Resources (VED) suffered the most, down 1.6%-2.0%. Markets reacted unfavourably to Thursday’s announcement that BHP Billiton is to acquire U.S. gas producer Petrohawk Energy Corp (HK) for $12.1 billion or $38.8 per share. The purchase price represents a 65% premium to Petrohawk Energy Corp’s Thursday closing price of $23.49 per share and is 30% above Morningstar’s most recent fair value estimate.
On the flipside, Fresnillo (FRES) bucked the weak sector trend, up 1.9% on the back of an upbeat analyst report from JP Morgan Cazenove.
Burberry Group (BRBY) gained 4.2% and climbed to the top of the FTSE 100, continuing its strong performance after reporting a 34% increase in fist-quarter revenue this Wednesday.
Meanwhile, British Sky Broadcasting (BSY) moved 1.9% forward as News International chief executive Rebekah Brooks quit and issued an apology to victims of the phone hacking scandal.
Across the Atlantic, equities wavered between gains and losses as U.S. economic data distracted investors from strong earnings reports. Headline indices on Wall Street were marginally higher at the time of writing.
The University of Michigan's gauge of consumer sentiment plunged to 63.8 in early July, reaching the lowest level since March of 2009 and falling far lower than economists' expectations of 71.0. A weak job market and high energy prices contributed to the disappointing reading, which aims to determine how consumers view business and buying conditions as well as their personal finances.
Separately, the Labor Department reported that overall consumer prices in June fell a seasonally adjusted 0.2% from May, following a 0.2% increase in April. Falling prices for petrol and other energy products pushed the reading lower, which marks the first decline in inflation in a year.
