Bonds/Interest Rates

Just when you thought perhaps the parabolic rise in commodity prices might have stalled, last night oil posted the biggest ever one-day gain in its history. The Dow was choppy once more.

The Dow bounced back from the depths of more financial sector woes last night as commodity prices went the other way – finally reaching a blow-off top that saw a profit-taking scramble.

Pre-empting today’s rate hike, RBA critic Dr Steve Keen is back with more of his collection of scary graphs.

The RBA has today increased its target funds rate to 7.25%.

While a 25bps rate hike today is as good as given it is more than possible banks will add up to another 15bps on lending rates. A 50 point hike by the RBA is not beyond the bounds.

The flight to commodities continues a-pace as the US dollar weakened further last night on more poor economic data. The Dow recovered earlier losses.

The TD Securities – MI Monthly Inflation Gauge shows inflationary pressures remain elevated, meaning more increases in interest rates can be expected.

Australia, NZ, Japan, Canada, the EU and UK all make rate decisions this week, amidst an avalanche of global economic data.

Municipal bonds became the latest domino to fall in the credit crisis on Friday, and a raft of bad economic and corporate news conspired to send the Dow down 300 points.

As global economic growth forecasts fall, and commodities indices rise, it would seem the world is facing the crippling spectre of stagflation.