-UK TSC: Barclays didn’t need nod, wink from BOE to rig Libor
-UK Tsy Says Libor Manipulation Points To Culture Irresponsibility
-UK Tsy: Govt Aims To Mend Banking Culture As Quickly As Poss

LONDON (MNI) – The Treasury Select Committee’s preliminary report
into Barclays’ Libor rigging has downplayed the importance of Bank of
England Deputy Governor Paul Tucker’s role in the scandal.

The report’s only sharp criticism of Tucker relates to his failure
to ensure there was a note of his now infamous telephone conversation
about Libor with ex-Barclays Chief Executive Officer Bob Diamond. The
TSC even suggests that the importance of the Tucker/Diamond call may
have been hyped to distract from the real scandal of Libor rigging.

The UK Treasury welcomed the TSC report, saying it would study the
findings “in depth”.

A Treasury spokesperson stated:

“The manipulation of key global benchmark rates has been another
example of a culture of irresponsibility within the banking system,
which the Government is determined to fix as quickly as possible”.

Tucker has long been seen as the leading internal candidate to take
over the Governorship of the BOE when Mervyn King’s current term comes
to an end on June 30 next year. Had the TSC report accused Tucker of
wrongdoing, or questioned his integrity, it could have derailed his
leadership bid but instead it puts the spotlight on Barclays’ wrongdoing.

Barclays was fined Stg290 million in late June this year for
attempting to manipulate Libor, with regulators referring to the bank’s
price rigging both before, and at the height of, the financial crisis.
Tucker became embroiled in the scandal when Barclays revealed a note
written by Diamond back in October 2008 summarising a conversation
between him and the BOE official.

The note said that Tucker had talked to Diamond about Barclays’
Libor submissions being higher than other banks’ and that Tucker had
said “it did not always need to be the case that we (Barclays) appeared
as high as we have recently.”

The note was seized on in the media as evidence that Tucker may
have condoned Barclays’ Libor fixing. Tucker, however, denied the note
was an accurate reflection of his conversation with Diamond and he
strongly denied in evidence to the TSC that he had given the green light
to Barclays to artificially lower its Libor rates.

“We will never know the details of the discussion between Mr Tucker
and Mr Diamond,” the TSC report says, before raising the possibility the
conversation’s importance as deliberately overplayed.

“It remains possible that the entire Tucker-Diamond dialogue may
have been a smokescreen put up to distract our attention, and that of
outside commentators, from the most serious issues underlying this
scandal,” the report said.

The regulators found Barclays guilty of Libor rigging on repeated
occasions and the TSC said the bank had shown it was perfectly capable
of rigging the interbank rate without the need for Tucker’s approval.

“It is unclear to the Committee why Barclays has attempted to place
such weight on the Tucker-Diamond phone call given the pattern of
repeated dishonesty in Libor submissions in the months running up to
this phone call,” the report says.

“Barclays did not need a nod, a wink or any signal from the Bank of
England to lower artificially their Libor submissions. The bank was
already well practised in doing this,” the TSC report adds.

Tucker’s haphazard approach to note-taking comes in for some
strong criticism.

“The lack of a record by the Bank of England of the conversation
between Mr Tucker and Mr Diamond is of great concern,” the report says,

The committee simply calls on the BOE to review its note keeping
systems.

In the report, the TSC raises concerns over the roles played by
King and the head of the Financial Services Authority, Adair Turner,
another candidate for the BOE Governorship, in forcing Diamond out of
the top job at Barclays. The two made clear to the Barclays board that
change was needed at the top in the wake of the Libor scandal.

The TSC says it is troubled by the power the two demonstrated to
force a private sector employee out of a job.

“Whatever the merits of the action taken by the Governor of the
Bank of England and the Chairman of the FSA – and the Committee has
sympathy with the conclusions they had drawn about the leadership of
Barclays – the action they took has exposed implicit, and potentially
arbitrary, power to force out senior figures in the financial services
industry,” the report concludes.

The Government has already charged s senior FSA official Martin
Wheatley with a high-level review of Libor. Wheatley published a
discussion document last week which invites submissions from the
financial industry. It will produce recommendations by the end of the
summer.

The Treasury said tonight that “any necessary legislative changes”
arising from the Wheatley Review would be considered for inclusion in
the Financial Services Bill or the Banking Reform Bill.

