Where next for Barclays stock ahead of Q1 2022 earnings?

When will Barclays report Q1 results?

Barclays will report Q1 results on Thursday, 28^th April, before the market open.

What to expect?

Barclays is set to post a 2.8% fall in income to £5.7 billion, while pre-tax profits are expected to tank 39% to £1.5 billion.

End of investment banking boom

Barclays is the only UK bank with a significant presence in the investment banking sector. As we know from US bank’s earnings, investment banking was dealt a heavy blow as geopolitical risks sparked by the Russian war created an uncertain environment with listings, raising money on the financial markets, and deal-making cooling significantly, particularly compared to the previous year’s deal-making boom. This is likely to drag on Barclays’ earnings.

NII

Barclays and its peers are expected to benefit from the higher interest rate environment. The BoE has hiked rates across the past three meetings. Barclays has said that it expects net interest margin to improve to 2.6% - 2.7% in 2022, up from 2.52% in 2021

While part of the increase in NIM is owing to rising rates, it is also thanks to the bank having a good handle on costs, seen in the final quarter of 2021. Barclays has warned that costs could creep up this year as inflation rises. Investors will be keeping an eye on costs.

Bad loan provisions

Last year the banks were optimistic about the outlook amid a rebound in economic growth and as interest rates started to rise from record lows. The banks began releasing reserves that had been set aside in the pandemic for bad loans, which never materialized. The release of these loans boosted earnings. The outlook is very different with the Russian war sending energy and food prices soaring, central banks raising interest rates threatening to tip the economy into recession. The outlook is much darker now than a year earlier. Barclays is expected to put aside £299 million for potential defaults, up from £55 million a year earlier when an economic boom was expected.

Regulatory hit

Barclay’s earnings come just a month after the bank warned that it faces around a £450 million loss and regulatory scrutiny for going $15.2 billion above its US limit on sales of structured products. The bank then was forced to buy back the notes incurring a heavy loss.

Following the discovery, Barclays postponed its £1 billion buyback until Q2.

EM trading

Ahead of the quarterly update, and on a brighter note, reports emerged at the start of the week that Barclays has been benefitting from an increase in emerging market trading volatility, with EM trading & credit desk revenue expected to be around £600 million, up firmly from £400 million in the previous quarter. This could go at least some away to offsetting

Where next for Barclays share price?

Barclays trades down 33% from its 2022 high of 214p. The share price has trended lower across the year to date, forming a series of lower highs and lower lows. It trades below its 2-month declining trendline and below the 50 & 100 sma. The 50 SMA has also crossed below the 100 sna in a bearish signal.

The RSI remains in bearish territory and is about the cross below its 14-day moving average, suggesting that could be more weakness to come.

140p, a more than two-year low, offered support earlier this month and is the level the bears will need to break below before bringing 125p, the 2021 low, into play.

Meanwhile, buyers will need to rise above the falling trendline resistance at 147p and last week’s high of 150p, which could help to create a higher high and expose the 50 SMA at 163p.