Market Comment 3rd July 2012

The longer Bob Diamond had stayed on as CEO the more bad press the bank would have received as calls for his resignation would have grown and grown. 

Whilst most people don’t even know what libor actually is, the headlines make for bad reading with banking bashing remaining rife. Let’s face it, no one would want to be the head of a bank embroiled in the issue when they have to face the Treasury Select Committee this week. The fact that he’s taken this step doesn’t come as a huge surprise following the resignation of the Chairman, and when it boils down to it banks have been playing the market somewhat to their own benefit even if all they were doing was creating the liquidity and flow to provide a price at which to lend money to each other. For banking in general Bob Diamond was seen as a figure head, one of the best in the class and has only been CEO for a short while having taken over from his predecessor. At least he’ll be thinking that his appearance in front of MPs should be a little easier.

On the open the stock dipped some 4% but has already climbed back from its lows and is back in positive territory so investors seem to have been quick to brush the issue aside, however it’s the ramifications for other banks that is now the question. How far does this go from here, as Barclays is just the first of many to be fined and so all the other CEOs will be nervously weighing up their options.

The FTSE had been called to open some 15 points higher, but actually dipped on the news as the banking sector dragged the index lower on the open. However, those losses have been reversed now and the index is up some 10 points. The market closed right on it’s near term resistance levels yesterday and is testing them this morning. The bulls will be hoping that a move above 5650 will open the way for 5715 and 5760 and that support around 5615, 5585 and 5540 will hold.

Whilst the economic data has not exactly excelled there has been the odd glimmer of hope. The UK manufacturing PMI, whilst it was still pointing to contraction, did come in higher than expected, and a couple of Chinese PMI numbers have also been slightly higher than expected giving metal prices a little boost. For the UK the PMI surveys have been consistently pointing to an economy that is in much better shape than the official GDP figures are showing and so businesses must be making their orders and are a little more confident about the future, but this is yet to filter down into the wider economy. Today sees the construction PMI number, a sector which has been a real drag on GDP, and this is expected to rise so maybe some good new for builders.

The greenback benefited from renewed demand for safety as weak manufacturing data across the board triggered fresh concerns of a slowdown in the global economic growth. As a result the euro moved 71 pips down versus the US dollar to 1.2585. This Thursday the European Central Bank is expected to lower the interest rate by 25 basis points at its meeting trying to deal with the sovereign debt crisis.

Along the whole commodities spectrum, gold pulled back yesterday to $1596.9, driven by a stronger dollar and slightly weaker US equities. Investors are still pondering if the European Union has done enough to alleviate some of the immediate worries or if the expected 25 basis points cut in its interest rate will actually satisfy the markets.

The WTI crude prices lost 90 cents to $83.75 yesterday as the optimism regarding EU’s plan to help its banks was quickly replaced by worries of another dip into recession. By and large, the manufacturing data around the world was disappointing and easily spilled over into energy complex. The ongoing Iranian threats on closing the Strait of Hormuz were rather discarded as they had a limited supporting impact on oil prices.
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Market Comment 3rd July 2012

The longer Bob Diamond had stayed on as CEO the more bad press the bank would have received as calls for his resignation would have grown and grown. 

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