Rates up once? anyone for twice?

Well we're nearly back to 6000 courtesy of a 1.5% gain on Wall St which in turn was in response to Fed comments that seem to indicate the tightening bias might be over. In turn US rate cuts could be on the agenda...I don't think they'll get back to 1% again but one or two moves might be in order.

Meanwhile Australia could be going in the reverse direction. The normally staid interest rate markets went into a flat spin last Friday morning after comments by RBA Assistant Governor Edey were interpeted to mean our cash rate may yet move up again, getting it to 6.50%. Talk about turmoil...we've gone from 'rates are going nowhere' to ' rates are going up' in a flash. This has been good for the Aussie dollar, which has gone through US80 cents and even spiked a bit after the Fed's comments overnight. Hmmm, that's not doing my overseas plans much good!

Theoretically, rising rates should put a crimp on valuations. But in practice, the long end of the yield curve hasn't risen as much as the short with the gap between long and short rates widening quite a bit. So that probably means it's not going to do too much damage from that perspective. Even though corporate gearing is increasing, either as a way to to fend off private equity raiders or because of them, one more RBA move won't cause interest expenses to dampen profits too much.

Of more concern would be the possible effect on household demand and the flow on effect to sales. Given the strength of household demand - just look at the last set of national accounts, and look around you at the new plasma screen the Jones' have just bought - maybe one more hike won't be enough, maybe the momentum we've got will require the RBA to act twice, or more! Now that would be interesting: two rate rises, in an election year, with an election budget coming up in May (and I don't care what Costello says, there's no way that budget is going to be disciplined, not with Rudd creeping up in the polls!)