FTSE 100 Recovers as Banks Lead Weekly Rebound
London equity markets closed higher on Friday, driven by a sharp recovery in banking stocks that helped offset broader weekly losses.
The FTSE 100 index closed 0.4% higher on Friday, ending a week of declines that marked its sharpest weekly loss since late July. This rebound was primarily fueled by heavyweight financial institutions reversing three consecutive sessions of selling pressure. The mid-cap FTSE 250 also finished 0.4% higher, though it recorded its steepest weekly drop in over four months. The recovery came as investors digested geopolitical tensions involving the U.S., Israel, and Iran, as well as sustained high oil prices.
Banking stocks were the primary drivers of the daily gain, with HSBC rising 1.5% and Barclays climbing 1.9%. This sector-led rally coincided with construction and materials stocks, which posted the largest percentage gain of 1.8%. The positive sentiment was further supported by UK economic data showing the fastest annual growth pace in 18 months for July, potentially aided by AI-driven productivity gains.
Banking sector drives market recovery
Investors returned to financial stocks as market expectations shifted toward higher interest rates for a longer period. According to LSEG data cited by GN stocks/banks, traders now price in 44 basis points of rate hikes by the Bank of England by year-end, up from approximately 25 basis points two weeks prior. This shift reflects growing concerns that elevated oil prices will sustain inflationary pressures, making duration-sensitive assets less attractive and boosting the appeal of financial institutions that benefit from higher net interest margins.
Energy sentiment shifts on diplomacy
Energy sector sentiment improved after oil prices fell 2% on Friday. The drop followed reports that Gulf foreign ministers might meet with Iranian counterparts to discuss temporary shipping arrangements in the Strait of Hormuz. However, the broader energy sector had gained the most this week earlier as crude prices briefly exceeded the psychological $100-per-barrel mark. This volatility highlights the sector's sensitivity to geopolitical developments in the Middle East.
Notable movers and bond market pause
Among individual stocks, Gamma Communications fell 2.9% after Dutch private equity firm Waterland abandoned plans to join Giacom in a takeover bid. Harbour Energy underperformed by 1.9% following a stake reduction by its largest shareholder, BASF. In the fixed-income markets, the global bond sell-off paused on Friday, with UK gilts staging a partial recovery. This movement came as investors also assessed US inflation data showing the largest rise in four months for August, reinforcing expectations that the Federal Reserve will raise interest rates next week.
