With earnings season in full swing on both sides of the Atlantic, we prepare for the results from the engine room of the UK economy. The Banking Sector is not just one of the most popular on the London Stock Exchange, but is also a key barometer for the UK economy, impacting both markets and consumers. Ignore them at your peril.

The four largest UK financial institutions – Barclays, Lloyds, HSBC and the Royal Bank of Scotland – all report second quarter figures over the next two weeks. These UK 100 giants can have a profound impact on the index and consumer sentiment as a whole. Will they be able to lift the UK’s blue-chip index to fresh record highs?

From a round-up of key ongoing and upcoming economic and political events, to a reminder of how markets reacted to Q1 figures, this report covers everything you need to know about UK banks, and much more besides.

European central banks flock to hawkishness

Taking over the mantle as the biggest driver of markets over the past few weeks has been central banks, both in North America and Europe. While the US Federal Reserve has been gradually raising interest rates from a record low, the Bank of England (BoE) and European Central Bank (ECB) have been stuck behind the curve. Until now. Recently, policymakers from both institutions have turned more hawkish, implying interest rates could be raised soon, positively impact banks’ earnings by increasing net interest margins and thus profits. Recent weak data, however, has raised concerns. Will Europe disavow data to join the US in tightening policy this year?

UK and EU get down to business

While Central Banks have claimed back the headlines over the past three months, another even more important event for UK banks has begun. Brexit negotiations between the UK and the EU have started in Brussels, with both sides looking for concession from the other. The focus for the UK’s banks will be access to both the single market and customs market after Brexit is completed in 2019. Already, some institutions have announced intentions to move staff to the continent to avoid losing EU access, but as talks progress, will all banks be forced to resettle some employees?

Trump to take on tax?

Another quarter, another legislative disappointment for Donald Trump. The President has been forced to accept that the Republican healthcare bill is doomed after months of wrangling, which could see a multitude of potential of outcomes. It could see the administration move focus to ‘market-friendly’ policies such as vast tax reform and financial sector deregulation before the Summer recess. However, it could see the President intensify his efforts to remove Obamacare, a cornerstone of his campaign policies. Will the members of his inner circle focus on keeping the Republican repeal bill from dying or will they instead breathe new life into the ‘Trump trade’?

For the all-important Q2 reporting dates for the four major UK banks, a recap of how they performed on the back of their Q1 results in February and a summary of US peers’ Q2 performances so far, take a look over the page

Remind me, what dates are the UK Banks reporting their Q2 results?

UK banks begin reporting Q2 results in the final week of July and conclude on 4 August, as detailed below:

How did markets react to the UK Banks’ Q1 results?

In late April through until early May, the four major UK banks released their first quarter earnings. Lloyds began proceedings, announcing on 27 April that it had managed to double its first quarter profits to £1.3bn despite setting aside £450m to cover costs of the HBOS scandal and ongoing PPI compensation claims. Unsurprisingly, its shares rallied a solid 2.4% as investors welcomed the release. Will Q2 figures provide more of the same?

The following day, Barclays and RBS reported their figures with strikingly contrasting reactions. Barclays, despite reporting generally solid numbers, saw shares dramatically fall 5.1% as investors were disappointed by weak trading revenues, exacerbated further as US peers reported strong performances in equivalent divisions.

In stark contrast, RBS shares rallied an impressive 4.7% after reporting its first quarterly profit since 2015. The bank, having been plagued with legacy issues after its taxpayer-funded bailout in 2008, now expects to turn its first yearly profit in 2018. When both banks come to report Q2 figures, could their roles be reversed?

HSBC rounded things off on 4 May, as the Asia-focused lender reported a $5.9bn pretax profit, which saw its shares rally a welcome 3% on the day. Can analysts’ expectations for trading be topped once again in Q2?

How have US banks fared so far?

With the break-up of traditional US earnings curtain raiser Alcoa, Citigroup, JP Morgan and Wells Fargo have all but cemented themselves as the new opening acts. On 14 July, all three released their Q2 figures. JP Morgan crossed the wires first, reporting a beat on both the top (revenue) and bottom (earnings-per-share) lines. However, its figures were marred by a sharp fall in its Fixed Income, Currencies and Commodities (FICC) trading department. As a result, shares fell 1%. Citigroup beat on both lines, however also saw its fixed income revenue fall by 6%, leading to shares closing just shy of breakeven. Wells Fargo provided a bright spot for the day, however, reporting net interest income increasing by over 6% due to rising rates. Its shares climbed 1.1%.

