Hi Vtec - Absolutely that’s an important one to monitor. Fingers crossed we don’t get both at the same time!
Hi David & Vtec,
Good points. I agree Italy’s situation is something to keep an eye on. But not so much due to Barclay’s having any large exposure there, more so for any knock-on effects & a chain reaction across the sector. That said, Italy may be over-played. From what I’ve read it’s nowhere near as bad as the situation in Greece. So for me, the kind of Brexit we end up with remains more fundamental in relation to any likely recovery seen for banks like BARC & LLOY.
A good Brexit deal, all other things being equal across the global economy, & undoubtedly all UK banks go higher. A VG deal & I’d reasonably anticipate the level of SP rise mentioned in my last post here. If there was no Brexit, there’s no reason why BARC wouldn’t be over 200, which in context would still be very disappointing for many L.T holders.
Main thing is not losing our heads if things get even worse before they get better as there’s little question that BARC will be higher again later.
Regards to both.
Hi Jack - what do you make of the news on the UK/EU agreement on financial services equivalence and the potential impact on UK Banks share prices?
Well something is happening. SP now 177 and rising. I have that breaking up through the daily tl resistance. If that holds (price closes the day above 176 today) we could be off to the races. Looking at indicator patterns, this rise is a little bit out of the ordinary in some respects. Last time similar patterns occurred was Nov 2017 (28th ish) and these patterns were followed by a sustained rise. Let’s hope it’s the same this time. 177.7 is a horizontal resistance line. If that gives way, then 181 and 186 come into play.
Beyond that it’s a highly positive development in the overall Brexit talks, despite today’s early rise for banks & across the FTSE, I think market reaction may still be a bit muted until it’s actually confirmed. But I concede that, even if subliminally, I probably hold a bias to the long side for UK banks, so maybe I’m anticipating a bit too much at this stage.
However, if it’s confirmed, it’s no huge surprise as the EU also has a strong financial interest for maintaining easy access to the City of London, as well as vice versa, as it’s such a key hub for global business.
Last I read on the matter, the City manages some £1.7 trillion of assets for European clients alone. But that’s just one factor. - Regards.
I agree with you, it’s a positive development but it is just preliminary as the the agreement isn’t binding. First the divorce deal needs to go through and then a separate trade agreement needs to be reached where this financial services agreement will go.
Given the two-year transition period following the divorce, it is likely that the final legal status of UK banks in the bloc probably won’t be clear anytime soon. But overall, at least it goes someway to decreasing uncertainty surrounding UK Banks positions and will hopefully strengthen BARC’s resistance level at 170sh until March next year.
Thanks for the more ‘chartist’ perspective Shotry. It will indeed be interesting how the sp will trend over today and tomorrow. Sustaining the current gains at 177 today and putting in a solid performance tomorrow would give it some interesting momentum.
What do you make of the current situation and where do you think BARC’s sp will be trending in the short (until March 2019) to medium (after March 2019) term? This is obviously very much dependent on events like Brexit but what’s your overall feel.
Good question, with no easy confident answer. As you say, much depends on upcoming key votes around Brexit. That could still go either way, even if it takes a 2nd vote after some further renegotiation. But presumably we’re seeing risks of a disastrous “no deal” being partly priced in. Though I regret to say, probably not all of it. We could go lower still on sentiment as we’re already retesting recent closing support levels at 162+. Lowest close for a while was 162.84 from 18th October. Intraday we’ve seen 160+.
For me little changes from my comment here 28 days ago. If we close below 160, no surprise if nearer to 150 seen later. Currently sentiment & fear dominates. Even BARC’s recent broadly positive results are being ignored. In such an environment, even stocks with progressing fundamentals can continue to be oversold.
Closing SPs over the next few days & their volumes will tell us more. Lower SP levels on much higher than average volume would be a negative indicator of worse to come. - Regards.
