FTSE 100 today: Index rises, pound strong; Shell, BP drop after rating change

Investing.com -- RBC Capital Markets on Friday laid out a selective investment strategy for UK and Irish banks heading into 2026, expressing a preference for small and mid-sized lenders while taking a more cautious stance on large institutions and Irish banks.

The brokerage rates the implied cost of equity for its UK and Irish bank coverage at 12.4%, compared to its own estimate of 11.9%, according to the report. RBC expects a three-year average total return yield of 10.1%, comprising a 5% dividend yield and 5.1% from buybacks, exceeding the consensus estimate of 9.5%.

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RBC’s preferred names include Metro Bank, OSB Group, Paragon Banking Group, Lloyds Banking Group and Barclays.

Lloyds Banking Group

Lloyds holds an “outperform” rating with a 110p price target, representing 15% upside from its 96p share price as of the report date. RBC forecasts the bank will deliver a 2027 adjusted return on tangible equity of 17.2% with a consensus price-to-tangible book value of 1.33x.

The brokerage favors Lloyds due to its longer-dated structural hedge, which provides more sustained income benefits as interest rates decline.

RBC notes the bank could provide guidance extending to 2030 next year, a move the brokerage believes the market will receive positively. The bank’s total shareholder returns for 2025-2027 average 11% annually, according to the report’s calculations.

Barclays

Barclays carries an “outperform” rating with a 525p price target, implying 20% upside from its 439p price as of the report. RBC positions Barclays as "the obvious catch-up trade for those who have missed the UK bank rally," according to the report. The bank trades at a 2027 consensus price-to-tangible book value of 0.86x with an expected adjusted return on tangible equity of 13.6%.

RBC’s 2027 pre-tax profit estimate of £11,920m sits 1% above consensus at £11.75 billion. The brokerage’s earnings per share forecast of 65.22p for 2027 exceeds the consensus estimate of 61.74p by 6%.

NatWest Group

NatWest receives a “sector perform” rating with a 725p price target, representing 17% upside from its 622p price. RBC expresses caution on the bank due to its shorter duration structural hedge swaps, a challenging comparison for other income, and likely conservative initial guidance for 2028 return on tangible equity.

The bank’s structural hedge has a weighted average residual life of 2.5 years compared to Lloyds’ 3.3 years. RBC forecasts a 2027 adjusted return on tangible equity of 18.9%, though the bank trades at a 2027 price-to-tangible book value of 1.38x.

HSBC Holdings

HSBC holds a “sector perform” rating with a 1,050p price target, implying a 2% downside from its 1,071p price. RBC struggles to identify a catalyst for the bank, expecting Chinese commercial real estate to continue weighing on performance. The brokerage’s 2027 pre-tax profit estimate of £36,667m sits 1% below consensus at £36,873m. HSBC’s reported earnings per share for 2027 are forecast at 1.64, compared to consensus of 1.66, representing a 1% gap. The bank maintains a 2027 consensus price-to-tangible book value of 1.36x with an adjusted return on tangible equity of 16.0%.

OSB Group

OSB Group carries an “outperform” rating with a 725p price target, representing 28% upside from its 567p price. RBC highlights that the bank could exit the minimum requirement for own funds and eligible liabilities regime in mid-December, with potential positive implications for pre-tax profit of approximately 10% and a one percentage point reduction in its CET1 target, according to the report. The bank trades at a 2027 consensus price-to-tangible book value of 0.82x with an expected adjusted return on tangible equity of 14.1%. OSB’s three-year average total return yield of 12% ranks among the highest in RBC’s coverage.

Metro Bank

Metro Bank holds an “outperform” rating with a 175p price target, implying 60% upside from its 110p price, the highest potential return among RBC’s UK coverage. The brokerage believes the market underappreciates that Metro Bank will likely deliver a mid-to-upper teens return on tangible equity by the fourth quarter of 2026, according to the report. The exit from the MREL regime could provide another four percentage points of uplift to return on tangible equity from fiscal year 2028, RBC estimates. The bank’s 2027 adjusted earnings per share forecast of 56.36p compares to consensus of 51.02p, representing a 10% premium.

