Barclays’ Libor Scandal and Economic Developments
NOT even the champagne at Henley or strawberries at Wimbledon can lift the mood in the City at the moment. The rain keeps falling and the sky is permanently grey.
The only sign of hope is the Shard, which opens on Thursday. Yet even that is mired in gloom as no tenants have yet signed up.
Barclays’ Libor scandal has rocked the Square Mile and Canary Wharf. We have already seen high profile casualties and I’m afraid there are going to be many more by the time this has blown over. Not to mention the fines and potential litigation costs. This is the last thing the UK banking sector – and the economy – needed right now.
At least in Europe things have settled a little since the Greeks (effectively) voted to stay in the euro. One senior economist I know said he expected things to “muddle through” for the foreseeable future – just how Germany wants it, because it enables Angela Merkel and co to keep pressure on peripheral countries and ensure they commit to make long term reforms. Another I spoke to said leaders are simply “kicking the can down the road” because the political will does not exist to make the necessary changes to alleviate the crisis.
Back in Britain things are looking less than rosy. The latest official figures show our double-dip recession is deeper than first thought, with the economy contracting 0.4pc in the final quarter of 2011, and not 0.3pc as previously estimated.
According to colleagues, this makes it more likely that the Bank of England will vote for additional stimulus at this week’s policy meeting. An additional £50bn of quantitative easing is on the cards.
Further from home, China’s slowing economy and America’s significant fiscal challenge may also come to haunt us in the months ahead.
In terms of commodities, Dr Copper has been feeling sickly but there are signs the patient is getting better. Copper is the most economically sensitive metal and prices have fallen in seven out of the last nine weeks. However, last week the price bounced by 6pc – a positive sign. But can it last?
The dollar got a fillip as the Fed pulled back from more QE last month – hitting commodity prices, which usually move inversely to the dollar. Hopes are rising that there may be more QE3 soon, but I am not so sure. The longer there is without any sign of QE3, the stronger the dollar is likely to become. These gains could easily be reversed.
The oil price has rebounded strongly on hopes of a looming stimulus package by Ben Bernanke. However, Singapore based bank OCBC has conducted a survey of asset managers and only 13pc said they expected QE3 would be launched this year.
The price action in agricultural has been more upbeat. Corn and soybean prices have moved higher, as dry weather was seen in the in the US Midwest. There are fears that this could damage crop yields. Meanwhile, a drought in Russia and Ukraine is keeping wheat prices buoyant.
Hopefully next time we speak, they’ll be some positive news to report for a change. Andy Murray may have won Wimbledon or the rain may have even stopped.
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