Henry
Thornton writes:

The rash of
positive economic data has not swayed the RBA’s decision on interest rates;
following everyone’s expectations, they’ve returned to their well-worn position
on the fence by refusing a follow-up rate hike. The interest rate remains
unchanged at 5.75 per cent.

However, Chairman
Ben Bernanke revealed his true inflation-fighting colours in a speech to banking
executives in Washington on Monday. Not wanting to come
across as the namby-pamby he appeared to be when he started mumbling about an
interest rate “pause” in April, Bernanke told the bankers that rising inflation
was “unwelcome” and that the Fed will make sure it is “not
sustained”.

The US
market has slumped in response to the Bernanke speech, with last night’s
significant losses on Wall
St. compounding a poor Monday. Yesterday’s trading
saw the Dow Jones fall below 11,000 for the first time since March 9, losing
0.43 per cent to be just above 11,000 at close. The Nasdaq lost 0.32 per cent
and the S&P500 index fell 0.12 per cent. Asian markets followed suit. The
Aussie plunged to a low of US73.93c overnight before small gains saw it being
traded at US74.05c at 7am this morning. Early trading today has the Australian
market down further, with the S&P/ASX200 down 21.5 points to 5014.6, and the
All Ordinaries falling below the 5000 mark – down 21.6 points to
4982.9.

Regardless of the
market, Australian economic indicators released this week show little but good
news. Yesterday’s 2% fall in the CAD thoroughly surprised. Also on the good
news side of the ledger: the amount that companies pay in interest and dividends
to overseas shareholders and creditors has fallen sharply in the March 2006
quarter by $810 million, or 8%, to $9.2 billion.

The release of GDP growth today shows the economy growing at 0.9% in
the March quarter and 3.1% year on year. This is significantly above
market expectations of a 0.7% rise for the March quarter. The terms of
trade have also kept improving, with a 1.2% increase in the March
quarter bringing it to its highest level on record (122.9).

Only company
profits showed signs of slowing, increasing by only 0.1% in the March
quarter. Of course, they can afford it; even with the slow March quarter, the
year on year growth was still 16.4%.

Read more at
Henry Thornton.

Peter Fray

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