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NatWest’s share price surged yesterday as investors grew optimistic that the Bank of England will avoid pushing UK interest rates into negative territory, thanks to the country’s progress in rolling out vaccines. The stock climbed to 180p, significantly higher than its year-to-date low of 145p.
NatWest, previously known as the Royal Bank of Scotland (RBS), has faced uncertainty in recent months due to ongoing discussions by the Bank of England about negative interest rates. In a recent statement, Andrew Bailey, the Governor of the Bank of England, mentioned that the bank was still considering negative rates and had asked banks to prepare for such a scenario.
However, the recent news that the UK has vaccinated more than 15 million people has led many to believe that the central bank will likely avoid implementing negative rates. Such rates would negatively impact NatWest, as the bank primarily earns from interest-bearing assets like mortgages and credit cards.
NatWest’s share price is also climbing in anticipation of the important earnings report due on Friday. Analysts expect the bank to have had a strong fourth quarter. Besides the earnings, investors will be keen to hear management’s updates on dividends and share buybacks, especially since the regulator has asked banks to limit dividends to 25% of cumulative profits over the past two years.
In my last outlook on NatWest’s share price in December, I predicted a 20% increase to 198p. Currently, the stock is about 10% below that target. It has successfully moved above the key resistance level at 173p, which had been a challenging barrier for several weeks.
The price has also risen above the 50% Fibonacci retracement level, indicating that the shares are likely to continue their upward trend in the near term, with the next resistance level at 200p. However, if the price drops below 165p, this trend could be invalidated.