Has the Lloyds share price weathered the banking crisis storm?
How to trade the Lloyds Banking Group’s share price amid the IMF’s warning that the UK may slide into a recession.
Has Lloyds Banking Group weathered the banking crisis storm?
Lloyds Banking Group PLC, just like its peers, got hit hard by the recent banking crisis which led to Switzerland’s second-largest global bank Credit Suisse Group AG (CH) being taken over and effectively rescued by its larger rival UBS Group AG and provoked an over 20% rout in the iShares EURO STOXX Banks DE index before it recovered to its current -11% drop from its February high.
Even though the Lloyds share price also took an 11% initial hit, it has recovered much better from its March low than its UK competition and is currently trading up around 5% year-to-date as well as over the past month as can be seen by the below one-month performance chart.
One-Month performance of the UK’s top five banks
The Lloyds share price within its fundamental context
Given its domestic focus, Lloyds Banking Group, unlike its UK peers, managed to some extent shrug off its March sell-off and outperform the FTSE 100 by around two percentage points year-to-date and over the past month.
With the UK’s second largest bank being more susceptible than its peers to a weakening in the UK economy, however, Tuesday’s revised growth forecast for the UK by the International Monetary Fund (IMF) might not be welcome by the bulls.
Highlighting the growing risks of a hard landing for developed countries, the IMF singled out the UK and the euro area as being particularly affected by rising energy costs and higher inflation. The Washington-based body slightly revised up its estimate of UK growth this year from its -0.6% forecast three months ago but still expects the UK economy to contract by 0.3%.
Furthermore higher interest payments may down the line see customers default on loan payments and could lead to more non-performing assets which would hit profits.
Is it worth buying Lloyds shares?
Despite this year’s potentially negative economic outlook, the Lloyds share price continues its near uninterrupted two-week advance from its 24 March low whilst fast rising towards its 49.845 pence September 2022 high and its February-to-April downtrend line at 50.10p.
Lloyds Banking Group daily chart
Source: Tradingview
These minor resistance levels are expected to be overcome within a matter of days, provided that no slip and daily chart close below the last reaction low, made at the early April 46.785p low, is seen. In such a scenario, the way would be open for the February peak at 54.33p to not only be reached but also overcome later this year.
Source: Refinitiv
After all, Refinitiv data shows a consensus analyst rating of ‘buy’ for Lloyds – 5 strong buy, 10 buy, 4 hold and 2 sell - with the median of estimates suggesting a long-term price target of 64.00p for the share, roughly 29% higher than the current price (as of 11 April 2023).
IG Group Holdings PLC sentiment data shows that 94% of clients with open positions on the share (as of 11 April 2023) expect the price to rise over the near term, while 6% of clients expect the price to fall whereas trading activity over this week showed 50% of buys and this month 63% of sells.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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