Oil and financials dominated in September

UK Equity Growth

UK equity growth –

UK equity indices rose during September, although short-term sentiment and market movements were affected by developments in the financials and energy sectors, and broader speculation over US monetary policy.

  • The banking sector was undermined by a steep fall in the share price of Germany’s Deutsche Bank
  • The price of oil received a boost from the news that Opec had reached a preliminary agreement to reduce output
  • The UK services sector rebounded strongly in August

The financials sector came under pressure in the UK during September, as shares in Germany’s Deutsche Bank fell sharply amid mounting concerns over its financial health. Deutsche Bank’s share price fell by over 20% during the month following the news that the US Department of Justice planned to impose a US$14 billion fine on the bank, and negative sentiment quickly spread to the UK banking sector.

According to the CBI , optimism amongst companies in the UK’s financial sector has continued to deteriorate

Nevertheless, during September as whole, the FTSE 100 Index rose by 1.7%, while the FTSE 250 Index edged 0.8% higher. This rise was partly attributable to a stronger contribution from the energy and mining sectors; the price of oil soared during the month in the wake of an announcement from oil cartel Opec (Organisation of the Petroleum Exporting Countries) that its members had reached a preliminary agreement to cut output. The price of a barrel of Brent Crude oil ended the month at almost US$50, having fallen below US$28 per barrel as recently as January 2016. The news provided a boost for share prices in the oil and mining sectors; however, some investors expressed reservations about the deal and called for greater detail.

The Bank of England’s (BoE’s) Financial Policy Committee (FPC) announced plans to impose tests on UK banks to assess their ability to withstand a collapse in China’s economy. The FBC cited high levels of growth in credit in China relative to its GDP.

According to the Confederation of British Industry (CBI), optimism amongst companies in the UK’s financial sector has continued to deteriorate. Confidence fell for a third straight quarter, notching up its longest decline since the financial crisis. The CBI cited “uncertainty caused by Brexit… low interest rates, technological change and strong competition”.

The BoE left its key interest rate unchanged at 0.25% at its September interest-rate-setting meeting, citing “a number of indicators of near-term economic activity (that had) been somewhat stronger than expected”. Elsewhere, the UK’s services sector rebounded in August, posting its largest monthly gain in the history of the 20-year Markit/CIPS PMI survey. Although it is too early to ascertain whether this rally is likely to be sustained, Markit highlighted “plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate”.