A look ahead to UK bank earnings

UK banks are set to report earnings this week, following on from a largely positive set of figures from their US counterparts.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2017-04-25T15:54:55+0100

Source: Bloomberg

Fundamental outlook

UK banks make up almost 7% of the FTSE 100’s market capitalisation, so the figures are always closely watched. Lloyds is likely to see the end of the government’s stake very soon, which will mark the end of an era. The bank may also look to unveil another special dividend, following on from the past two years, helping to confirm its status as one of the key income stocks for UK investors.

Meanwhile, Barclays will be aiming to confirm its status as one of the banks with global ambitions, although inevitably its CEO’s recent indiscretions over whistleblowing will come up once again. Nonetheless, if its trading arm can put in a good showing then that will help boost the performance of the group as a whole. And then there is RBS – the government is looking to get out of here as well, only this time at a substantial loss. Underlying profits are expected to improve from last year’s unimpressive £440 million, with the private banking arm having done well.

UK banks face a tricky environment over the next few years, thanks to Brexit, although they have relatively little to fear from the general election, given that the Conservatives remain the firm favourites. The City will find itself under pressure from the EU determined to take away business from the UK, with some operations inevitably being relocated to the continent.

HSBC and Standard Chartered offer a chance for investors to look outside the Brexit narrative, and look towards emerging markets. The former has been given a boost with its appointment as an adviser for the Aramco IPO, while the latter retains its attractions as a play on Asian growth, especially now after it has worked through the majority of its regulatory issues.

Technical outlook

RBS

RBS shares hit a peak of 260p in late February, and then drifted below the 50-day simple moving average (SMA) for the first time since November.

A recent bounce following the general election has taken them back above this important marker, leaving them clear to test the key 260p level once again. The shares have been steadily rising since their nadir in July, so any further dips should be taken as buying opportunities.

RBS chart

Lloyds

Dip buyers came in to rescue Lloyds in mid-April, pushing the shares back towards the 50-day SMA. A close above here would target 71p and then 73.7p.

Any bigger dip requires a move below the key 61.8p support level, where the shares bounced in April, and which was resistance in September and November of last year.

Lloyds chart

Barclays

In comparison with other bank shares, Barclays has gapped higher recently, and further gains have put it back above key support at 219p.

A continued rally would target 228p and then 240p, which has been an area of strong resistance since November. A breakout above here would be very bullish, and suggest a move to 268p, 276p and then 289p in the longer term.

Barclays chart

HSBC

The second half of 2016 was great for HSBC shares, but from February onwards they suffered heavily. However, a bounce from near the 200-day SMA gives some hope for the bulls, even if they still have to break the downtrend line from the Q1 high.

On the weekly chart, the price sees signs of a potential bottoming process, with a move above 660p likely confirming this.