Barclays shares set to slip ahead of Q3 earnings amid Covid-19 concerns

• Barclays set to unveil its third quarter earnings on Friday 23 October
• UK lenders margins under renewed pressure as Bank of England considers negative rates
• Investors hoping that Barclays’ investment unit will offer some reprieve to dim outlook

Barclays will release its third quarter (Q3) earnings on Friday 23 October, with investors hoping that another strong performance from its investment banking unit will help mitigate the impact of the coronavirus pandemic on its bottom line.

Investors’ expectations for Barclays Q3 earnings are low, however, with the bank forced to set aside £3.7 billion to cover a significant rise in bad loans as a result of the economic fallout from Covid-19.

In July, Barclays revealed that it first-half profits fell by 66%, with the lender forecasting further headwinds well into 2021.

‘Given the uncertain economic outlook and low interest rate environment, the second half of the year is expected to continue to be challenging,’ Barclays said.

The myriad of challenges facing Barclays and the wider UK banking sector is expected to put pressure on its share price, with the stock down 43% year-to-date.

Barclays is trading at 104p per share at the time of publication.

Bank of England mulls further stimulus and negative interest rates

In order to provide additional support to the UK economy from the impact of Covid-19, the Bank of England’s Gertjan Vlieghe considered the possibility of adopting negative interest rates and additional stimulus.

‘GDP and labour market indicators stand at levels that are below what has historically been the trough of a recession,’ Vlieghe said.

‘Given that virus prevalence has been increasingly again recently, it is likely to weigh more heavily on economic activity,’ he added. ‘Indeed, it appears that the downside risks to the economic outlook at starting to materialise.’

In a speech on the health of the UK economy earlier this week he warned of a ‘tremendous challenge ahead’ amid rising coronavirus cases that have led the government to impose tighter restrictions across the country.

‘My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low,’ Vlieghe said. ‘Since it has not been tried in the UK, there is uncertainty about this, and the MPC is not at a point yet when it can reach a conclusion on this issue.’

‘But given how short term and long term interest rates already are, headroom for monetary policy is limited and we must consider ways to extend that headroom,’ he added.

FTSE 100 declines halts, yet further losses seem likely

The FTSE 100 has taken a breather following a bearish start to the week yesterday, according to Josh Mahony, senior market analyst at IG.

‘The wider downtrend in play did point towards a likely bearish reversal from the 61.8-76.4% resistance zone,’ Mahony said. ‘With that in mind, further downside looks likely in accordance with the downtrend seen since June.’

‘An upside move could come to bring us back into a deeper retracement at 5981 (76.4%), yet a bearish outlook holds unless we see price rise through the 6041 resistance level,’ he added.

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