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Barclays share price: what to expect from Q1 results

Barclays has to deal with a tough economic outlook, a battle with an activist investor and a softer outlook for monetary policy as it releases its Q1 results.

When is Barclays’ earnings date?

Barclays reports first quarter (Q1) earnings on 25 April, covering its fiscal Q1.

Barclays’ results preview: what does the City expect?

Barclays is expected to report a 14.3% decline in earnings over the year, to 5.5p per share, while revenue is forecast to rise 1.9% to £5.2 billion. The firm has beaten earnings forecasts in six of the last eight reports, but missed estimates in five of the last eight quarters for revenue. Earnings dropped sharply from Q3 into Q4, so we could see a modest rebound in the near term.

The UK banks will issue their results in the wake of US bank earnings over the past week, with some major US institutions reporting a good start to the second quarter. Barclays, a UK bank with global aspirations, will need to issue a similarly robust outlook for the year, and potentially avoid an excessively-large decline in year-on-year earnings.

However, the macroeconomic backdrop is not promising for European banks generally, and perhaps is even worse for UK institutions. Low economic growth, trade wars and Brexit are all on the list of worries, and have been for a while, but now the prospect of a more dovish turn from central banks is also threatening to reduce income from lending as interest rates fall.

Q4 was a fairly weak quarter for European banks, and while some improvement is likely, the overall tone will remain cautious. Years of low profits, thanks to weaker growth and lower consumer confidence, have combined with large regulatory fines and the relentless uncertainty about the UK and its position in or out of the EU.

As an investment bank, Barclays needs to see growth in its corporate and deal-making departments, and indeed also needs to issue a robust outlook statement on this front. Cost-cutting will play a part, and it is possible that the £13.6 billion-£13.9 billion cost target will be cut in order to boost return on equity.

For Barclays, the earnings come at a time when the board is involved in a battle with activist investor Edward Bramson over the direction of the company. Bramson has fought to get Barclays to reduce its investment banking activity, in order to focus on other parts of the business. Bramson argues that the bank will need to raise fresh capital or sell off profitable parts of the business, or cut the dividend, to maintain activity at current levels. The current chief executive officer (CEO) of Barclays, Jes Staley, has been a staunch defender of the investment bank, viewing it as a crucial part of the business.

It looks unlikely at present that Bramson will succeed, but it is another distraction for the board at a difficult time for the bank, when Brexit concerns and worries about a slower global economy are making life more difficult for banks.

Barclays currently trades at 7.4 times forward earnings, more than one standard deviation below the five-year average of 9.3. This is only slightly above the 5.8 low of late December, and close to the low of 2016. This low valuation takes into account the difficult outlook, but also provides a potential opportunity on valuation grounds, with the shares now cheap on this metric.

How to trade Barclays’ Q1 results

The average one-day move for Barclays on earnings day is 3.2%, but at present implied options pricing only suggests a move of 1.75%. This is currently just below the 14-day average true range (ATR) of 1.9% for the share price; volatility in the shares has been declining since a peak in December, when the 14-day ATR hit 5, and at present the intraday moves are relatively limited.

Of 27 broker ratings, 14 are ‘Buys’, ten are ‘Holds’ and three are ‘Sells’, with a target price of 203p, 21% above the current share price.

Barclays share price: technical analysis

Barclays shares declined steadily from the beginning of May last year, and by 27 December they were down by almost a third. However, the broader market rebound then saw a steady rally from the end of December for Barclays that added 20% to the price. On the monthly chart, the stochastic momentum index has posted a bullish crossover for the first time since 2016, which has been a positive signal for the stock several times over the past eight years.

The shares have been in an ascending channel since the middle of January, with the March pullback to 153p finding support at the bottom end of the channel. The bounce has seen the shares move back to the 168p area that was the peak back in March. Further gains target 174p and the top end of the channel, while a retracement heads towards rising support around 158p.

Conclusion – tough quarter expected for Barclays

The tough macroeconomic environment and a softer outlook for central bank policy is expected to bear down on Barclays for the quarter, but any improvement over the expected annual decline in earnings may see the shares continue to recover. The technical outlook is more encouraging, with the 2018 downtrend now at an end, while the cheap valuation will also provide an attraction for investors.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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