Royal Bank of Scotland Group (first half results 4 August)
Lloyds Banking Group managed to post its biggest first half profit since the financial crisis and an increase in its interim dividend as it continued its steady recovery despite a further drag from mis-selling costs. Royal Bank of Scotland (RBS) has been lagging Lloyds’ recovery, and remains to a large extent in taxpayer hands without the ability to pay dividends. Still there was some good news when the EU Commission agreed in principle that RBS could keep the bank branches it had previously been required to sell as a condition of receiving a bailout during the financial crisis. That means it’s hanging on to a loan book of £1.4 billion, while having to spend about £800 million on ‘competition measure’ like encouraging business customers to switch to rivals. That looks like a good deal.
RBS’s path to normality also got shorter when it cleared another overhang from the financial crisis by agreeing to pay $5.5 billion (£4.2 billion) to the US Federal Housing Finance Agency over allegations it mis-sold mortgage-backed securities before the crisis.
Still, there are plenty of risks remaining around Britain’s banks, including continuing Brexit uncertainty and the Bank of England’s (BoE) warnings over rising consumer debt.
On the chart, we have seen yet another retracement over recent months, set within a clear uptrend since the July 2016 low. With the 100-week SMA and trendline support both converging at this week’s low, there is a good chance we could see a move higher from here. With that in mind, a bullish outlook is in play unless we break below 221 support.
Taylor Wimpey (first half results 1 August)
The housebuilder’s shares have not yet recovered the high hit from the end of May, although they have been on an upward trajectory following June’s plunge in the immediate aftermath of the shock UK election result. Still, Barclays gave the sector, and Taylor Wimpey in particular, a ringing endorsement recently when it said fears of the impact of potential interest rate rise were being overblown. The bank upgraded the stock to ‘overweight’ on the basis of a recent underperformance versus peers, its high dividend yield, and one of the highest returns on average capital employed in the sector. Persimmon’s statement earlier this month said that the election had no impact on the demand for new homes which bodes well for Taylor Wimpey’s first half.
On the chart, Taylor Wimpey shares have been regaining ground throughout July. However, this comes amid a wider sell-off in early June, with the current rally looking like a retracement before we move lower once more. With that in mind, keep an eye on Fibonacci resistance at 188, 192 and 197. A break lower from this current rising wedge would be notable, but look out for a closed four-hour candle below the 182 mark to point towards the beginning of the next move lower.
