Lloyds share price tumbled by more than 35 basis points as the market grew concerned about Brexit, negative interest rates, and the health of the UK economy. Shares of the UK bank are now trading at p28.52, which is close to its lowest level since 2012.
Brexit issues and Lloyds Bank
Lloyds Bank is the biggest bank in the United Kingdom. Millions of people and businesses in the UK have an account with it. And, unlike other banks like Barclays, Lloyds does not have (Fixed Income Commodities, and Currencies (FICC) operations. Therefore, the company only does well when the UK economy is vibrant. Indeed, most people use its performance as a barometer of the UK economy.
As I wrote earlier, there are risks that the UK will leave the EU without a deal because the current negotiations are not bearing any fruits. The UK and the EU have all come to the negotiating table with fixed stands and no side seems to be conceding. For example, the UK has insisted on having a Canadian-style agreement, which the EU has rejected.
Negative interest rates in the UK
Lloyds share price are also reacting to the likelihood of negative interest rates in the UK. Negative rates are usually bad for banks because they tend to affect their profitability. In an interview on Wednesday, the BOE deputy governor, Ben Broadbent, said that the bank has debated pushing rates negative.
In another statement yesterday, the BOE governor, Andrew Bailey, said that the bank had not yet decided on whether to push rates negative. But he did not rule it out. Therefore, as the UK economy continues to deteroriate, there are chances that the bank could be forced to move negative. Banks in Japan and the EU have lagged those in the US mostly because of these rates.
On the weekly chart, we see that Lloyds share price has been on a downward trend since May 2015, when they peaked at 89.39. Also, the price is in a deep downward trend and is below all short and medium-term moving averages. Also, the price has formed a bearish pennant pattern, which means that the price may continue falling. If it does, I expect bears to target the 2011 low of 21.50.
On the flip side, a close above 36.00 will invalidate this price. This is an important psychological level that is also close to the highest level on March 23.