FTSE rallies but Barclays memo sets up volatile Treasury Committee Meeting with Diamond

The FTSE 100 rallied another 47 points to mark a third-day of consecutive gains on Tuesday, but much of the focus in London trading centred on Barclays after its Chief Bob Diamond resigned.

The resignation of Bob Diamond was inevitable and yet, perhaps the most important element to take away from today is that Barclays memos from 2008 have highlighted that the bank may have received instructions from Paul Tucker at the Bank of England to lower LIBOR rates.

The LIBOR fixing scandal is turning into a perfect storm that could engulf the heart of the banking and finance community.

Manipulating LIBOR rates to make a bank appear stronger than it actually was is one terrible scorn on the banking industry if it’s proved systemic, but coercion with the Bank of England could do irreparable damage to the image of the City of London’s financial centre.

Of course, we have only seemingly heard one side of the story and now the ground has been set for a volatile game of verbal tennis at the Treasury Committee whereby Bob Diamond could imply that a member of the Bank of England was not only aware of the fixing scandal, but also culpable.

Whilst both Barclays and the BoE could leave this as a case of miss communication between Tucker and Del Missier, many will still find it hard to imagine that two highly experienced inviduals could have gotten crossed wires over this issue.

Indeed the movement of Barclays’ share prices and indeed that of several UK banks including RBS shows the changing circumstances of the LIBOR scandal throughout the day. Barclays shares had earlier been trading 3% higher on news of Diamond’s resignation but soon fell back as more revelations emerged, to close in negative territory losing 1%, whilst RBS shares also lost 1%.

The FTSE 100 has seen yet more gains thanks mostly to investors buying up commodity related stocks on expectations of BoE and ECB action on Thursday, giving a heavyweight lift to the UK Index. The FTSE 350 mining sector gained over 1%, and this is where much of the day’s index gains have been triggered.

US Factory Orders surprisingly grew 0.7% in May, when a smaller growth of 0.2% was expected, marking somewhat of a bounce back in Orders from a downwardly revised fall of 0.7% a month previously. The factory orders gave European stocks a second wind in trading as the session drew to a close.

The UK Index now looks primed for an attack at the 5700 level, where it will need to come through near term resistance if bullish momentum is to be established after three days of consecutive gains.