Paragon Banking Group

Paragon receives an “outperform” rating with a 1,050p price target, representing 35% upside from its 778p price. RBC characterizes Paragon as "the highest quality/compound TBVps growth story in the sub-sector" and recommends buying the dip, according to the report. The bank trades at a 2027 consensus price-to-tangible book value of 1.04x with an expected adjusted return on tangible equity of 18.2%. RBC’s 2027 earnings per share estimate of 123.48p exceeds consensus of 119.09p by 4%. The bank’s three-year average total return yield of 13% leads RBC’s UK coverage.

Close Brothers Group

Close Brothers holds a “sector perform” rating with a 475p price target, representing 6% upside from its 448p price. RBC expects the bank’s shares could "tread water" until it has sufficient capital to pursue cost reductions more aggressively, according to the report. The bank’s 2027 adjusted earnings per share are forecast at 56.36p compared to consensus of 51.02p, a 10% difference. Close Brothers trades at a 2027 consensus price-to-tangible book value of 0.51x with an adjusted return on tangible equity of 6.5%.

AIB Group

AIB Group carries a “sector perform” rating with an €8.50 price target, representing a 3% downside from its €8.8 price as of the report date. RBC’s anti-consensus preference for AIB over Bank of Ireland is driven by several factors: a higher dividend and total return yield given greater excess capital, a higher market share in a concentrated attractive market, higher loan growth due to fewer legacy portfolios, a higher impairment overlay that should translate into lower cost of risk, more accessible gains from wealth growth, and greater upside versus consensus pre-tax profit, according to the report. The bank’s 2027 consensus price-to-tangible book value stands at 1.34x with an adjusted return on tangible equity of 15.7%.

Bank of Ireland

Bank of Ireland holds a “sector perform” rating with a €15.50 price target, implying a 2% downside from its €15.9 price. While RBC sees Irish bank valuations as relatively full, with a two-year forward price-to-tangible book value of 1.17x, up 70% versus the 0.69x historical average, the brokerage does not expect Bank of Ireland to underperform in fiscal year 2026 due to relatively high total return yields driven by excess capital, according to the report. RBC’s 2027 pre-tax profit estimate of €2,100m sits 2% above consensus at €2,062m. The bank maintains a 2027 consensus price-to-tangible book value of 1.37x with an adjusted return on tangible equity of 16.3%.

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Investing.com -- BofA Securities on Friday issued contrasting rating changes for four European defense manufacturers, with upgrades for two companies driven by surging order prospects and downgrades for two others facing near-term execution challenges.

French aircraft maker Dassault Aviation received an upgrade to “neutral” from “underperform,” with analysts Carlos Iranzo Peris and Benjamin Heelan raising the price objective to €274 from €290.

The upgrade hinges on Ukraine’s letter of intent to acquire up to 100 Rafale fighter jets, which could support production rates of approximately five aircraft by 2030.

"Ukraine potential order of 100 Rafale would, in our view, 1) support towards production rates of c.5 in 2030 and 2) provide significant upside risk to our FCF estimates," the analysts said. 

If Ukraine orders in 2026 with deliveries starting 2029, BofA estimates approximately €3.4 billion in cumulative cash inflows during 2026-2028.

For 2025, BofA projects Dassault revenue of €6,824 million with adjusted EBIT of €534 million, yielding a 7.8% operating margin and earnings per share of €11.76.

German defense electronics specialist Hensoldt received a downgrade to “neutral” from “buy,” with the price objective cut to €77 from €114. 

"2026 remains a transition year with slower topline growth versus peers," Iranzo Peris and Heelan said, noting approximately 10% organic growth in 2026 requires "a sharp ramp-up from 2027" to meet targets.

BofA reduced its valuation multiple to 13x EV/EBIT from 17.6x "as we reassess multiples across our coverage as part of our year ahead process," according to the brokerage. The analysts project 2026 revenue of €2.76 billion with adjusted EBIT of €399 million, representing an 11.8% margin.

German transmission systems manufacturer Renk Group received a double upgrade to “buy” from “underperform,” with the price objective rising to €60.50 from €56.50. The stock fell approximately 39% over six months versus sector declines of approximately 13%, the December 5 report stated.

"Renk now trades in line with sector multiples on 2028 BofA estimates despite a more attractive growth profile and greater margin expansion potential, mainly driven by VMS," the analysts said, referring to the Vehicle Mobility Solutions segment. BofA forecasts 2026 revenue of €1,535 million with adjusted EBIT margins of 15.3%, expanding to 16.9% in 2027.

Swedish aerospace and defense company SAAB also received a double upgrade to “buy” from “underperform,” with the price objective increasing to SEK565 from SEK471. 

