Lloyds (LON:LLOY) share price has stalled in the past few weeks as investors focus on the upcoming UK election and Bank of England (BoE) interest rate decision. It was trading at 55.6p on Monday, down by almost 3% from its highest point this year.
UK election ahead
Lloyds Bank, the parent company of Halifax, MBNA, Scottish Widows, and MBNA, has been one of the best-performing FTSE 100 companies this year. Its stock has jumped by over 40% from its lowest point in 2023, joining other top-performing banks like NatWest (LON:NWG) and Barclays (LON:BARC).
Lloyds has done well because the UK economy has been more resilient than expected. For example, data released on Monday revealed that the housing sector continued doing well in June. The house price index (HPI) rose by 1.5% from the same period in 2023.
Another report released on Friday revealed that the country’s economy expanded by 0.7% in the first quarter, beating the expected 0.6%. This recovery means that the economy exited a technical recession.
The next potential catalyst for the Lloyds share price will be this week’s election in which the Tories are expected to lose badly. Most polls show that the Labour Party will win, making Keir Starmer the next prime minister.
It is unclear whether this election will have implications for British banks and other companies in general. However, as with past major elections, there is a likelihood that stocks will rebound since odds of a Labour win has been priced in.
Bank of England and earnings
The other thing that will ultimately move the Lloyds stock price is the upcoming interest rate decision by the Bank of England (BoE) on August 1st.
This will be an important meeting because the bank is expected to slash interest rates by 0.25% since inflation has moved to the 2% target. Analysts also expect that the upcoming data will show that prices continued falling in June.
Banks are highly sensitive to interest rates because of their impact on the net income margin (NIM). Indeed, all banks have reported a big increase in NIM in the past few years as central banks boosted rates. As shown below, the bank’s net interest margin has jumped sharply as the BoE hiked rates.
Lloyds Bank margins
The Lloyds Bank stock price will also react to the upcoming bank earnings season, which will start next week when companies like JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup publish their earnings.
Historically, British banks like Lloyds react to US bank earnings since they shed light on what is happening in the economy. Lloyds will then publish its Q2 results later this month.
In its most recent results, the company said that its statutory profit after tax eased to £1.2 billion while its net income came in at £4.2 billion. Its return on tangible equity was 13.3%. These results signaled that the impact of high interest rates was waning.
Lloyds share price forecast
The daily chart reveals that the LLOY stock price has moved sideways in the past few weeks. In this consolidation, it has formed a double-top pattern, which is a popular bearish sign.
The stock has remained above the 50-day and 100-day Exponential Moving Averages (EMA), which have provided some support.
Therefore, because of the double-top chart pattern, there is a possibility that the stock will retreat ahead of its earnings scheduled for later this month. If this happens, the next point to watch will be at $53.05, the neckline of this pattern.
A drop below that level will raise the possibility of it dropping to the support at 50p, its highest point in February last year. The alternative scenario is where the stock rises above 56.56p, leading to more upside.
This article first appeared on Invezz.com
