Lloyds share price could be set for a strong 2022 as a number of factors fall into place for the banking group. Having rebounded from the volatility during the pandemic, Lloyds are now in a position to grow revenues and profit, and shareholder distributions.

The Lloyds share price is up 28% year-to-date at the time of writing after staging a sustained rally through the first half of 2021.

Despite positivity in Lloyds shares through 2021, the stock faced a period of declines going into the end of the year caused by concerns around monetary policy.

This has left Lloyds shares trading at just 5.8x forecasted forward earnings which suggests their could be further upside, if Lloyds is to meet these forecasts and move up to historical price-to-earnings valuations.

Interest Rates

Lloyds, like all UK banks, are major beneficiaries of higher interest rates. The hopes they could eventually begin to operate in a higher interest rate environment dictated trade in the late 2021 with Lloyds shares rallying into the Bank of England’s November meeting, only to be let down by the ‘unreliable boyfriend’ as the BoE kept rates on hold.

The declines persisted into the next meeting in December with Lloyds shares touching lows below 45p.

The surprises kept coming from the Bank of England in December with the decision to hike the base rate by 0.15% to 0.25%. This sparked a rally in the Lloyds share price as investors piled back into banks on the surprise decision.

It is likely the optimism around higher rates continues into 2022. Inflation will persist and if recent comments around vaccine’s effectiveness against Omicron are confirmed in the real world, the Bank of England will have no reason to not proceed with more rate hikes in 2022.

This will be positive for the Lloyds share price.

Lloyds shares & the UK Economy

Lloyds is both a facilitator and beneficiary of the UK economy. Lloyds’ lending activities and banking services provides individuals and businesses in the UK the means to propel the economy further, whilst benefitting from their increasing activity.

With Lloyds profitability intertwined with the UK economy, the strength of their shares is dependent on UK economic health in 2022.

From an investor’s perspective, one would feel optimistic about how this will play out for the Lloyds share price in 2022.

The UK has a strong jobs market, house prices have shaken off numerous potential hurdles and GDP continues to increase. This will support banking earnings through 2022.

Lloyds dividend

The Lloyds dividend is becoming a major attraction to income investors. Lloyds paid an interim dividend of 0.67p in September 2021. This is after paying its first dividend of 0.57p since the pandemic, earlier in 2021.

One would expect this dividend to increase for the full year, considering Lloyds beat expectation and posted a bumper 88% increase in Underlying Profit for the third quarter.

Should dividends be increased over 2022, this will propel the Lloyds share price higher.

There was a dramatic reduction in European equity volatility on Wednesday as markets began to trade sideways into the Christmas holidays.

Having experiences a number of trading sessions with swings in the region of 1%, the FTSE 100 was up just 0.09% around midday on Wednesday.

The German Dax was 0.24% higher whilst the French CAC gained 0.2%. The Eurozone’s two largest domestic indices have been subject to significant volatility as they imposed COVID restrictions into a backdrop of uncertainty around Omicron.

“Investors are preparing to go into hibernation for Christmas and will hope by this time next week we’ll know a lot more about the trajectory of Omicron and the likelihood of further restrictions to contain it, and just how long those curbs will be in place,” said AJ Bell investment director Russ Mould.

“For now the markets, bar the odd day, have just about managed to hold on to the idea that, to employ central bankers’ favourite word of 2021, Omicron’s impact will be transitory.

“If that changes, we could see a more pronounced sell-off in global stocks as growth expectations for 2022 are rapidly reset.”

There is view building in markets that Omicron may not be a economically damaging as first thought and the slight ease in concern has been enough for some traders to turn off their screens and settle in for the holidays.

71 of the 100 shares included in the FTSE 100 were higher at the time of writing.

The top risers again included IAG which continued to be bought into by bargain hunters. Rio Tinto was among the fallers after it announced the acquisition of a lithium mine for $825 million.

Rio Tinto has acquired the Rincon lithium project in Argentina from Rincon Mining for $825m in a move that signals Rio’s intent to grow exposure to battery metals.

Rio Tinto have outlined a commitment to invest in the global energy transition to the Rincon acquisition demonstrates the delivery of their strategy.

“This acquisition is strongly aligned with our strategy to prioritise growth capital in commodities that support decarbonisation and to continue to deliver attractive returns to shareholders,” said Rio Tinto Chief Executive Jakob Stausholm.

“The Rincon project holds the potential to deliver a significant new supply of battery-grade lithium carbonate, to capture the opportunity offered by the rising demand driven by the global energy transition. It is expected to be a long life, low-cost asset that will continue to build the strength of our Battery Materials portfolio, with our combined lithium assets spanning the US, Europe and South America.”

On completion of the acquisition, Rio Tinto will conduct studies on the mine to confirm the mineralisation at the project, as well as sustainability and environmental assessments.

Rio have said they propose to utilise direct lithium extraction technology at the mine as it improves lithium recovery when compared to other methods.

It is clear from Rio Tinto’s recent production report the mining group are still heavily weighted towards Iron ore having shipped 237 mt in the period September 2021 year-to-date.

Indeed, the production report didn’t include lithium production so Rio Tinto’s new acquisition will add a new metal to their reports in the future.

Rio Tinto are also working to develop the Jadar lithium-borates project in Serbia. Rio Tinto committed to a $2.4 billion financing of the Jadar project in July.

Rio Tinto reported a 118% increase in EBITDA in the six months to 30th June 2021 helped higher by a 71% increase consolidated sales revenue to $33 billion. Rio also declared a $5.61 dividend for the period.

The FTSE 100 rose on Tuesday as investors bought into the dip created by fears over the Omicron variant and economic consequences.

The rally was broad with investors stepping into to pick up shares that had suffered over the past week, albeit it in thin volume typical of this time of year.

Housebuilders were among the top risers after a period of selling following the surprise interest rate hike last week. Barratt Developments, Taylor Wimpey, Persimmon and Berkeley Group were up between 2.8%-3.1% at the time of writing.

JD Sports was the FTSE 100 top riser rebounding from a torrid month which saw shares give up around 20% of their value after the CMA blocked their acquisition of Footasylum. JD was 3.2% to the good at 205p.

“As we head towards an uncertain festive break the market is swaying about more than someone who’s over-indulged on the sherries on Christmas Day,” said AJ Bell investment director Russ Mould.

“That’s unsurprising as investors still awaiting a full picture on just how disruptive Omicron is going to be – with UK Prime Minister Boris Johnson putting off any decision on further restrictions for now.

“There’s certainly already been signs of a sizeable hit to retail, hospitality and travel businesses as people enter self-imposed lockdowns to avoid having to isolate over Christmas.”

Travel shares were among the risers but were know where near recover their losses since the discovery of the Omicron variant.

IAG shares were 2.4% stronger at 134p and Rolls Royce added 2% to trade at 112p.

As one would expect, defensive shares and those thought to benefit from COVID restrictions fell.

Ocado was off 0.7% and Dechra Pharmaceuticals was the worst performer, giving up 1.4%.