Lloyds share price is at risk of a reversal despite UK GDP growth

The Lloyds share price remains largely unchanged today, September 11, as investors weigh the stronger-than-expected UK GDP report against rising bond yields. UK yields have climbed to their highest level in years, adding pressure on equities. The stock now sits 6.13% below its highest point this year.

Lloyds Bank to benefit from the UK economy

Lloyds share price has remained in a narrow range today after the UK published strong economic numbers. The data showed that the economy expanded by 0.4% in July, higher than expected 0.3%. It also expanded by 0.4% in the three months to July, also higher than the expected 0.3%.

More data showed that trade deficit narrowed, while the industrial and manufacturing production rose at a faster pace than initially expected. These numbers are important for Lloyds Bank because it is the biggest lender in the UK. It has over 26 million customers across the country.

At the same time, there are now signs that interest rates will remain at an elevated level for longer than expected. This is the message that the bond market is sending, with the ten-year rising to 5.34%, its highest level since 2007. The five-year yield also jumped to 4.88%, its highest point since 2008.

At the same time, there are signs that the Bank of England (BoE) will maintain a hawkish tone now that inflation continues to rise. Odds that the bank will hike interest rates this year have jumped to 80% on Polymarket.

Lloyds makes most of its money lending to individuals and businesses, meaning that it benefits when rates are in an uptrend. Indeed, the most recent results showed that its business continued doing well, with its half-year profit before tax rising to ￡4.3 billion from the￡3.5 billion it made last year.

The net interest income rose to ￡7.3 billion, up by 9% YoY. It has also benefited from its structural hedges, volume growth, and high interest rates.

Most notably, the company announced a new strategy known as Accelerate 2030 strategy. This approach aims to boost its revenue growth, increase cross-group connectivity, and productivity. It is expected to save it￡2 billion by the end of the plan.

These events, together with its strong revenue, have pushed the company to boost its dividends and share buybacks. The repurchases have brought the outstanding shares to 58.16 billion from over 70.14 billion in 2022.

LLOY stock chart | Source: TradingView

The weekly chart shows that the LLOY stock has pulled back from a high of 116p to the current 110. It remains substantially higher than where it started the year.

The stock has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. This pattern often leads to a bearish breakout, especially when they are nearing their convergence.

The stock has also formed a bearish divergence pattern as the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have continued to fall. Therefore, the stock will likely drop to 100p.