By Lloyds share price has had a good performance this year, mirroring the performance of other large European banks. It has risen by over 20% this year, beating the FTSE 100 index, which has risen by almost 8%.
Why Lloyds share price rallied
Lloyds Bank is the biggest mortgage lender in the United Kingdom. In addition to its eponymous brand, it owns companies like Halifax, Bank of Scotland, Scottish Widows, MBNA, Schroders Personal Wealth, Lex Autolease, and Blackhorse. It serves over 25 million customers in the UK.
LLoyds Bank – together with Tesco – is seen as a proxy for the British economy because it does not have a big presence outside the country. Therefore, its stock has done well because the UK economy has been more resilient than expected.
The company has also continued to report strong financial results, helped by higher interest rates. Like other central banks, the Bank of England (BoE) hiked interest rates to deal with the elevated inflation.
Banks like Lloyds typically benefit when interest rates are high because they lead to higher net interest margins. Recently, however, there are signs that the impact of higher rates is fading.
The most recent financial results showed that its net interest income came in at £9.6 billion, down by 8% from the same period last year. This decline was offset by a 9% increase in other income like fees.
The company affirmed that its business will do well this year. It expects that its net interest margin will be over 290 basis points and that its return on tangible equity (RoTE) was about 13%.
Lloyds Bank has also boosted its payouts to investors. It has room to do that because of is higher CET1 ratio of 14.6%. It hopes that the CET1 ratio will drop to about 13% in the near term. The bank has a dividend yield of about 5.32%, higher than the FTSE 100 return of 3.58%.
The next important catalyst for the Lloyds share price will be next week’s Bank of England (BoE) decision. Most analysts expect that the bank will cut rates by 0.25%, its third month of cuts. It will then hint that it will deliver more cuts in 2025.
Ideally, Lloyds stock price should underperform when the BoE cuts rates. However, the cuts seems priced in, and the impact of higher rates has started to fade in the past few quarters.
Lloyds share price analysis
The daily chart shows that the LLOY stock price has been in a strong downward trend in the past few months. It has dropped below the 23.6% Fibonacci Retracement level at 56.70p.
The stock has also moved below the 50-day and 100-day Exponential Moving Averages (EMA).
Fortunately, it has found some support at the 38.2% retracement point at 52.62p. Therefore, a drop below that level will confirm the bearish trend and open the possibility of the stock falling to the 50% retracement point at 49p.
The post Lloyds share price outlook ahead of the BoE rates decision appeared first on Invezz