On 18 July, Bank of America performed similarly to JP Morgan, seeing a 14% fall in fixed income revenues. Goldman Sachs went one step further, however, reporting its worst ever quarter for commodities trading, historically a cornerstone of revenues. Despite beating on top and bottom lines, shares fell 2.6%. The sector saved the best until last as Morgan Stanley reported figures on 19 July, announcing the best overall Q2 trading performance by a US bank. Unsurprisingly, shares rallied 3.3% on the announcement.

Over the page, we’ll provide an in depth look at each of the four banks, highlighting key levels, technical analysis and providing City brokers’ consensus price targets. Which bank do they prefer? Read on to find out!

Barclays (BARC)

Will shares return to resistance at 220p (+6.2%) or pull back towards support at 195p (-5.9%)?

• Downward trend after post-Brexit rally to 240p. Will Q2 results see bearishness continue or bullishness return?
• Stochastics have fallen sharply from overbought; momentum turned positive after briefly turning negative
• Bullish kiss by directional indicators,
• Brokers are positively leaning, while over 70% expect the price to rise from current level

Broker Consensus: 46% Buy, 29% Hold, 25% Sell

Bullish: AlphaValue, Buy, Target 265p, +28% (20 July)

Average Target: 220.2p, +6.3% (20 July)

Bearish: Macquarie, Underperform, Target 180p, -13% (12 Jul)

Pricing and consensus data sourced from Bloomberg on 20 July. Please contact us for a full, up to date rundown.

HSBC (HSBA)

Will shares rally to fresh 4-year highs above 750p (+1.0%) or fall to July lows of 710p (-4.4%)?

• Shares paused after rally to multi-year highs in early July. Will results see a trend resumption or break-down?
• Relative Strength Index (RSI) and Stochastics recovered from overbought
• Directional indicators diverging bullishly; momentum remains positive but well off best levels
• Broker consensus is stuck on the fence, while over two-thirds see downside to current price level

Broker Consensus: 26% Buy, 55% Hold, 19% Sell

Bullish: Morgan Stanley, Overweight, Target 850p, +14% (29 Jun)

Average Target: 684.2p, -7.9% (20 Jul)

Bearish: Grupo Santander, Underweight, Target 442p, -40% (17 Jul)

Pricing and consensus data sourced from Bloomberg on 20 July. Please contact us for a full, up to date rundown.

Lloyds (LLOY)

Will shares return to 2017 highs of 74p (+8.1%) or pull back towards 2017 lows of 62p (-9.3%)?

• Break-out from 5-month intersecting resistance. Will Q2 numbers extend rally or see a pull back to support?
• Stochastics quickly approaching oversold level while momentum turns positive
• Bullish cross observed by directional indicators
• Brokers are positively-biased with over 70% expecting the price will increase from current level

Broker Consensus: 57% Buy, 14% Hold, 29% Sell

Bullish: AlphaValue, Buy, Target 90.8p, +33% (13 Jul)

Average Target: 71.7p, +4.9% (20 Jul)

Bearish: Bernstein, Underperform, Target 40p, -41% (5 Jul)

Pricing and consensus data sourced from Bloomberg on 20 July. Please contact us for a full, up to date rundown.

Royal Bank of Scotland (RBS)

Will shares return to 18-month highs of 270p (+7.8%) or fall to support at 230p (-8.1%)?

• Shares have pulled back having rallied to 18-month highs in May. Will Q2 see a resurgence or retracement?
• Stochastics turned oversold from overbought at start of July; Momentum and MACD turned negative
• Directional Indicators converging negatively
• Broker consensus is majority negative, however 70% of brokers see upside to current price

Broker Consensus: 19% Buy, 50% Hold, 31% Sell

Bullish: Grupo Santander, Buy, Target 346p, +38% (17 Jul)

Average Target: 260.9p, +4.2% (20 Jul)

Bearish: AlphaValue, Sell, Target 182p, -27% (13 Jul)

Pricing and consensus data sourced from Bloomberg on 20 July. Please contact us for a full, up to date rundown.

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