Lloyds share price is falling this week: here’s why it may rebound soon

Lloyds share price retreated on Tuesday this week, reaching its lowest level in over a week as investors sold bank stocks after the weak HSBC earnings report. It dropped to 94.90p, down modestly from this month's high of 105.06. This article explores what to expect in the near term.

Lloyds Bank’s is doing well despite major challenges 

The Lloyds share price dropped sharply as investors reacted to the latest HSBC earnings, which showed that its business made an unexpected loss because of its exposure to MFS, a company that collapsed late last year. It also observed some weaknesses because of the ongoing US-Iran war.

The MFS issue exposed HSBC to the troubled private credit industry, where it has a $111 billion exposure. As such, LLOY dropped because of the ongoing correlation in the industry.

However, HSBC and Lloyds operate different business models. Lloyds has a minor exposure to the private credit industry, and is a domestic bank. HSBC, on the other hand, is global company, with substantial operations in the Middle East and Asia.

Lloyds Bank also dropped because of the ongoing performance of the bond market, where the UK’s government bonds plunged, with the 30-year yield rising to the highest level in decades.

Still, on the positive side, Lloyds is doing well, as evidenced by the recent financial results. These numbers revealed that its net interest income rose by 8% in the first quarter to over £3.56 billion. Its other income rose by 11%, bringing its total to £4.87 billion.

Unlike in the other quarters, Lloyds reported a strong quarterly profit, with the underlying figure rising to over £2 billion. This profit metric rose because its remediation costs dropped to just £11 million. Before that, the company was reporting a big increase in remediation because of the motor insurance crisis 

The only blemish in its report was the surge in impairment costs, which jumped to £295 million from the previous quarter’s £295 million. These costs will likely remain at an elevated level as the economic goes through a stagflation period, which is characterized by high inflation and slow economic growth rate.

The next important catalyst for the LLOY share price is the fact that the Bank of England has maintained a hawkish tone and hinted that it will hike rates in June to combat the rising inflation. 

A high interest rate will boost its net interest margin over time. The management guided towards its annual net interest income being £14.9 billion.

Still, the key challenge here is that the housing sector remains under pressure, with the mortgage rates have retreated.

Lloyds share price technical analysis

LLOY stock price chart | Source: TradingView 

The daily timeframe chart shows that the LLOY stock price jumped to 105.06p on April 17 this year. This rebound happened after the stock formed the highly bullish falling wedge chart pattern.

It then made an up-gap on April 8. As a result, the ongoing retreat is happening as it seeks to fill that gap.

A closer look shows that it has now formed a double-bottom pattern at the Strong, Pivot, Reverse level of the Murrey Math Lines tool. Its neckline is at 105p.

Therefore, the most likely scenario is where the stock rebounds and retests the Major S/R pivot point at 100p. A drop below the key support at 90p will invalidate the bullish outlook.