NatWest (LON: LON:NWG) share price has wavered in the past few weeks as investors focus on the upcoming actions of the Bank of England (BoE). The stock was trading at 313p on Friday, a few points below the year-to-date high of 329p. Other British banks like Lloyds (LON:LLOY), Barclays (LON:BARC), and HSBC (LON:HSBA) have also pulled back.
Bank of England’s rate cut fears
The main driver for NatWest and other British banks is that central banks have started to unwind their high interest rates. The Bank of Canada (BoC) became the first G7 central bank to slash interest rates on Wednesday followed by the European Central Bank (ECB) on Thursday.
These banks cut their rates because inflation has dropped slightly in the past few months while economic growth has stalled. As such, the hope is that cuts will help to supercharge the economies without stirring inflation.
NatWest’s shares have crashed as investors focus on the next actions of the Bank of England (BoE). Economists have a mixed opinion on when the bank will start cutting rates. Some believe that the BoE will start cutting as soon as in its July meeting since inflation is falling and the economy is slowing.
The most recent data showed that the country’s inflation is nearing the bank’s target of 2.0%. A separate report showed that the country’s house prices dropped in May, signaling that the slowdown is continuing.
Banks like NatWest do well when interest rates are high because of the higher net income margin (NIM). The most recent financial results showed that NatWest’s net interest income came in at £2.61 billion in the first quarter, down from £2.9 billion in the same period in 2023. The figure was also lower than the £2.6 billion it made in the fourth quarter.
Its total income declined to £3.47 billion from the £3.8 billion it made a year earlier. This decline is a sign that the impact of higher rates are starting to fade. Analysts expect that NatWest’s Q2 net interest income will come in at £2.6 billion. Its annual NII is expected to drop slightly to £10.6 billion followed by £11.1 billion and £11.8 billion in 2025 and 2026.
Therefore, NatWest’s stock has dropped as investors anticipate that its NII will continue dropping as the BoE starts cutting rates. Still, I believe that the BoE will maintain higher rates for longer, which will help to support its business.
NatWest is still a good bank, with a strong market share in the UK. It also has a cheaper valuation than most of its peers. It has a price-to-book ratio of 0.71, which is lower than most US banks that have a multiple of 1 and above.
NatWest share price forecast
Turning to the daily chart, we see that the NWG share price peaked at 329.7p in May and then tumbled to 302p as BoE rate cut fears rose. It has now bounced back and remained above the 50-day and 100-day Exponential Moving Averages (EMA).
The stock’s rebound happened after it formed a small morning star pattern, which is a popular reversal sign. It now seems like it is forming a double-top pattern whose upper part is at 330p. Therefore, the stock will likely continue rising in the coming days. A move above the resistance at 329.7p will point to more upside since it will invalidate the double-top pattern.
This article first appeared on Invezz.com
