Markets confidence boost
World economy recovering faster than expected says IMF
Markets were given a confidence boost today after the International Monetary Fund said the world economy was recovering faster than expected.
The FTSE 100 Index returned above the 5000 barrier yesterday before making further strides today after a strong session for Asian markets.
The top flight was 68.4 points higher at 5083.3, helped by gains of more than 4% for leading banking stocks and a strong session for miners.
The Washington-based IMF had earlier raised its 2010 world growth forecast to 4.5% from 4.1%. Its US growth forecast rose from 2.7% to 3.3%, while the outlook for the European nations was unchanged at 1%.
Banks benefited from the growth forecasts and hopes that a Europe-wide stress test of major players in the sector will represent the next step in restoring confidence following the crisis.
The UK's big four banks — HSBC, Royal Bank of Scotland (the parent of Ulster Bank), Barclays and Lloyds — are among the 91 groups named late yesterday to be “stress tested” to assess resilience and ability to withstand further economic and credit shocks.
Shares in the UK players made strong advances following the news, with gains of up to 4% for Barclays and its part-nationalised counterparts Lloyds Banking Group and Royal Bank of Scotland. HSBC was also higher.
Financial analyst Bruce Packard at Seymour Pierce said a credible stress test was seen as vital in generating confidence in the battered European sector, which has suffered amid the fallout from the Greek debt troubles.
The UK banks have already been subjected to tough tests by the Financial Services Authority (FSA) last year, which is also seen as standing them in good stead for the European exercise.
“Markets believe that the stress tests will be credible and there's some relief,” said Mr Packard.
“Stress tests in the UK and US generated confidence in the banking system last year. However, there is a fine line between tests that are suitably demanding, and reverse engineering a testing process so that everyone passes the test,” he added.
The Committee of European Banking Supervisors (CEBS) said on revealing the stress test list yesterday that it would cover 65% of the European Union banking sector.
Those named include the Republic’s AIB and Bank of Ireland. Results of the tests will be published on July 23.