Another week begins, and the spotlight passes from one central bank head to another – Sir Mervyn King of the Bank of England.

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.

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.

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.

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.

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.

Confidence in the economic recovery was knocked by talk of a potential second government stimulus plan after Laura Tyson, an economic adviser to president Barack Obama, and House Democratic leader Steny Hoyer both suggested there could be merits to such a package.

Economic fears and a strong dollar took its toll on commodities, with the price of oil falling for a fifth consecutive session.

Energy producers followed, and Schlumberger dropped 4.4 per cent to $49.20 while Exxon Mobil lost 2.3 per cent to $66.56.

Industrial stocks also suffered, and General Electric gave up 4.1 per cent to $11.01.

The benchmark S&P; 500 closed down 2 per cent at 881.03, while the Dow Jones Industrial Average lost 1.9 per cent to 8,163.60 and the Nasdaq Composite gave up 2.3 per cent to 1,746.17.

That came after sharp selling in the afternoon as the S&P; fell below its 200-day moving average, which is seen as a key support level.

Analysts predicted that the market would remain subdued at least until Thursday, after Alcoa has reported its results.

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The global recession will be deeper and longer than expected said the World Bank today which is forecasting a harsher downturn this year as the famine in private sector investment cripples recovery among developing countries.

The world economy will shrink more aggressively this year, predicts the bank, contracting by 2.9 per cent, a much steeper decline than it predicted in March when the institution forecast a 1.7 per cent contraction.

The recovery in 2010 will be weaker, an expansion of 2 per cent compared with its previous prediction of 2.3 per cent.

The bank urged governments to continue stimulus spending as it warned that the world was entering an era of slower growth. Developing countries are being hit hard by a collapse in corporate finance as banks and multinational companies rein in their investment plans.

The World Bank’s grim forecast sent the price of shares and commodities tumbling around the world.

Copper fell by more than 3 per cent and crude oil slipped further below $70 per barrel, dipping by a dollar to just over $68 per barrel for US Light Crude.

Energy prices have been on the slide over concerns that the economic recovery may be slower and more muted than expected.

The World Bank said that the US economy would shrink by 3 per cent this year while developing countries will grow by only 1.2 per cent, a very sharp slowdown from growth of 8 per cent in 2007 and 5.9 per cent in 2008.

Without the dynamo of the Chinese and Indian economies, the developing world shrink by 1.6 per cent, pushing more of the world’s population into severe poverty.

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Buoyancy in the US currency is overshadowing the turmoil in Iran and keeping a brake on speculators in oil which normally surges during periods of instability in the Middle East.

The price of a barrel of US light crude for delivery in July fell by more than a dollar to $70.95 in trading in Singapore, continuing Friday’s decline in crude when poor industrial output figures in Europe shook confidence in the likelihood of a speedy economic recovery.

The dollar rose half a percentage point against the euro to $1.3942 in a market still rattled by the weak April industrial production figures. Other commodity prices were also weakened by the strong dollar and doubts about the resurgence in demand for primary goods.

In Shanghai, copper fell its maximum daily limit of 5 per cent, while London Metal Exchange copper fell 2.8 per cent to $5,085 per tonne. Meanwhile, Brent crude fell by more than a dollar per barrel to $69.89 in Singapore trading.

A stronger dollar tends to depress oil and metal prices as investors using non-dollar funds find the commodities more expensive.

Alistair Darling, the Chancellor, voiced concern last week that soaring energy costs might put at risk an economic recovery.

Oil has doubled in price since the beginning of the year and Opec recently said that the recession in the oil markets was over.

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Tensions on the Korean Peninsula showed no signs of easing after the UN Security Council criticized North Korea’s test of a nuclear bomb as a “clear violation” of international bans. But the country’s defiance continued with reports saying it would likely step up its weapons testing by firing short-range missiles this week.

While hurting sentiment in the short term, the standoff was more an excuse to take a breather from the recent rally, analyst said.

Caution ahead of upcoming economic reports in the US, as well as Wall Street and British market holidays Monday, also left investors with few reasons to set a course one way or the other.

Japan’s Nikkei 225 stock average fell 19 points, or 0.2pc, to 9,327.82, while Hong Kong’s Hang Seng rose 19.91 points, or 0.1pc, to 17,141.73 in an erratic session.

In South Korea, the Kospi was off 2.4pc at 1,367.02. The benchmark dived over 6pc on Monday on news of North Korea’s nuclear test before recovering nearly all its losses.

Elsewhere, Shanghai’s index lost 0.1pc, Australia’s benchmark was up 1.1pc and Taiwan’s market dropped 0.8pc.

Both US and British financial markets were closed Monday for holidays. European markets finished little changed on Monday.

With investors eyeing key US economic reports this week, including home sales, big-ticket manufactured goods and consumer confidence, Wall Street futures pointed to a slightly lower open on Tuesday.

Oil prices fell Asia trade ahead of OPEC’s meeting this week, with benchmark crude for July delivery trading at $60.93 a barrel, down 74 cents from overnight trade.

The dollar slipped to 94.66 yen from 94.84 yen, while the euro was lower at $1.3976 compared to $1.4003.

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Over in the US the feel good factor continues as the Treasury Secretary Geithner adds to the growing belief that we have turned the corner.

This, added to bullish global economic data and further comments from the US gave the Stock Markets a real boost, pushed the oil price up above $60 per barrel again and caused the Dollar to ease against the majors.

Positive data included a rise in Japanese consumer confidence and better than expected export figures from the EU.

We then got ‘reasonable’ numbers from the US including strong trading performance from Lowes, a major company whose business is directly related to the house building industry.

Financial stocks added to the positive sentiment following news that Goldman Sachs, Morgan Stanley and JP Morgan had applied to the Treasury for permission to repay their TARP borrowings.

The Reserve Bank of Australia gave a moderate assessment of their domestic situation and questioned the need for a further cut in their interest rates at the May meeting. AUD strengthened slightly following an earlier dip on the Chinese steel directive.

And in a further sign of a global shift away from the US Dollar as a trading medium, Brazil and China have agreed to work towards using their currencies in trading transactions rather than the greenback.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.