FTSE 100 rises as banks rally on stress test pass

​​​Banks drive FTSE higher after stress test success 

The FTSE 100 enjoyed a solid session as banks led the charge higher following the Bank of England's (BoE) stress test results. All major lenders passed the assessment, providing reassurance about the sector's resilience to potential shocks. The BoE's decision to trim capital requirements added further support to banking shares.

​The stress tests examined how banks would cope with severe economic scenarios, including a sharp recession and property market crash. The clean bill of health removes a potential overhang for the sector, which has been a laggard this year despite higher interest rates boosting profitability.

​Sterling and gilts showed little reaction to the news, holding steady in quiet trade. The pound's muted response suggests markets had largely anticipated the positive outcome, with attention already shifting to the BoE's broader financial stability warnings.

​Banking stocks have been volatile in recent months as investors weigh the benefits of higher rates against concerns about loan quality and economic weakness. Today's rally suggests the former is winning out, at least for now.

​BoE flags elevated risks in financial markets

​The BoE's financial stability report struck a cautious tone despite the positive stress test results. Policymakers highlighted elevated global risks, with particular concern about stretched valuations in AI-linked technology stocks that have surged this year on the back of enthusiasm about artificial intelligence.

​The BoE warned that a sharp correction in these inflated valuations could trigger broader market instability. This echoes concerns raised by other central banks about frothy conditions in certain pockets of equity markets, particularly in the US where tech giants have driven indices to record highs.

​More worrying was the BoE's focus on gilt repo markets, where hedge fund borrowing has hit record levels. The central bank flagged vulnerabilities from concentrated leveraged positions in core UK markets, raising the spectre of liquidity problems if these positions unwind rapidly.

​UK housing and retail data show resilience

​Away from financial stability concerns, UK economic data painted a picture of modest resilience. Nationwide reported house prices rose 0.3% in November, maintaining the gradual recovery seen in recent months. Mortgage approvals continue to hold near pre-pandemic levels, suggesting the property market has found its footing.

​However, the gains remain subdued compared to the boom years, with affordability constraints still weighing on demand. Higher mortgage rates have cooled the market considerably from its pandemic excesses, though a complete collapse has been avoided.

​On the retail front, shop price inflation eased to 0.6% annually, the lowest reading in five months. Early Black Friday discounting appears to have pulled down the headline figure, offering some relief to squeezed consumers heading into the crucial Christmas trading period.

Individual stocks dominate early trading

​Company-specific news drove significant moves in individual stocks, with results and trading updates creating winners and losers across sectors. On the Beach surged after delivering upbeat results that beat market expectations, showing resilience in the travel sector despite economic headwinds.

​In contrast, several industrial and construction names suffered sharp falls. Victrex, Topps Tiles, Severfield and Foresight all declined after updates that disappointed investors, highlighting the uneven nature of the current recovery.

​The housebuilder sector saw divergent moves following RBC rating changes. Persimmon and Taylor Wimpey rallied on upgrades, with analysts highlighting their relative value and improved trading conditions. Meanwhile, Barratt and Berkeley came under pressure following downgrades.

European markets slip as global sentiment wavers

​European equities edged lower despite the FTSE's gains, with healthcare and consumer stocks leading the decline. The divergence highlights the UK market's defensive tilt, with banks and commodity producers offering some insulation from broader weakness.

​Bayer provided a bright spot in an otherwise subdued session, jumping around 15% after receiving US backing for its Supreme Court appeal in ongoing litigation. The move demonstrates how regulatory and legal developments can trigger sharp swings in individual names.

​Global sentiment remains the key driver for UK assets, even as domestic factors provide some support. The recent tech rebound has faded, while bitcoin's slip from recent highs suggests risk appetite is cooling after the post-election rally.

​Markets now await eurozone inflation data later today, which could provide clues about the European Central Bank's rate trajectory. For UK traders, the focus remains on whether global growth concerns will weigh on domestic assets or if resilient economic data can provide support.