-London newsroom: 00 44 20 7862 7491; email: drobinson@marketnews.com/
dthomas@marketnews.com

[TOPICS: M$B$$$,M$$BE$,MT$$$$]

• U Mich consumer sentiment 73.6 vs 72.3 exp
• Canada CPI +1.3% vs +1.5% exp
• German lawmakers say Merkel considering easing Greek bailout terms
• Madrid mayor: Spain bailout seems inevitable
• White House: SPR release on the table
• IEA: SPR release not called for
• German/French CDS hit 1-year low
• DJIA closes at highest since 2007
• VIX at lowest since 2007
• S&P 500 up 0.2% to 1418

The Merkel comment gave a bit of life to EUR/USD in the early going but it faded as Europe closed out euro longs ahead of the weekend and the pair drifted as low as 1.2288. A late, flow-driven pop to nearly 1.2350 has faded back to 1.2329.

USD/JPY closes out the week at a one-month high but constrained by the 100-day moving average above.

An Australian Treasury report hints at rate cuts but speaks out against intervention and weighed on the Aussie, down to 1.0416.

CAD was the best performer on the week but bubbled back to 0.9900 on the soft CPI report.

Have a great weekend everyone!

Euro and cable up to the highest levels since early in US trading and then right back down.

Perhaps some nervous euro shorts.

The was no Tuesday, the low was on Thursday. Neither the high or the low extending outside last weeks range. The range for the week was a paltry 131 pips – the most narrow trading week since July 20, 2007.  That’s a lot of weeks ago.  To bring even more symettry to the week, the midpoint of the week comes in at 1.23199 and with less than a half hour until the 4 PM close, the price is at 1.2317.  The price is closing up modestly (last week the price closed at 1.22926). 

Looking at the hourly chart, the price fell below a trend line rising from the August 2 low on Wednesday, broke back above the line on Thursday and fell back below it today.   The line is not much of a trend line per se, but it does tend to cause a reaction when the price gets close to it (i.e. , bullish on a break above, bearish on a move below).  As a result, I will continue to keep the line in place into next weeks trade. 

The 100 and 200 hour MA are starting to converge which tends to be a precursor to a move away.  The 100 hour MA (blue line) is at 1.2324, while the 200 hour MA is at 1.2329.  Like the trend line, the MA lines tended to lead to a move away on breaks this week.  So next week, I will continue to gather bullish or bearish clues from the price  and those MAs (Price above MA is bullish. Price below is bearish). 

With little expected over the weekend and no data coming out in the US or EU on Monday and Tuesday the odds on bet is more of the same as the new week begins.  So the rule early next week is to be patient and wait.  On the topside 1.2384-90 is topsid resistance. On the downside 1.2259 is support.  Watch the 100 and 200 hour MA for intraday bullish and bearish bias.

• EUR net short position increases to 137K from 132K
• JPY net long position increases to 31K from 28K
• AUD net long position increases to 67K from 53K
• GBP positioning flat from net short 8K
• CAD net long position increases to 29K from 19K
• All data from CFTC COT report and as of the close on Tuesday

AUD positioning is the longest since March.

The Low to High ranges for this last week  are at multi year lows for some currency pairs. Specifically:

• EURUSD: 131 pips, lowest range since July 20, 2007
• GBPUSD: 109 pips, lowest since March 29, 2002
• USDCHF: 103 pips, lowest since May 25, 2007
• NZDUSD: 97 pips, lowest since January 15, 2010

Looking at average week range over the last 12 weeks, the EURUSD range of 131 pips was well below the 12 week average range of 254 pips. The GBPUSD was worse at 109 pips vs 247 pip average.    The pairs that moved the most this week?  The two pairs which reversed recent trends.   The USDJPY outdid it’s average range, 142 vs 121 pips and EURAUD which had a 231 pips range versus an average of 213 pips.

The lack of volatility in the market this week, gets me ready for an oversized move in the future.  Will it be next week?     There is not a lot going on as the world continues to vacation (isn’t there work to be done?)  So one would not expect it.  However, the levels are being developed in the back and forth action, so I will continue to be aware and prepared. 

Highlights for next week include:

Monday: Australia Monetary Policy Minutes
Wednesday: Canada Retail Sales, US Exisiting Home Sales, US FOMC Meeting Minutes, HSBC Flash Manufacturing PMI for China
Thursday: German Flash PMI, US New Home Sales
Friday: UK Revised GDP, US Durable Goods

I prefer a system where bankers are pelted with kiwi fruits if they’re caught lying but this one refers to New Zealand, where Libor rates are set on actual trades.

Foreign official are snooping around, according to the local press.

