On Demand

China, Italy, Europe, and The LIBOR Scandal

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So yesterday, I am casually reading the news (yes, I do that), and I come across an article with a headline that suggests China's reported 7.6% growth rate is "catastrophic." So, I think, the market will not like this. I say to myself, "Tomorrow, we will see more downside action." In fact, I further think it will take some really good news to move the market appreciably to the upside and I wonder what that could possibly be, given the current state of global affairs.

Imagine my surprise this morning, and as I am writing this. The market is booming, and unless some other news comes out today that rattles the market, it is likely the market will finish strongly to the upside, which leaves me wondering what the heck is going on? Then again, I think, maybe the market is finally getting it - China has an economic plan and that plan is working. Perhaps, finally, the market understands a 2% inflation rate in China is phenomenally good for that economy, that such a low inflation rate portends a major shift in Chinese consumer spending, and that a 7.6% growth rate is actually better for China and the global economy than a 9% growth rate. Could that be true?

Italy passed a tough market test on Friday as its three-year borrowing costs fell well below 5 percent hours after Moody's cut the country's rating to two notches above junk status.

I see two good things in the above good news. First, it is more evidence fewer and fewer folks actually care what the US rating agencies say or do, and that makes me happy. Second, maybe it explains some of the market's buoyancy today.

Official data released on Thursday showed euro zone factories unexpectedly stepped up production in May, but output fell in France and the Netherlands in a fresh sign that the bloc's debt crisis is also hurting its stronger economies.

The above is a mixed bag, no doubt, but one has to think, "If some factories are picking up in the Eurozone, is that a sign that all is not lost, economically speaking? More data is needed to understand what the sentence means, and I will search it out, but, nevertheless, it is what it is, and any surprise to the economic upside is a surprise the market likes.

State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks.

This scandal is now getting some serious legs. Whether all the noise is just political bluster in an election cycle or it is serious outrage at the "in your face" corruption that plagues the global financial sector remains to be seen, but, in any case, I welcome the outrage.

Although most folks know little or care little about the LIBOR, market players understand this scandal is a big deal. This blatant and, frankly, audacious corruption speaks to the possibility of greater loss in market confidence, and, as well, it suggests a renewed call to seriously reregulate the banks will get louder.

U.S. Treasury Secretary Timothy Geithner pressed the Bank of England in June 2008 to make changes in the way that Libor, a key interest rate benchmark, was set.

How come no one listened to Mr. Geithner?

Trade in the day; Invest in your life ...

Trader Ed

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About the Author

Hello, I am Trader Ed.  No, not Mister Ed, although at times I feel a bit like a talking horse.  You see, my job is to educate folks about the market, which means talking about (or writing in this case) anything and everything that affects the market.  This means the world is my oyster.  Every day, I read for about an hour or so about the happenings in the world.  Every day, I look for leading indicators that will help me “see the future.”  No, I am not an oracle, nor do I pretend to be, but I do look for macro trends that point in a direction, and I am more than happy to share my “vision” with you.  Keep in mind, though, my vision derives from analyzing the fundamentals of the global economy, as well as looking at current movement in the market.  I shun the doomsayers and I embrace the realists.  I look to the positive without denying the negative.  In short, I paint as realistic a picture of the market as I can.  So, if you have a question in this realm, feel free to ask me.  I will answer you in this column and I will do that to the best of my ability.

Hoping to hear from you.

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