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Market Comment 17th July 2012

The saga continues and today will see the Governor of the BOE sit in front of MPs to discuss whether he played any part in the resignation of Bob Diamond but you can bet you bottom dollar that the focus of the questions are likely to be on something called Libor.  

One of the most talked about words of the day at least it takes the focus off the eurozone crisis, but unfortunately because the two are so intertwined they almost go hand in hand.  Barclays itself has suffered a 20% decline in its share price in the past couple of weeks since they owned up to their part in Libor fixing whereas other banking stocks have only declined in the single digit percentage points.  The silence of the other banks is almost deafening and why wouldn’t you want to keep quiet when you see what’s happened in such a short space of time at Barclays which is now rudderless as a result and has had its reputation more than just tarnished.  At some point the other banks implicated will be exposed and it will be very interesting to see if the pressure applied to them will lead to more heads rolling or whether those executives will have been saved by the Barclays fall guys.

Having spent all morning ahead of the open calling the FTSE higher by some 10-15 points we actually opened flat in the end and so are hovering around 5662 at the time of writing.  Lots of things for investors to get their teeth into today which is why we could easily see caution continue into the afternoon when the highlight of the day gets underway in the form of Ben Bernanke’s two day congressional testimony on the US economy.  This has the potential to move all markets later today as investors will be listening out closely for any sort of indication that QE3 is being considered.  With the raft of bad news on the economic data front already some bulls have been positioning themselves for this possibility which goes some way to explain how the markets have not been heading lower recently.

What is also very possible is an uptick in volatility over the next couple of days as traders may interpret his comments in different ways and so a move in one direction could well be proceeded by a sharp move in the other direction.

Before this event later this afternoon we get UK inflation numbers released this morning which are expected to remain at 2.8% year of year with a decline of -0.1% month on month.  Price rises have declined significantly in recent months but inflation still remains above the 2.0% target.  The BOE will be hoping for further declines in the months to come, but as they mention it is proving more “sticky” than they had hoped and with Brent crude still remaining around and above the $100 a barrel level, this stickiness might be around for some time to come.

The euro failed to make a new 2 year low yesterday despite the bears best efforts, managing to pare initial losses make modest gains.  The reversal in sentiment was spurred by dollar weakens as poor US retail sales data got the rumour mills turning for an imminent round of QE3 from the Fed.  This gave some support to the single currency which has filtered through into today with EUR/USD back at 1.2300.  The arch bears will be saying this is a good selling opportunity but few will want to commit to further shorts if this squeeze continues.

Gold edged lower on Monday shedding a mere $3.90 to close at $1588 despite suggestions of further easing from the Fed soon to be on the way.  Instead, it appears that the slowdown in China was the bigger story as concerns of reduced demand for materials saw weakness across the entire metals complex.

Crude oil futures saw another day of gains as escalating tensions with Iran and earlier reports of US naval fleets opening fire on another vessel fuelled bullish momentum but increased prospects for another round of QE, following weak US retail sales data, kept the dollar under pressure.  Crude oil for August added $1.33 to settle at $88.43 a barrel.
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Market Comment 17th July 2012

The saga continues and today will see the Governor of the BOE sit in front of MPs to discuss whether he played any part in the resignation of Bob Diamond but you can bet you bottom dollar that the focus of the questions are likely to be on something called Libor. 

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