Atmore said the ECB had expressed an interest in the New Zealand system, which has been specifically built to produce the interbank rates here. …

“Honestly, for a country like us, and indeed Australia, I think we are miles ahead of where the Europeans are in relation to the way the interbank rates are set locally,” Main said. “I think we are very fortunate in having a very transparent, effective rate setting process.”

It’s no surprise that trading has gone quiet as we close out one of the quietest weeks of the year. The weekly futures positioning data from the CFTC will be released in the next hour.

Expect to see euro shorts trimmed further.

These numbers work as a counter-trend indicator.
In the meantime, how about some rock ‘n roll.

Thanks for a great week.

By Denny Gulino

WASHINGTON (MNI) – This week’s Gallup Poll update which showed the
approval rating of Congress slipping down to 10% — matching the record
low — has underlined a question increasingly being raised about whether
there are alternatives to some important but faltering mechanisms of the
national legislature.

Gallup’s series of surveys on the performance of Congress is the
gold standard on public opinions about Congress, having consistently
asked the same questions since early 1974 on 230 different occasions.
Congressional approval ratings have at times soared, such as after the
9/11 attack. Yet only since 2007 have the ratings been consistently at
the bottom of the range.

Now, significantly, all political persuasions are in basic
agreement and for more than a year Congress has scored 20% or less.

While at first glance any alternative to Congress seems
preposterous to imagine, like moving planet Earth to a different solar
system, the reality is that years of perceived failure increases
pressure to gravitate toward other ways to get things done.

With still another threat of legislative impasse on the near
horizon, the so-called fiscal cliff looming for yearend, and a
lengthening list of past legislative misfires, proposals for deep reform
or even funding mechanisms that bypass Congress appear to be getting
more traction.

One Washington veteran with strong ties to local government has
been thinking about Congress as he prepares to retire at yearend after
22 years leading the National League of Cities as executive director.

Donald Borut told MNI Congress’ disabilities have grown very slowly
to their present state and so have not been recognized as a national
leadership crisis.

“It simmers and it’s slower and doesn’t have the dramatic impact,”
he said. Instead the coming fiscal cliff has been seen only as a policy
dispute, not a crisis for the institution of Congress.

“Whenever we have some kind of natural disaster, we come together,”
he said. “That’s not the case with these fundamental economic issues
that are impacting the country.”

Viewing the deterioration of congressional functionality over the
years, Borut said he blames one major contributing factor, how
successive political reconfigurations of congressional districts has
gradually narrowed the discretion for those elected to the House.

“Many of the congressional districts frankly have been drawn and
are drawn so that you don’t have real competition and there isn’t a need
to try and come to the center,” he said.

“The whole idea of a democratic system is that you try and find
common ground,” he continued, “and if an individual who is in office
doesn’t have a need to move to a common center because the voters in
his or her district are aligned ideologically, there’s no motivation,
there’s no pressure, no political pressure, to try and find common
ground.”

“That seems to me to be a real problem,” Borut said. As a result,
“Compromise is defined as a weakness.”

Some analysts say the current Congress is the worst ever, judging
by the relatively small number of measures passed this session.

While complaints about Congress naturally are amplified in a
political season, some of the criticism is non-partisan and based more on
technical criteria derived from systems analysis and academic studies.
For those, what may appear to be extreme partisanship is more a symptom
than a cause.

Many members of Congress, according to this view, simply have no
other mode of operation left than to fall back on the playbook of
partisanship as a day-to-day operational routine. Other pathways to
accomplish legislative imperatives, they say, have either atrophied or
become unworkable.

Other than the impending “fiscal cliff,” the inability so far to
fashion long-term fiscal policy, the debt-ceiling stalemate that
triggered an S&P downgrade of the U.S. sovereign rating, the inability
to extend the horizon beyond two years for the new transportation
spending measure or pass a farm bill during the worst drought in a
generation, are among many examples of what some analysts see as the red
flags signaling structural dysfunction.

Many legislators are frustrated with the plight of their
institution and earlier in the year there was one hearing held to review
a “No Budget, No Pay” bill — a reflection of a frequent theme on social
media sites. All that accomplished was to demonstrate again that
while there are dozens, even hundreds of reforms suggested, there is no
broad agreement on what combination would work.

On the one hand, what analysts see as the underpinnings of
congressional functionality, tested and proven as far back as the
Whiskey Rebellion in George Washington’s time, is basically robust. On
the other hand, many see factors that have sabotaged the system, in
their view, multiplying over several decades to the point members of
Congress have become prisoners of dysfunction, not its masters.

