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

<p>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 […]</p>

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.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.