Lloyds share price declined by more than 2% as the market reacted to new bond yields in the UK. Shares of other banks like Barclays, Standard Chartered, and HSBC declined by more than 1%.
Negative interest rates and Lloyds share price
Analysts have increased their bets on negative interest rates in the UK. This is after two Bank of England (BoE) officials suggested that the bank should move in that direction. In a statement yesterday, Silvana Tenreyro, a member of MPC said that the bank needed to examine the efficacy of negative rates. In her statement, she said that negative rates had a positive effect in the European Union. She said:
“There are some considerations that are more specific to the U.K. and will need to be weighed up, including the effect on some financial institutions, implementation, communication and so on.”
Her statement came after the deputy BOE governor, Ben Broadbent and the bank’s chief economist, Andy Haldane, said that the bank should debate their impact. BOE Governor, Andrew Bailey will testify today on whether the bank is thinking of these rates.
Meanwhile, Lloyds share price reacted to news that the UK government sold bonds with negative yields for the first time. The government sold bonds worth about $4.6 billion that will mature in 2023 with a yield of -0.003%. This implies that the market has started to price-in a negative rates scenario.
Impact of negative rates to Lloyds
Lloyds is the biggest domestic bank in the United Kingdom. The bank specializes in the domestic lending market and does not have major trading operations like Barclays. Therefore, Lloyds share price tends to be watched in similar lens to that of the economy of the UK.
Analysts believe that Lloyds share price and financial performance will be hit if rates go below zero. For example, European banks underperformed their American counterparts when the ECB went negative. The same is true for Japanese banks.
Lloyds share price also reacted to the decision by Rolls Royce to cut more than 9000 employees. Most of those customers are its clients. Also, it means that other UK companies that supply to Rolls Royce will also cut their workers, creating a domino effect. Therefore, there is a likelihood that the bank will increase its provisions in the second quarter.
Lloyds share price is at £29, which is close to its lowest level since 2011. On the daily chart, the price is below the 23.6% Fibonacci retracement level. It is also below the 50-day and 100-day exponential moving average. The price also appears to be forming a descending triangle pattern. While Lloyds shares are a bit cheap, the current technical arrangement suggests that they might continue falling.
On the flip side, a move above the previous resistance of 34.87, which is also the 50-day EMA will invalidate this prediction.