In this view, even an election result that somehow resolves
partisan gridlock would still not necessarily solve major defects in the
machinery of Capitol Hill, where individual members and committees
increasingly have to struggle to be productive.

The new element is the way the Internet now allows the
proliferation of Web sites and blogs which give an amplified voice to
critics and provide a way to easily organize across state lines. Among
the partisan sites, the liberal truth-out.org has members of Congress
and former government officials on its masthead. Tea Party sites on the
subject, like teapartypatriots.org, abound.

In contrast, the official Web site of the Library of Congress is
outmoded and little used by the public although it is in the process of
being updated. Non-profit nonpartisan sites supported by foundations,
like opencongress.org, try to fill the gap.

There are some who say part of the problem is, counterintuitively,
that the legislative branch of government has choked on its own
excessive appetite, and in fact it is the executive branch that has not
originated any major legislation for a decade.

For example, they say even legislation as closely identified with
the White House as the Patient Protection and Affordable Care Act was
actually cobbled together in congressional offices where executive
branch personnel were physically absent and their overarching influence
nonexistent.

Quasi-governmental entities that bypass national legislatures are
nothing new, but their span has been at most regional without national
coordination. In the U.S. there are many examples, some with narrow
responsibilities, some much broader. Some are successful, some are
judged to have less usefulness, like Fannie Mae and Freddie Mac.

In this quasi-governmental space, the tension between regional
authorities, for instance, and their legislatures, is well known to
entities like the Port Authority of New York and the Metropolitan
Washington Airports Authority. Yet regional authorities have been
responsible for some of the most impressive infrastructure developments
and continue, in some cases literally, to keep the trains running on
time.

Some non-congressional revenue conduits like the municipal finance
system are well developed and once established, only rarely intersect
with congressional authority. Bond issuance authority, highway tolls,
airport and other user fees and state and county taxing authority are
revenue conduits typically perpetuated outside the sphere of
congressional authority.

Those who study ways to bypass Congress assume any major effort
would have to assemble broad lower-level support, from governors to the
city and county levels, from statehouses to city councils and county
councils, put together over a period of several years. The longer
Congress fails heal itself, the faster the bypass process will take
place, in this view.

There is also a view that Congress is inevitably hobbled if only
because the total amount of discretionary spending is becoming a smaller
proportion of all spending, as it must in an era of fiscal
consolidation. Fierce fights over what is left that Congress can
accomplish, as well as legislative paralysis, will continue to grow in
an age of austerity, according to this view.

A growing number of critics, nevertheless, appear to be in
agreement that the national legislature has to be able to operate in war
or peace, in austerity as well as times of budget surpluses, and a
Congress that continuously functions poorly is increasingly hazardous to
the nation’s civic health and future.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

Come to sunny Suffolk!! (that’s the one in the UK)

Don’t tell anyone, but I’m trying to get a job with the Suffolk tourist board……

By Kasra Kangarloo

WASHINGTON (MNI) – The week ahead features housing sales data,
along with minutes of the last meeting of the Federal Open Market
Committee.

July existing home sales and new home sales, to be released
Wednesday at 10:00 a.m. ET and Thursday at 10:00 a.m. ET, respectively,
are both expected to show modest increases over the month of July.

Home sales have been somewhat inconsistent over the past few
months, even as both the National Association of Home Builders’
confidence survey and permit applications for housing construction have
continued to improve. Both reports jumped to multi-year highs in the
latest data, which has created an interesting dichotomy in the market —
supplies have started to ramp up enthusiastically, while demand (home
sales) still hasn’t shown many signs of an explosive comeback. Maybe
there’s an appetite for home sales just waiting in the wings.

The minutes of the last FOMC meeting will be released Wednesday at
2:00 p.m. ET, and could at least shed some light on the committee’s
views of the U.S. economy. Markets have long been hoping and praying for
additional monetary stimulus. Though committee members say otherwise,
conventional wisdom holds that further action will have to wait until
after the November election.

Durable goods orders have lately been running weak, in line with
what could be a slowdown in the nation’s manufacturing sector, evidenced
by the slump in the last two months’ manufacturing surveys by the
Institute of Supply Managers.

The July durable goods report, to be released Friday at 8:30 a.m.
ET, is expected to post modest improvement.

Jobless claims have been under 370,000 for two straight weeks in
August and are expected to post a third week, which could set the stage
for another semi-strong employment report. A range closer to 350,000,
however, would be needed for job growth that could materially affect the
unemployment rate, which has been stuck above 8.0%.

Initial jobless claims will be released Thursday at 8:30 a.m. ET.

