Banks lead European markets lower amid investor scepticism

European bank stocks declined, tempering gains in global equity indexes, amid investor scepticism over the usefulness of stress-test results and weaker oil prices.

Shares in Italin bank UniCredit were suspended from trading for a second time after falling 5.11 per cent. UniCredit plans to work with regulators to assess possible actions after industry stress tests showed its core capital under adverse conditions fell close to the 7 per cent level at which junior bonds typically converts into equity of get written down.

Shares and currencies in emerging markets rallied to the highest in about a year, while miners and industrial metals jumped. Lenders in so-called peripheral nations weighed heaviest on an index of lenders, which sank as much as 1.9 per cent after opening higher.

The MSCI Emerging Markets Index jumped to the highest since last August and the equivalent currency index to the highest since July 2015, withMalaysia’s ringgit and South Korea’s won gaining the most. Zinc headed for the highest close in a year. The pound weakened against all of its 16 major counterparts.

Declines in European banks put a dent in global equities, which rallied in July to their best month since March on prospects central banks will add to stimulus or refrain from reducing it.

Traders peeled back bets on a US rate hike this year after data Friday showed annualised gross domestic product rose 1.2 per cent last quarter, less than half the 2.5 per cent projected by economists. The Bank of Japan added to its easing last week and economists forecast policy makers in Australia and England will cut their benchmark interest rates from record lows this week.

"Investors are skeptical about everything these days," said Peter Garnry, head of equity strategy at Saxo Bank A/S in Hellerup, Denmark. "The problem with the stress tests is that they were too soft, only assuming a mild to moderate recession. This means that the data doesn't tell us much, and it's not too surprising that most banks passed."

The Stoxx Europe 600 Index fell 0.3 per cent as of 10:52 a.m. in London, erasing earlier gains of as much as 0.6 per cent. European equities had their biggest monthly gains since October last month, with lenders jumping the most in more than a year. Yet July was marked by record outflows from European stock funds and thin volume, indicating a lack of conviction in the rally.

Spain's Banco Santander SA fell 2.9 per cent and Banco Bilbao Vizcaya Argentaria SA lost 4 per cent.

Banks had initially risen at the open after stress tests showed most of them would keep an adequate level of capital in a crisis.

Bloomberg