Barclays (LON:BARC) share price: 5 things to watch out for in its Q1 results

Barclays continues to contend with a challenging banking environment, which is likely to be reflected in the bank’s Q1 trading update on Wednesday.

Investors are expecting a disappointing start to 2019 for Barclays, but will be interested to see how the lender plans to navigate what is shaping up to be another challenging year for the British bank.

Barclays earnings decline expected

Barclays is expected to report a 14.3% decline in earnings over the year, falling to 5.5p a share. However, revenues are expected to rise 1.9% to £5.2 billion.

The UK lender has managed to beat earnings expectations in six of the last eight reports, but has falling below forecasts in five of the last eight quarters for revenue, with the bank’s earnings falling sharply between Q3 2018 and Q4 2018 – meaning that Barclays could see a modest rebound in the near term.

Barclays growth hindered by challenging banking environment

A myriad of macroeconomic headwinds has hurt the growth prospects for European banks but poses an even bigger challenge for British banks.

Weak economic growth forecasts across the UK and the eurozone, combined with trade wars and Brexit uncertainty, along with a much weaker outlook for monetary policy from the European Central Bank and the Bank of England threaten to reduce bank’s income from lending as interest rates remain low.

Investors will be looking at how the bank plans to navigate what is shaping up to be another challenging year for the lender.

Investment bank growth and cost-cutting

As an investment bank, Barclays needs to see growth in its corporate and deal-making departments, and indeed also needs to issue a robust outlook statement on this front.

Cost-cutting will play a part, and it is possible that the £13.6 billion to £13.9 billion cost target will be cut to boost return on equity.

Staley vs. Bramson

Barclays Q1 trading update on Wednesday comes at a crucial time for the lender’s CEO Jes Staley who has been battling against shareholder activist Edward Bramson for control over the bank’s strategic direction.

Bramson has built up a significant stake in the bank over the last few years and has tried to garner support from shareholders to reduce Barclays investment banking business and divert attention towards other business lines. However, Staley has defended the investment unit, viewing it as crucial to Barclays long-term success and global ambitions.

It looks unlikely at present that Bramson will succeed, but his presence as a shareholder serves as another distraction for the board in what is a particularly challenging chapter for the lender.

A tough year ahead for Barclays

The tough macroeconomic environment and a softer outlook for central bank policy is expected to bear down on Barclays for the quarter, but any improvement over the expected annual decline in earnings may see the shares continue to recover.

The technical outlook is more encouraging, with the 2018 downtrend now at an end, while the cheap valuation will also provide an attraction for investors.

Barclays shares declined steadily from the beginning of May last year, and by 27 December they were down by almost a third. However, the broader market rebound then saw a steady rally from the end of December for Barclays that added 20% to the price. On the monthly chart, the stochastic momentum index has posted a bullish crossover for the first time since 2016, which has been a positive signal for the stock several times over the past eight years.

The shares have been in an ascending channel since the middle of January, with the March pullback to 153p finding support at the bottom end of the channel. The bounce has seen the shares move back to the 168p area that was the peak back in March. Further gains target 174p and the top end of the channel, while a retracement heads towards rising support around 158p.