Is the bruised Lloyds share price too cheap to ignore?
Lloyds share price has been under pressure in the past week. Data show that the price has declined by almost 7%, becoming the third worst-performing company in the FTSE 100. In the same period, Standard Chartered, HSBC, RBS, and Barclays share price have declined by 5.56%, 4.62%, and 3.73% respectively. The share price has risen by about 9% in the past 30 days while Barclays has been the best-performing bank during this time.
Why Lloyds has lagged other banks
Lloyds has lagged other banks because of how the bank is structured. For example, unlike HSBC, Standard Chartered, and Barclays, Lloyds is mostly a national commercial brand. It has minimal operations outside the United Kingdom. Also, it does not have a lot of trading operations like Barclays. Analysts believe that Barclays could benefit from the ongoing volatility in the second quarter.
Because Lloyds does not have any meaningful operations outside the UK, its performance is usually dependent on the UK economy. And this economy is not doing well. For example, in the past week alone, several companies have announced massive layoffs. These includes companies like Centrica, Johnson Matthey, and Honda. This is in addition to other firms like Rolls Royce that have announced layoffs.
Lloyds waits for the BOE
UK banks are down today as investors wait for the Bank of England interest rate decision. Analysts polled by Bloomberg expect the bank to leave interest rates unchanged at about 0.10%. They also expect it to announce new funding for the quantitative easing program. Analysts are torn about the size of the new funding, with those at ING expecting the funds to be about £350 billion. Most analysts expect the bank to announce between £100 billion and £200 billion.
Still, Lloyds share price is down because of the likelihood of negative rates in the UK. These rates would mostly be damaging for Lloyds because of its national coverage, unlike Barclays and HSBC. Negative rates are bad for banks because they depress the margin it gets by lending money. In a report, analysts at HL said:
“However, a bigger challenge in the long term is the very low interest rate environment. Lower interest rate will largely be passed onto borrowers, but the interest banks pay to savers is already on the floor. With little room to push funding costs lower the net interest margin will be squeezed.”
The daily chart shows that Lloyds share price has been wavering in the past three days. The price is slightly below the 50-day exponential moving average. It also seems as if it is forming a small head and shoulders pattern. Also, we see that the previous upward trend failed to cross the important 23.6% retracement level at 37.84p. Therefore, I expect that the price will continue being under pressure. There is a possibility that it will move below the 30p support.
On the other hand, a move above the 23.6% Fib level at 37.84p will invalidate this trend.