Bonds/Interest Rates

This week sees the US holding its breath for the monthly CPI while inflation expectations in Australia will be closely scrutinised.

On Friday night oil jumped by more than US$10 and the Dow fell 400 points.

Oil jumped over US$5 last night and some supposedly strong economic data sent the Dow up over 200.

A rally in the Dow failed last night as once again Moody’s threatened to downgrade the big monoline insurers. Oil fell further.

Australian GDP came in stronger than expected for the March quarter and has caused some difference of opinion among economists with respect to the outlook for interest rates.

It was shades of Bear Stearns last night as the rumour mill conspired to send Lehman down as much as 14%, while oil fell over US$3 after stern words from the Fed.

The June policy statement was almost identical to May’s.

The cash rate remains at 7.25%.

Retail sales in May were lower than the market had expected and suggest the RBA is seeing some success with its attempts to slow the pace of growth in the Australian economy.

Economists remain convinced that the world is not revisiting the 1970s. However we will have to get used to certain inflationary influences.