Lloyds share price has been in a strong downswing for the past few days as macroeconomic uncertainties continue to weigh on markets. At press time, the British banking stock was trading 1% lower at 44.370p. The shares of the banking giant have dipped by nearly 3% in the past week and 4% in the year to date.
Inflation Outlook
European banking stocks were in the red on Wednesday as investors chewed on the latest UK inflation data. The UK’s premier FTSE 100 index was also trading lower on the same day. Lloyds Banking Group, as well as other UK banks, were in the spotlight amid the latest UK Consumer inflation data.
Data by the Office for National Statistics (ONS) shows that the annual headline consumer price inflation came in at 8.7% in May, unchanged from April and higher than the estimated forecasts of 8.4%. On a monthly basis, the Consumer Price Index (CPI) rose by 0.7% in May 2023, ahead of economists’ forecasts of a 0.5% rise.
The hotter-than-expected inflation rate has ramped up bets that the Bank of England (BoE) will further hike its interest rates for June. The UK central bank is expected to announce its monetary policy decision later Thursday as markets price in a 25-basis point hike to 4.75%.
While higher interest rates tend to be bearish for risk assets, including stocks and cryptocurrencies, major banks such as Lloyds, Barclays, and NatWest make more money during this period. Even so, Lloyds share price is more interest rate sensitive than its peers as it lacks an investment banking arm and is heavily focused on UK mortgages. With higher interest rates, banks receive higher net interest income. As such, Lloyds Banking Group is more exposed to this tailwind as it directly impacts its major operations.
However, higher interest rates are mostly accompanied by a sting in the tail, including higher impairment charges. In the first quarter of the year, Lloyds profits came in lower on the back of an increase of £243 million and loan provision. As such, higher interest rates could mean slower loan book growth, indicating more pain to the bank’s profits.
Lloyds Share Price Analysis
The daily chart shows that Lloyds share price has been in a consistent bearish trend in the past few weeks. The banking stock has managed to remain below the 50-day and 200-day exponential moving averages, as well as the 25-day and 50-day moving averages.
Consequently, the LLOY stock price is likely to continue falling as sellers eye the next support level at 40.925p. On the flip side, a move past the bullish support at 44.825p might give buyers enough momentum to push the price higher to the 50-day EMA at 46.350p.
