Lloyds share price could fall after Marshall Wace makes £100m short bet

Lloyds could see its share price fall to new lows after the hedge fund Marshall Wace placed a £100 million bet against the bank amid a bleak outlook for UK lenders.

  • Lloyds dim outlook attracts short seller interest from Marshall Wace
  • Bank of England urges Britain and EU to agree trade deal
  • GBP/USD rises despite Brexit fears

Lloyds continues to trade within a narrow band ahead of Brexit, with investors taking a wait and see approach to British banks amid rising coronavirus cases that have led to tighter restrictions and renewed pressure on UK businesses.

But the UK lender is already trading near all-time lows, with London-based hedge fund Marshall Wace taking out a £100 million short position against the bank in September with the expectation that the stock will fall even further amid a myriad of headwinds.

Lloyds’ performance is heavily dependent on the success of the UK economy and, thankfully for it, mortgage approvals soared to a near 13-year high in August. In fact, mortgage borrowing hit £3.1 billion in August, supported by the government’s stamp duty suspension until 31 March 2021 on the first £500,000 of all property sales in England and Northern Ireland to boost house prices.

However, the outlook for Lloyds remains bleak. Rising coronavirus cases could lead to a second national lockdown. Tensions between the UK and the EU over Brexit make a no-deal scenario look increasingly likely and the government’s unwinding of furlough could cause a huge spike in unemployment. All of which would spell disaster for the UK economy and could hit Lloyds – the country’s largest mortgage lender – extremely hard.

Lloyds is trading at 28p per share at the time of publication, with the stock down 55% year-to-date.

Bank of England boss urges UK and EU to reach trade deal

Bank of England Governor Andrew Bailey has urged Britain and the EU to reach a trade deal and avoid a no-deal Brexit.

‘I do think it is in the interests of both sides - let’s be blunt - to get an agreement,’ Bailey said in an interview with the Yorkshire Post on Thursday.

‘I’m surprised that the EU wants to restrict where their citizens can do business. We will certainly keep our markets open to the world,’ he added.

Bailey also said that he does not expect the second wave of coronavirus cases to be as damaging to the UK economy as the initial wave. The first wave of cases, which forced the UK government to impose a national lockdown, led to a 20% decline in economic activity in the three months to June.

The BoE is ready to take decisive action to support the UK economy, Bailey added. However, he conceded that some sectors of the UK economy, such as hospitality, are likely to come under severe pressure if Covid-19 persists and continues to hurt demand.

‘The policy tools will be used to the fullest extent possible to support the businesses and people of this country,’ Bailey said. ‘We’ve got to face up to the question of how long the economy can go on for before some degree of structural change has to happen. It’s a hard one.’

GBP/USD continues to rise despite Brexit fears

GBP/USD has found the strength to rally despite signs of a hardening UK stance in Brexit negotiations, according to Chris Beauchamp, chief market analyst at IG.

‘The price is pushing back towards the top end of recent gains, with the price repeatedly falling back from $1.30 since mid-September,’ Beauchamp said.

‘However, with signs of strong buying in recent sessions and still-rising stochastics the momentum remains with the buyers, bolstering the chances of a move back above the 50-day SMA ($1.3032).’

How to trade stocks with IG

Looking to trade Lloyds and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Lloyds Banking Group PLC’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
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