"The pipeline of potential opportunities (driven by Aeronautics, Surveillance and to a lesser extent Kockums) is not yet embedded in consensus expectations," the brokerage stated, noting a potential Ukraine Gripen order could exceed SEK100 billion versus 2026 consensus orders of SEK126 billion.

BofA projects SAAB’s 2026 revenue at SEK92.11 billion with operating margins of 10.3%, supported by Gripen fighter jet production potentially reaching the high twenties by 2028 and GlobalEye surveillance aircraft deliveries ramping to four units annually by 2028.

Investing.com-- U.S. stock futures traded in tight ranges Friday, with investors awaiting a key inflation report for confirmation that the Federal Reserve will cut interest rates next week.

At 05:40 ET (10:40 GMT), Dow Jones Futures slipped 18 points, or 0.1%, while S&P 500 Futures gained 11 points, or 0.2%, and Nasdaq 100 Futures rose 104 points, or 0.4%.

The main averages closed in a mixed fashion in the prior session, with the benchmark S&P 500 and tech-heavy NASDAQ Composite both advancing, while the blue-chip Dow Jones Industrial Average lagged.

All three indices have managed to eke out small gains so far this week.

PCE inflation gauge in spotlight

Expectations of 25-basis point reduction at the Federal Reserve’s December 9–10 meeting are running hot -- with futures now pricing in roughly an 87% probability -- on the back of recent weak labor data and broader signs of economic cooling.

Thursday’s weekly jobless claims plunged by 27,000 to a seasonally adjusted 191,000, the lowest level since September 2022, but economists cautioned that distortions tied to the Thanksgiving holiday may have exaggerated the decline.

Elsewhere, a private-sector payroll report from ADP on Wednesday showed a decline of 32,000 jobs -- the largest drop in over two and a half years, and a report by Challenger, Gray & Christmas stated that announced job cuts dropped sharply in November but hiring intentions remained weak.

While the importance of price stability, the second element of the Fed’s dual mandate, has faded a little of late, all eyes are now on the release of the delayed monthly core inflation gauge, the Personal Consumption Expenditures Price Index (PCE), later in the session.

This is widely seen as the Fed’s preferred inflation measure, and a soft PCE print could further embolden rate-cut expectations.

Excluding food and energy, the underlying, or "core," PCE price index is seen holding at 2.9% in the 12 months to September and 0.2% month-on-month.

Beyond PCE, the economic calendar will feature the latest survey of consumer sentiment from the University of Michigan.

Netflix linked with Warner Bros Discovery’s film assets

In the corporate sector, Netflix (NASDAQ:NFLX) has entered into exclusive negotiations to purchase Warner Bros Discovery’s (NASDAQ:WBD) film and television studios as well as its prized streaming assets, media reports have said.

The streaming giant reportedly offered $28 per share for those portions of the long-time Hollywood stalwart, whose brands include HBO and DC Comics.

Should the transaction be finalized, it would transform Netflix into a media powerhouse with control over one of the most valuable content libraries in the entertainment industry.

Netflix and Warner Bros are anticipated to announce a deal imminently, the Wall Street Journal reported, citing people familiar with the matter.

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Elsewhere, Ulta Beauty (NASDAQ:ULTA) shares soared premarket after the cosmetics retailer topped Wall Street estimates for its fiscal third quarter and raised its full-year outlook.

Hewlett Packard Enterprise (NYSE:HPE) stock slumped after the cloud services and hardware company missed analysts’ revenue expectations for the fourth quarter, posting $9.68 billion versus a consensus estimate of $9.94 billion.

Crude steadies; WTI on track for weekly gain

Oil prices steadied Friday, maintaining the previous session’s gains as stalled diplomatic progress over the Ukraine war and firm expectations of a U.S. Federal Reserve rate cut supported sentiment.

Brent futures slipped 0.1% to $63.24 a barrel, and U.S. West Texas Intermediate crude futures fell 0.1% to $59.60 a barrel.

Both contracts jumped nearly 1% on Thursday, and while Brent was mostly unchanged this week, WTI was on track for a 1.5% weekly gain - a second straight week of increase.

The lack of progress in U.S.-Russia talks to end the Ukraine war has dampened hopes that energy sanctions on Russian crude could be eased soon, keeping a risk premium in the market.

Ayushman Ojha contributed to this article