UK banks to report Q1 results at the end of April

The UK’s high-street banks are again due to update the markets on their quarterly performance as of 26 April. The Banks’ shares are some of the most highly traded on account of their ‘high beta,’ or tendency to move more than the index, and are often brought into the limelight as US results season gets underway, with US peers updating the markets a couple of weeks beforehand.

April is sure to herald one of the most exciting results seasons yet, following a year in which guidance was revised down… and down... and down. Banking stocks are heavily depressed, like their mining counterparts, and with expectations so low the potential for positive surprises is considerable.

What’s the latest on the UK banking sector?

The December 2015 US rate hike should help all the banks – not just US institutions – because banks and other financials such as insurance invest in US Treasuries. It should also be good for consumers who deposit money in bank accounts, but there is of course a catch when it comes to the UK and European banks.

That catch is the fact that interest rates are moving in the opposite direction virtually everywhere else in the world! Thus, any advantage gleaned from higher US interest rates is offset by lower European rates. Add to this regulatory controls imposed to prevent another financial crash and the outlook is dented further. With such a low bar, it’s worth setting an eye on the UK banks right now for any potential positive surprises on results day.

“In the Investment Bank, income in January and February was broadly in line with the same period last year. However in light of current market conditions… we do not expect as strong a performance for the whole of Q1 this year.” - Barclays

“We continue to deal with a range of uncertainties in the external environment, including those caused by the referendum on the UK’s continuing membership of the European Union. We will also have to manage conduct-related investigations and litigation… throughout 2016…” - RBS

The UK’s banks are already up off their historic lows

Above are two examples of just how low the bar has been set for Q1 results this year, such that the chance of an upside surprise is real. A surprise announcement by Lloyds Banking Group in February saw its share price close 13% higher on results day.

But we’re not even relying on a surprise to give us these attractive price moves. Shares in RBS fared badly in February (as expected?), closing 10% lower on results day. Having hit 5-year lows in early April, they’re now trading 15% higher.  Barclays was another mover – its shares closed down 8% following its FY 2015 earnings report but are now 18% up from their own 4-year lows.

How to take advantage now

Whether you see UK banking sector stocks going up or down in the days before and after they report Q1 results, opportunities to trade will be numerous. There are three ways, among many others, to attempt to profit from earnings season.

Trading bank shares around results – what’s the best strategy?

Trading bank shares is always popular in the spring. That's because reporting season brings an average trading range of over 5% for the likes of Barclays, Lloyds, RBS and HSBC. That is the scope for share price action that short term traders crave.

What’s more, the days leading up to a bank’s earnings report can also see trends forming – trends which may intensify or reverse upon the results announcement. On top of this, since Lloyds, Barclays, RBS and HSBC last reported (FY 2015) their respective share prices have fallen by up to 8% on the back of continued equity market turbulence and Macro-economic uncertainty.

1. Trade now

You may already have identified a clear price trend, and noted that the bank’s outlook is sufficiently bullish or bearish to make the case for opening a position right now. With an Accendo Markets trading account, you’re able to speculate on both rising and falling prices – something your traditional shares account doesn’t allow – so whatever your view, there’s an opportunity for you.

You can buy or go short the UK banks’ shares today with one of our trading accounts. We partner with  the leading providers to bring you the best platforms in the business whether you trade shares, CFDs or spread bets.  Then we add the best customer service in the form of a dedicated account manager who'll give you the information and support you need, when you need it. That's why investors are deserting the advisory brokers and trading bank shares with Accendo.

Many investors understandably want to wait and see at what price the stock will begin trading on results day – results usually come out early in the morning, before the market opens. Then, one of the following two strategies might work.

2. Trade on or after results day with a momentum approach

Momentum investors or ‘trend followers’ aim to profit by jumping on the bandwagon – that is going with the majority. If the majority are buying the price will rise and vice versa.

