Another week begins, and the spotlight passes from one central bank head to another – Sir Mervyn King of the Bank of England. In the past two weeks the markets have watched Fed Chairman Bernanke speak about interest rates and possible further quantitative easing.

Last week ECB President Trichet used language that indicated rate rises are just around the corner (sending the Euro markedly higher against the Pound and Dollar) and this week it is the turn of Bank of England and Mervyn King with the monthly MPC meeting scheduled this week.

After last month minutes showing three members voting for a rate rise, Sterling has enjoyed a bounce against the Dollar – if not the Euro – and if the Bank does decide to raise rates we can expect further gains.

However, King seemed to rule out any symbolic rate rises in the inflation report last month and given the current spike in crude oil stemming from unrest in the Middle-East, the doves on the MPC will be stressing that the UK economic recovery cannot be put in jeopardy by raising rates.

King has also drawn criticism from the city with comments over the weekend that city institutions are too short-term orientated.

Given that Mr King once said he thought central banking should be a dull subject, the thinking may be that he seems to be overplaying his hand and that could hurt the credibility of the bank if he is seen to be overly political.

The ECB meeting has been the catalyst for the recent Euro strength, but any rate rise in the Eurozone would probably only be beneficial for the Germans.

The struggling periphery PIGS nations will certainly not welcome any move – especially the Spanish whose mortgages are prices from one year Euribor – which jumped 14 basis points immediately after Mr Trichets announcement.

In the face of rises oil prices, which acts as a global tax, raising rates at the behest of the Germans risks derailing any sustainable recovery in nations trying extremely hard to get their public (and private) finance back in order.

The future path for UK interest rates is still very unclear even with the benefit of the minutes from this month’s MPC meeting. Despite the fact that members Sentance and Weale were joined by Spencer Dale in arguing for an immediate rise in interest rate, the majority of the committee remained unconvinced and in Posen’s case, still adamantly opposed to such a move.

This left the vote at 6-3 against an increase and despite renewed news warning about imminent and repeated rate rises, it is going to take a real change in sentiment from 2 of the 5 ‘steady as she goes’ voters to trigger a rise.

Wise Money finds it difficult to believe that this can occur until the committee has seen further evidence that the UK economic pick up has not been brought to a shuddering halt.

This feasibly, is unlikely to be the situation until towards the end of April when we and the MPC will get first sight of the preliminary 1st Qtr GDP data for 2011, a week prior to the May rate setting meeting which itself takes place a week prior to the release of the Bank of England’s May Quarterly Inflation Report.

It does look to me as though this meeting will be the first possible for a move in rates and the forex market seems to be of the same opinion with Sterling, having risen sharply yesterday morning, slipping against all the major currencies. Sterling is likely to remain vulnerable.

The crisis in Libya is still causing concern for commodities, equities and the world in general.

The little news that is emerging is very worrying with the escalating unrest disrupting oil supplies as civil war looms.

Oil prices have rocketed despite the fact that any shortfall in supply could be easily covered by Saudi Arabia.

The move looks more to do with fears that the problems will persist for some time yet and might spread further across the region.

For a third straight day the price of crude oil has continued to climb on production fears at the twelfth largest OPEC producer. The price of Brent crude oil has hit $111 a barrel, and US crude also rose in price, as worries persist about the unrest in Libya.

Markets are concerned the trouble could worsen in key oil producing countries, affecting supplies and hitting growth.

The price of Brent rose more than $5 a barrel, to $111.25 as US light sweet crude oil prices hit $100 a barrel for the first time since October 2008, before settling up 2.8% at $98.10 a barrel.

It comes as the White House said it was watching oil prices.

“We are obviously monitoring this very carefully and we are concerned about it,” White House spokesman Jay Carney said.

The markets have been gripped by uncertainty this week as investors tried to work out the possible impact of the Libyan violence on oil supplies.

With foreign oil companies suspending production, experts pointed out that the state-owned National Oil Company has run Libya’s oil fields before and could do so again.

It did so in the 1980s when US oil firms left the country – but production would be hampered without the input of experienced of foreign oil companies- who are repatriating their staff to safety.

Oil prices have continued to rise in the UK and US after ongoing riots in Libya and worries about the impact on the country’s crude exports.
In London Brent crude rose by more than $2 a barrel to $108.5, before falling back to $106.79 a barrel.

In New York, US light sweet crude oil rose by $5.60 to $91.80 a barrel.

US shares were also behind at midday. Asian stocks had closed down, and European shares also fell before recovering by mid-afternoon.

At noon in New York, the Nasdaq was behind by 1.65%, the Dow by 0.76%, and the S&P 500 by 1.11%.

At close France’s Cac 40 had fallen by 1.15%, Germany’s Dax by 0.05%, and the London FTSE by 0.30%.

Meanwhile, Spanish oil firm Repsol-YFP was joined by Italy’s Eni in closing down production in Libya.

On Tuesday, the Standard & Poor’s (S&P) credit rating agency downgraded Libya from A- to BBB+, and said it could lower the rating further.

Libya is the world’s 12th-largest exporter of oil, and there are concerns that growing tensions in the country could hit oil production.

Spillover into other big regional producers, such as Saudi Arabia and Kuwait, is another concern that is forcing up the price of oil.

Global oil companies have been pulling staff out of Libya as unrest continues to spread.

The rising price of oil, which could fuel further rises in already high inflation rates and hit corporate profits, affected stock markets in Asia and Europe.

Unrest in the region could spark a wider correction in stock markets, analysts said.

The price of oil has risen on worries of the riots in Libya over the weekend.
Brent crude had jumped 2.6% by late afternoon to $105.2 a barrel, its highest level since before the 2008 financial crisis.

European energy companies are evacuating some staff from the country, which is a major oil and gas producer for the European market.

The European Union is preparing to evacuate its citizens from the country.

The UK Foreign Office has already advised that those without a pressing need to remain in the country, should leave by commercial means if it is safe to do so, as has the US.

Meanwhile Turkey has already begun flying its 3,000 or so citizens in the country home.

Commodities markets are worried about more than just Libya, with the threat of unrest escalating in Iran – the second biggest oil producer in the Organisation of Petroleum Exporting Countries (Opec).

There is nervousness that even Opec’s biggest producer, Saudi Arabia, may yet succumb to instability, although the autocratic regime there has yet to witness any protests.

Oil supplies in Libya and elsewhere have yet to be significantly disrupted by any of the events in the Middle East.

Opec is thought to have an additional 4.7 million barrels-per-day available, compared with Libya’s exports estimated at 1.5 million.

Libya is responsible for only 2% of all oil production worldwide, although its share of the European market is estimated at 10%.

Oil production is essential to the Libyan economy, with oil output accounting for 95% of export receipts and 25% of the country’s economic output.