Europe close: Banks buoy main equity benchmarks

European stocks wavered on Wednesday, but banks put in a solid performance following well-received earnings from the likes of Standard Chartered, HSBC, Societe Generale and Credit Agricole.

The benchmark Stoxx Europe 600 and Germany’s DAX edged slightly higher, while France’s CAC 40 was off by just 0.16% to 4,321.08 and the Footsie by another 0.17% to 6,634.

Oil prices moved higher, with West Texas Intermediate and Brent crude both up by almost 3% to $40.76 and $42.97 a barrel, respectively.

On the corporate front, banks were in focus again following last week’s stress test results, but this time the news was upbeat, sending the Stoxx 600 sub-index of bank stocks up by 1.96% or 2.48 points to 128.88.

Standard Chartered surged to the top of the FTSE 100 after it reported a 46% drop in first-half underlying profit that represented a significant improvement on the $1bn loss experienced in the second half of last year.

HSBC shares rallied despite saying profits fell by more than a quarter amid difficult conditions in the first half of the year, as investors welcomed the announcement of a $2.5bn (£1.8bn) share buyback thanks to the sale of its Brazilian business.

CMC Markets’ Jasper Lawler said: “The announcement of a share-buyback from HSBC has calmed nerves and helped bank shares recover after a dramatic two-day sell-off. Banks are not out of the woods yet. There are only so many days on the trot that the shares of some of Europe’s biggest banks can strike new record lows.

"The two-ended squeeze of low profits in a low interest rate environment and regulatory pressure to build up capital reserves means capital raising is a case of when not if.”

Societe Generale was on the front foot after it posted a jump in second-quarter net profit, while Credit Agricole also gained as it said second-quarter profit pushed up 26%.

Dutch lender ING rose after reporting a big increase in quarterly profit.

Deutsche Post advanced as it said second-quarter net profit increased 51% thanks in part to higher stamp prices and rising parcel volume.

Insurer AXA was in the red after its first-half profit missed analysts’ expectations.

In London, shares in miner Rio Tinto drifted lower after the mining group posted a 47% slump in half-year underlying earnings.

Clothing retailer Next racked up healthy gains as it reported an improvement in sales in the second quarter.

In macroeconomic news, business activity in the Eurozone expanded a little faster than originally estimated in July, with Markit’s final composite purchasing managers’ index for the area – which combines the services and manufacturing sectors – rising to a six-month high.

The PMI ticked up to 53.2 from 53.1 in June and came in ahead of the 'flash' estimate of 52.9, signalling growth for 37 successive months. A reading above 50 indicates expansion.

The upturn was led by surging growth in Germany, while France continued to stagnate.

The services PMI, meanwhile, nudged up to 52.9 in July from 52.8 in June versus the 'flash' estimate of 52.7. Still, the rate of expansion was among the weakest registered over the past year and a half.

Elsewhere, figures from Eurostat showed retail sales in the 19 countries that share the euro were stable in June compared with May, in line with economists’ expectations.

Sales of non-food products rose 0.3%, while sales of food, drinks and tobacco nudged up 0.1%.

On the year, retail sales in the Eurozone increased 1.6%, which was a touch weaker than estimates of a 1.7% jump.

Looking ahead to the rest of the day, the main focus is likely to be on the US ADP employment report, which is widely considered a pre-cursor to Friday’s all-important nonfarm payrolls.