They will typically say “If the results are good and the price is called to open higher, it’s likely to continue to move higher, so I’ll buy. But if they’re bad and the price is set to open lower, it’ll probably keep going lower so I’ll want to sell (‘go short’).” Placing two orders – one to buy at a higher level and one to sell at a lower level – means that one of them will be triggered automatically, whatever the price does on results day.

3. Trade on or after results day with a contrarian approach

Contrarian or ‘counter-trend’ investing has arguably fared best so far in 2016, with many markets in volatile sideways ranges. Contrarians look to buy as the price approaches historic levels of support and sell (go short) as the price approaches historic levels of resistance. They look to exploit those trend followers who, gripped either by panic (in a downtrend) or mania (in an uptrend), arrive late to the party. Warren Buffett has been very successful investing in this way.

Which strategy is best for trading bank shares around results? Good question. We’re certainly not saying that either of these strategies are fail safe ways to make money – unfortunately that’s not how the markets work.

However, as consensus builds slowly in the run up to results day, the investor may use a momentum approach to trade bank shares. On the day itself, with the added possibility of short, sharp price moves, a contrarian approach might be preferable - as someone who knows what to expect, you’ll want to capitalise on other investors’ nervousness!

Our dedicated account managers regularly alert clients to shares that are trading at or near historic highs (resistance) and lows (support), shares that have broken out either above or below these levels and up to the minute breaking news. Lately, we alerted clients to the fact that Barclays shares were near 4-year lows. They’re now up 18% from those lows.

Read on to see our projections for the UK banks ahead of the Q1 reporting season.

Lloyds Banking Group (LLOY)

Will shares fall back towards the 55p lows or recover towards 89p highs?

Lloyds  shares benefitted from a surprise special dividend announcement back in February. But was that all that was good about its 2015 FY results?

Broker Consensus:  67% Buy, 23% Hold, 10% Sell

Q1 2016 Results: 28 April

Barclays (BARC)

Will shares fall back towards the lows of 143p or recover towards 290p highs?

Broker Consensus: 64% Buy, 32% Hold, 4% Sell

Q1 2016 Results: 27 April

Royal Bank of Scotland (RBS)

Will shares fall back towards the lows of 204p or recover towards 414p highs?

Broker Consensus:  48% Buy, 48% Hold, 4% Sell

Q1 2016 Results: 29 April

HSBC (HSBA)

Will shares fall back towards the lows of 413p or recover towards 660p highs?

Broker Consensus:  33% Buy, 46% Hold, 21% Sell

Q1 2016 Results: 3 May

All pricing and consensus data from Bloomberg on 14 April; Full breakdown available on request

How can you take advantage of these potentially attractive share price moves?

Whether you see UK stocks going up or down in Q2 2016 or indeed for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

Buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see purple box above left), while the same exposure via a CFD requires about £500 plus commission (see green boxes above right). If a trader invests in British Land, one would assume she believes the share price is likely to move in her favour. After considering the ‘worst case scenario’ and assigning funds to cover it,  the trader may conclude there’s little point in exposing the full £10,000  to the BLND shares - some of that capital could be put to good use elsewhere in the markets.

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure.

The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into an Accendo trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios click here.

How Accendo Markets can help you

We won’t tell you what to do - it’s your call whether you buy or sell. Our aim is to provide the help you need, if you need it. We’ll highlight opportunities which may be profitable to you, the investor, and assist you in making your own trading decisions. Our approach focuses on these 3 elements:

1. Education - not obligation
2. Observations - not recommendations
3. Assistance - not persistence

Our unique, award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. Just imagine how you’ll feel when you’re confident enough to make you own investment and trading decisions, rather than blindly following those of an expensive advisory broker who really has no better chance of calling the market than you anyway.

Before taking a position in the Index or Stocks, be sure to contact Accendo for…

• Updates - How does the index or your preferred stock look in terms of investor sentiment? News and broker updates can emerge daily affecting share prices. Optimism can switch to pessimism in the blink of an eye depending on what’s going on around the world.
• How to use CFDs and Spread Bets to maximise your profit potential.
• How to use the tools available to minimise the risk involved