Staley wins again, then retreats

Jes Staley’s investment and trading business has remained a difficult-to-define work in progress for longer than shareholders have been comfortable with, but it’s getting a track record of beating the market.

Barclays Investment banking (IB) fees still caught flak in a volatile quarter for markets, geopolitics and the global economy. But the 1% fall on the year was shallower than the 11% plunge expected, looking at a consensus forecast compiled by Bloomberg.

The markets business, which Staley, a former trader, has become most synonymous with, also held its own against European and Wall Street rivals. Fixed income, commodities and currencies (FICC) particularly shone. A 3% income rise excluding Barclay’s share of Tradeweb IPO proceeds was better than many players on The Street. Equities tanked as hard as the competition though, down 17%.

That’s still further vindication of the CEO’s high-profile strategy to maintain exposure to volatile businesses that cost more than they make and which consequently, British and European peers have retreated from. The chief benefit of exposure for Barclays, which also has a sizeable UK deposit base, is shielded net interest income. NII slipped 3% in the UK to £2.9bn and rose 5.5% at group level.

Unsurprisingly though, as G10 rates trend lower, Barclays continues to describe the income environment as “challenging”, underlined by a 20 basis-point group net interest margin drop. As such, Barclays expects to make cost reductions in the second half and sees 2019’s total below £13.6bn, the low end of prior guidance.

Though underlying return on tangible equity was 9.4% in the six months to 30th June, it had tumbled from 11.6% in the year before. Pressures will almost certainly keep RoTE, a key profitability measure for banks, below the group’s >10% target for 2020. As such, the dividend rise announced on Thursday was just in-line. An announcement signalling a higher gradient of returns in the medium term seems unfeasible.

Chart thoughts

A declining line connects a high on 5th June, 23rd April and 23rd July. If extended it is pierced by subsequent highs in sessions that followed, though not permanently. This symbolises rejection of a ‘breakout’ above the bearish trend. As we can see, price subsequently followed through and continued to decline.

It’s not just the descending trend that is applying resistance to BARC.LN. Let’s plot a zone that is bound at its top by the 28th November 2018 high. It is significant due to the aggressive month-plus sell-off that followed. It was also tagged cleanly on 23rd May and on a number of other occasions. For the bottom side we can use a similarly important session high on 16th May. The pair creates a theoretical band of resistance.

So far, the zone has stymied attempted BARC.LN rallies on two occasions, 16th May being one. The latter is the cluster of attempted incursions between 22nd July and 29th July. After the last failure, the stock subsequently dropped and continued to fall throughout this week, including on 1st August, when Barclays released half-year earnings.

The shares closed on Friday almost exactly on the 61.8% Fibonacci interval of the 25th June-to-25th July up leg. The marker appears to be providing ‘classic’ support. Should the stock break below this level (and the Relative Strength Index) gives us a rough indication that it might, then the next probable downside objective ought to be a cycle low notched in July 2016.

If the Fib holds, further tests of the declining trend and then the band of resistance would be required before any upward trend change could be declared. Fundamentally, this stock has been unappealing for years. From the perspective of technical analysis, the probability of a strong recovery in the medium term looks low.

Barclays (UK) CFD – daily – source: City Index

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