Depressing news from Europe kept market alert as EURO fell to a 2-year low. About 170 top German educationist/economist lodged protest over Merkel’s nod for allowing direct re-capitalizing of European banks, which will hit tax payer’s purse.
Italian rating cut by Moody’s is another indication that European worries are far from over and further confirms that its economy has enormous risk.
Minutes of last FED FOMC meeting had nothing new to add, which means that for more easing US economy has to further deteriorate. This week’s UA data reduces the probability of easing as last month’s wholesale price surged sharply.
Last week’s Chinese economic slowdown though positive due to the expected number, added to the global worry as the economy grew by 7.6 pct against 8.1 pct growth in 1st quarter. Current pace of growth is good enough to keep its domestic market active, but high Chinese growth was one factor that was that was providing a helping hand to the global slowdown.
LIBOR cheating is one huge development that is not getting proper attention, as market avoided reacting to the news probably because all major financial institutions are involved in some way or the other.
LIBOR rate rigging that involves world’s biggest and most powerful banks is in a fix as cross-border investigation is going on for fixing of inter-bank lending rate. FED was informed by an unidentified employee of one of the London based bank in 2008, the bank in London is said to have released the document confirming the news.
Basically, British Bank Association announces the rates that are fixed by a select panel of banks through polls is calculated and published in for several currencies on daily basis. The fixing of benchmark rates helps to calculate payments equivalent of over USD 350 trillion worth of financial institutions that includes mortgage, derivatives, bank loans and credit cards.
Investors are fast losing their confidence in the banking sector. Since this rigging of interest rates has been going on since 2007-08 it may not be easy to assess the damage, but some of estimates based of calculation by research institutes suggest that LIBOR rates were off by 30 to 40 basis point.
I will not be surprised if the benchmark interest rate scandal hit the market anytime that affects the price at which consumer and corporations around the world borrows funds. This is another slap on the face of financial sector/regulator/rating agencies.
Market will continue to focus on developments in Europe, which remains key direction provider to the financial market’s move this week. European and US economic data will also be keenly watched for next Central Bank move.
Last Week - Monday July 09-13