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Market Comment 7th Aug 2012

Bad news for banks once again as the daggers are out for Standard Chartered with US regulators flexing their muscles. 

Their stock is being absolutely smashed this morning, down nearly 20%, as investors fear that they might have actually been doing something illegal for years.  On top of this the market is attempting to assess the longer term reputational damage caused as well as the possibility that the bank may lose its New York banking licence – something any global bank would want to keep no matter how much of their business is generated outside the world’s biggest economy.  Whilst the bank vehemently defends its Iranian business that it did in the past, and that it was nowhere near as much as has been made out by the US authorities, the news has been enough to cause a serious back lash for its share price as many fear that this could seriously hamper their business prospects around the world.  It is yet another example of why you would not want to upset the US and certainly senior managers within the bank need to choose their words more carefully when speaking to their American counterparts rather than using four letter words to describe them.

But not only are the ramifications for the banks huge but the wider banking sector as this latest attack on a non-US institution unfolds.  New York has long been envious of London’s position as a global financial centre and so there are concerns, even though it is one itself, being raised of just how much focus they are putting into the business of foreign banks.  In recent years Barclays, Lloyds and more recently HSBC have all been at the painful end of US investigations and subsequently been given hefty fines.  It will be interesting to see where this one goes and is yet another chapter in a very long book of the banking sector’s woes.

The FTSE has taken the new in its stride and is looking to add to the gains of the past few days in an attempt to have a hat-trick of gains.  Market sentiment continues to be bullish as the ECB’s bond buying plans seemed to get the green light from the German government.  The Dow edged higher again last night even if it did retrace a little from its highs but that hasn’t put off the bulls in Europe.

Industrial and manufacturing production data due out from the UK this morning is expected to show just what pain was caused by the extra bank holiday in June.  The ONS has been particularly pessimistic in its forecasts and so the expectations are for month on month declines of -3.4% and -4.1% respectively however the most recent manufacturing PMI data did see a surprising rise in output, so there’s a chance that the figure might come in better than the pessimists are expecting.

The euro continued to rise versus the US dollar, reaching an intraday high of 1.2443 on the back of heightened expectations the European Central Bank is preparing to help the troubled euro zone’s banks.  Nonetheless, the daily range was rather tight as indicated by the chart and the gain was limited, 16 pips to 1.2396 for the day as investors probably did not buy into the story wholeheartedly.

It seems that global markets have grown dependent of political news (in addition to economic ones) even more from the beginning of the debt crisis.  So in a day lacking both, trading gets a bit quiet.  Gold was no stranger to that and despite moving up $7.9 to $1610.8, volumes were pretty thin.  A slightly lower dollar was probably the largest supportive factor.

In the absence of major announcements regarding the economic data or involving the regulators, crude oil went back to find its direction by following the usual suspects.  A weaker greenback combined with modestly higher equities have driven the WTI crude prices $0.86 up to $92.20.  But the dominating feature was a low volume so many energy investors remain on the sidelines.

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Market Comment 7th Aug 2012

Bad news for banks once again as the daggers are out for Standard Chartered with US regulators flexing their muscles. 

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