Banks surge as US Fed signals rate rise

Banking shares drove European bourses higher on Thursday after the US Federal Reserve signalled a likely December rate hike and announced it would begin trimming its balance sheet in October.

Concerns about consumption dragged on Britain’s top share index, the FTSE 100, partly offset by the gains among banks due to the Fed’s signalling. US stocks fell, while treasuries advanced as investors assessed the impact of the news.

DUBLIN

The Iseq rose by more than 0.8 per cent, after a strong performance by the heavyweight, CRH. The building materials group finished the session up more than 3.2 per cent, after it announced a deal to buy US cement company Ash Grove for $3.5 billion (€2.93 billion). It was up as much as 4.5 per cent in the first hour of trading, following the deal's overnight announcement. Analysts and investors broadly welcomed the deal.

Exploration company Providence Resources fell by more than 10 per cent, after it announced results. It made an operating loss of €3.9 million in the first half of the year, but said it was "optimistic" despite a string of recent drilling disappointments.

European shares drift lower ahead of Fed decision

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Bank of Ireland rose almost 1 per cent after it announced a £42.5 million (€48 million) deal to buy a UK leasing company.

LONDON

British banks were among the strongest gainers, with Lloyds, Barclays and Royal Bank of Scotland all up between 1.6 per cent to 2.6 per cent. Banks have struggled with low interest rates, which has put pressure on their margins. The sector was boosted recently by more hawkish rhetoric from the Bank of England, which said that a rate rise was likely in coming months.

Shares in precious metals miners Antofagasta, Randgold Resources and Fresnillo and were all down about 2.3 per cent. Household goods and retailers sustained heavy losses as worries for British consumers mounted: Kingfisher and Sainsbury's were both down 4.1 per cent.

Troubled British outsourcer Capita slumped 11.6 per cent to the bottom of the European index after first-half revenue declined and the hunt for a new chief executive continued.

EUROPE

Banks, the biggest gainers from interest rate rises that cushion margins, jumped 1.4 per cent to a one-month high on the prospect of the European Central Bank following the US in bringing ultra-loose monetary policy to an end. Analysts have been increasing their earnings expectations for European banks for much of the past 12 months.

Commerzbank rose 3.5 per cent on reports of merger approaches. Reuters reported on Wednesday the UniCredit had approached Commerzbank for a possible merger, and German weekly WirtschaftsWoche on Thursday said the German government favours a merger of the state-backed bank with France's BNP Paribas. BNP shares rose 1 per cent while Unicredit was up 2 per cent.

Siemens rose 1.3 per cent after reports it is in talks to merge its rail business with that of either Alstom or Bombardier and will pick a preferred partner within days for further negotiations. Alstom shot up 3.9 per cent to a nine-week high.

Meanwhile, shares in Finnish power provider Fortum slipped 3.5 per cent from a two-year high hit on Wednesday after it said it was in talks to buy E.ON's stake in Uniper.

NEW YORK

Heading into the afternoon, the Nasdaq was down 0.53 per cent. Seven of the 11 major S&P sectors were lower, with the technology index’s 0.76 per cent fall leading the decliners.

Shares of Apple fell 1.7 per cent and was on track to post its biggest two-day decline since June. The stock was the biggest drag on the three major indexes.

Nvidia pared losses to trade down 3.1 per cent after GlobalFoundries, which fabricates chips for Advanced Micro Devices, said Tesla had not committed to working with the company to develop its own artificial intelligence chip for self-driving cars. Advanced Micro pared gains to trade up 0.3 per cent, while Tesla was off 0.8 per cent.

– (Additional reporting: Reuters/Bloomberg)