The FTSE 100 was higher on Friday, with banking shares and Pearson driving the gains.
The FTSE 100 was 0.3% higher going into the close on Friday.
Barclays, NatWest, Standard Chartered, and Lloyds were all comfortably higher on Friday, with gains of over 1.4%. Standard Chartered was 3.2% to the good, and Barclays gained 2.8%.
There were several factors at play in FTSE 100 banks on Friday.
In the case of Standard Chartered, more bad news from the Chinese economy last night raised the prospect of Chinese stimulus, which will support the Asia-focused bank’s earnings. In addition, Standard Chartered shares broke above the 200-day moving average for the first time since October, triggering technical buying in the stock, which is riding a wave of optimism after reporting strong results last week.
UK banks were enjoying upbeat UK house price data and suggestions by BoE officials that interest rates will not be cut in the short term.
Data released by Nationwide on Friday showed house prices rose year-on-year for the first time in 13 months.
“The momentum of moderating mortgages fuelled a first-class February, and hiked house prices, pushing them into positive territory for the first time in over a year,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
“For months at the end of 2023, buyers were sitting on their hands, waiting for a break in the clouds. Now they’ve snapped up cheaper deals and are hunting for a new home. We know from yesterday’s Bank of England data that mortgage approvals surged in December, and we’re seeing this filter though into more demand and higher prices.”
A healthy housing market is good for the banks, which will benefit from increased mortgage demand and lower default rates.
Banks were also supported by comments by the Bank of England’s chief economist suggesting voting members were in no rush to cut rates given inflation was still way above the 2% target and other areas of the economy showed signs of resilience.
“In my view, we have some way to go before such evidence becomes conclusive,” said Huw Pill, the Bank of England’s chief economist
“While that persistent component of inflation continues to threaten the lasting and sustainable achievement of the 2% inflation target, the MPC will need to maintain a degree of restrictiveness in its monetary policy stance to squeeze this persistent component out of the system.”
Banks enjoy the higher interest rate environment as elevated rates feed directly into their key income metrics. Should rates remain higher for longer, it will result in higher profits for the banks than if borrowing costs were slashed.
Pearson was the top gainer after education services provided said operating profit grew and they were working AI into its offering.
“Pearson is continuing to show that an old dog can learn new tricks as the publisher continues its digital transformation journey, even touting integration of AI in this latest update,” said Adam Vettese, analyst at investment platform eToro.
“Assessments and qualifications, particularly English language courses, have been driving growth and there is plenty of cash being generated to facilitate a dividend increase and expansion of its buyback programme, which will keep shareholders happy.”
Pearson shares were 5% higher at the time of writing.