Other data to be released over the week include the July Chicago
Federal Reserve National Activity Index on Monday at 8:30 a.m. ET, the
preliminary August Markit U.S. purchasing managers index on Thursday at
9:00 a.m. ET, and the Mortgage Bankers Association’s mortgage
applications index on Wednesday at 7:00 a.m. ET.

Federal Reserve speakers are listed below:

Atlanta Federal Reserve President Dennis Lockhart will speak in
Atlanta on the U.S. economic outlook and its implications for Latin
America on Tuesday at 8:45 a.m. ET.

Chicago Federal Reserve President Charles Evans will speak at a
press briefing in Beijing on Wednesday at 11:30 p.m. ET.

— Kasra Kangarloo is a Washington reporter for Need to Know News.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$$FI$,M$U$$$,MAUDS$]

The top performer this week, in percentage terms was a long CAD/JPY, up 1.8%.

This trade has been a straight shot on lower QE expectations, the oil rally and higher stocks. It comes in spite of weak Canadian jobs and CPI figures.

Technically, the break above the 61.8% retracement points to more gains but the May 8 high is providing resistance. The technicals point higher but the near-term move is overstretched so a move to 79.70 will probably come before a climb to 81.00.

What is your pick for the best trade of next week?

An official statement on oil reserves that confirms yesterday’s report from Reuters, which cited sources.

Oil didn’t care yesterday and it doesn’t care today, still near the 3-month high at $97.73.

The VIX, which measures volatility on the S&P 500 has broken below some key levels to the lowest since June 2007.

There are many was to look at the VIX but I tend to take it at face value — it correlates (opposite) to the S&P 500 and is pointing to a fresh cycle high.

That said, the past three drops to low levels like this have been followed by spikes in risk aversion. Looking around in the world, sure, it might be getting a bit better but are risks at this moment lower than they have been since June 2007? I don’t think so.

Of course, if you look at the past two posts I talk about a potential huge upside in AUD while warning about high risks here. How can that be?

To me, the period we are in right now is like a coil that’s winding tighter and tighter. As that happens, the coil doesn’t look any differently on the surface but tremendous energy is being built up on the inside. It’s not clear yet which way that will go but all signs are pointing to a powerful trend beginning in all markets in September.

More on the VIX from the FT (Investors baffled by subdued Vix level)

Just back from the pub and USD/JPY is 79.52 bid. The Old Boy is back!!!

• Brazil central bank leader Tombini said stimulus measures haven’t shown impact yet
• Signs that economic growth will quicken
• Default rates already falling
• Banks have room to expand credit
• Still too early to assess food-price shocks

At the same time, politicians are talking about tax cuts and higher energy subsidies.

Brazilian growth correlates well with China and other emerging markets and leaders sound confident that it is on the upswing.

If so, and the US can regain its footing while Europe holds together, the longer-term outlook for risk assets is incredible — think AUD/USD at 1.20 and USD/CAD at 0.8500.

With the EURUSD fall below cluster support, the EURJPY has also moved to new day lows. The pair is now down on the day (98.01 was the close)  and his breached the early August highs at 97.80 area (August 6th and 7th). The next target becomes the  38.2% of the move up from the low on Wednesday at 97.674.  Resistance now comes in at the underside of the broken trend line and lows from the Asian session at the 97.87 area.    The 97.45 level is the 50% of the last trend leg up and the highs on the 13th and 15th.

Remember, the ECB’s Greek bond holdings were untouched by the Greek debt restructuring last spring.

Former Greek FinMin Papaconstintinou is calling on the ECB and other official holders of Greek debt to write down their holdings, which would further reduce the country’s dent burden.

As part of the inevitable third bailout package, an ECB write-down is probably part of the plan. Doing so would then require the ECB to be recapitalized by the members of the Eurogroup…

The head of the IEA downplays talk of releasing oil on an international level to combat the recent price rise.

EUR/AUD is marginally below 1.18 after touching above 1.1850 but failing at the late-July high.Long EUR/AUD positions remain among the best performers this week.

It’s instructive that the euro has lagged AUD even with risk appetite fading and the US dollar making gains but I would be hesitant to read-in too much. My expectations is that profit-taking is the main driver as fast-money traders wind down a quiet week.

The Australian Treasury report has been getting attention in today’s Aussie sell off but, if anything, it re-iterates that no intervention is forthcoming.

Bids 1.1795/90.

Looking ahead, a break above 1.1856 opens the way for a further retracement to 1.2145, which is a target I highlighted early in the week.