Lloyds share price at risk of further weakness as sentiment dumpens

The Lloyds (LON: LLOY) share price tumbled to the lowest level since July 21st as the outlook of the UK economy. The stock declined to 43.50p, which was about 13% below the highest point this year.

UK economy outlook changes

Lloyds is the biggest bank in the UK. The bank operates through its eponymous brand and other subsidiaries like Halifax and Scottish Widows. It also has a joint venture with Schroders, one of the biggest asset managers in the UK.

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The Lloyds share price has jumped by more than 25% this year, helped by the strong recovery of the UK economy. For one, the UK managed to reach a deal with the European Union, thus avoiding the Brexit crisis. 

At the same time, the UK was the first country to start vaccinations. This, in turn, led to a faster recovery than some western countries.

Lloyds also benefited from the UK government fiscal stimulus measures. For example, the government’s furlough program helped to stabilise the labour market. Also, the stamp duty holiday helped to boost the housing market. Lloyds is the biggest mortgage lender in the UK.

Lloyds financial progress

Further, the company has recorded strong financial progress, helped in part by the rainy-day funds that it allocated last year. In its most recent release, the company said that its pre-tax profit came in at 2 billion pounds. 

Most importantly, Lloyds boosted its forward guidance. It said that it expects its full-year net interest margin to be about 250 basis points and return on tangible equity to be about 7.6 billion pounds. 

The Lloyds share price retreated after data showed that the UK’s inflation declined to 2.0% in July. As a result, the Bank of England (BOE) will likely have no incentive to hike interest rates. Other recent numbers, particularly housing, have been relatively weak recently.

Meanwhile, the bank is expected to shift its focus by expanding its wealth management services. The new CEO, Charli Nun, used to be the head of wealth at HSBC and has expressed the interest of expanding this division.

Lloyds share price forecast

The daily chart shows that the Lloyds share price has been in an overall bearish trend recently. It has struggled moving above the key resistance level at 50.62p. It has also declined below the 25-day and 50-day weighted moving averages (WMA) while the Relative Strength Index (RSI) has moved close to the overbought level. 

Therefore, more weakness will be confirmed if the LLOY share price moves below the key support at 42.86. On the flip side, a move above 47.8p will invalidate this view.

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