European markets traded higher on Wednesday morning. Improved prospects for an OPEC deal to cut oil output have lifted oil prices by over 4%, making the energy sector the top riser.
On the FTSE 100, leaping shares of BP (LON:BP) and Royal Dutch Shell (LON:RDSa) on hopes of higher oil prices after an OPEC agreement trumped a fall in banking shares after RBS (LON:RBS) failed Bank of England stress tests.
Shares of RBS slumped to the bottom of the benchmark UK equity index after it was revealed it will take additional capital-raising measures in response to the BOE stress test. RBS was anticipated to have a tough time after it saw the third biggest fall in its capital ratio across 52 banks in European Banking Authority stress tests earlier this year. Still, with a fall in its common equity tier one ratio to below the BOE’s “hurdle rate”, let alone its “systemic reference point”- RBS seems to have missed even the most meagre expectations.
The reaction in the other banking stocks reflected their performance in the stress tests. Shares of Barclays (LON:BARC) and Standard Chartered (LON:STAN) shares dropped after failing the tests, but by not as much as RBS since capital raising plans were thought to be enough to sufficiently improve the results. Shares of Lloyds (LON:LLOY) and HSBC Holdings (LON:HSBA) drifted around breakeven after passing the stress tests but getting dragged down by sector pessimism.
Confident statements from Saudi and Iranian oil ministers raised hopes OPEC will strong together the deal agreed in principle at its last meeting in Algiers. Saudi Arabia appears willing to take “a big hit” in slashing output but wants some cooperation from others if it is to do so. That would include a 600k barrels per day cut from non-OPEC, something Russia has said from the offset it won’t contribute to.
Stocks in the US look set for a higher open as oil prices rise ahead of ADP employment and personal spending data.
USA pre-opening levels
S&P 500: 3 points higher at 2,207
Dow Jones: 20 points higher at 19,141
Nasdaq 100: 2 points higher at 4,875
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