Maybe of interest (also posted on LLOY BB), BoE’s latest stress test results out tomorrow (Wednesday), including some new rules & criteria for how UK banks would cope in the event of a sharp house price correction, a global downturn & various other challenges. Those tested include Barclays, Lloyds Banking Group, HSBC, Santander and the Royal Bank of Scotland. London-based Standard Chartered is also included, as is Nationwide Building Society. - GLA.
UBS sees potential for further shareholder rewards
UBS said: “New CET1 (common equity tier 1) capital requirements will be shared with lenders in Jan / Feb 2019. That, and hopes of clarity around the Brexit outcome, should allow banks to increase dividends and buybacks.”
The investment bank added that the passing grades in the stress test and the Bank of England’s statement that lenders could handle a no-deal Brexit should underpin investor confidence that the firms don’t face an increase in capital demands.
Barclays said it remains its intention to pay a 2018 dividend of 6.5p despite faring the worst in the stress test with the lowest CET1 ratio.
UBS maintains ‘buy’ rating on Barclays, Lloyds and RBS
UBS still has a ‘buy’ recommendation on Barclays as well as Lloyds and RBS, each of which is sees trading at 7 x 2019 capital adjusted earnings per share.
“In the event that a Brexit transition is ultimately agreed – the path to which does look potentially bumpy – we’d expect to see these profitable, capital generative stocks re-rate materially,” it said.
ShoreCap sees ‘good upside’ to fair value estimates across banking sector
Shore Capital said it was not a surprise to see all banks pass the stress tests given that they are all now paying dividends and been talking opening about returning surplus capital to shareholders by way of share buybacks and special dividends.
“We continue to model and value the banks on the basis of a consensus macro-economic outlook, which suggests UK GDP growth can be maintained at 1.0-1.5% with global GDP growth at 3.5-4.0% (we use the International Monetary Fund World Economic Outlook as our best guide for these estimates),” the broker said.
“On this basis, we see good upside to our fair value estimates across most of the sector, suggesting that the market is currently pricing in a materially worse outcome.”
Closed 162.88. Market is still pricing in PM May perhaps losing the key Parliamentary vote on 11th December & the possibility of a damaging disorderly Brexit. It’d be good to have a better idea of how various projections & figures for banking may differ in the event of a “no deal”.
Re the vote itself: IMO, it’ll be close. I still think the PM may well sneak it. It’ll depend on the number of abstentions from those who, though they disagree with Chequers, also don’t want to risk plunging UK’s economy into further prolonged chaos. - Regards.
And if say May won by 10 votes do you think that would be the end of the matter?
Quite agree the matter won’t end. Far from it. FTSE will most probably see an overhang of fluctuating poor sentiment directly issuing from Brexit’s future processes for possibly years to come. That underscores just one part of this self-inflicted mess: the financial aspect. That’s unless we see a 2nd Vote on the actual deal, rather than on misinformation, false promises & lies, seeing the original result over-turned. That’s possible over the next few months, but far from a given.
But if May wins even by less than 10 votes, that should at least temporarily attenuate some fears of a disorderly Brexit & lead to a bounce across some sectors, however short-lived. As mentioned elsewhere, considering the general chaos & economic uncertainty, that might be the best we can hope for.
My approach will still be to book any available gains, trade less & build a much bigger cash position until we see greater clarity & that’s unlikely to happen for a while to come. - Regards.
Agreed. With regard to UK facing stocks:
Cash is for Kings
Shorting is for Princes
Investing is for Court jesters.
With negative sentiment increasing in the US, combined with Brexit uncertainties here, 150 disappointingly not far off. Closed 153.32. Such lows last seen mid 2016.
Though in perspective nearly everything well down for reasons that have little to do with any stock’s fundamentals, when herd behaviour approaches panic mode from fear of things getting even worse, it can often become a self-fulfilling process. In such a climate of uncontrollable macro-factors holding sway, almost anything can happen over the short-term. Whether it’s justified or not doesn’t even come into it.
GLA & take care.