US Treasuries sold off as gains
in consumer confidence and home sales bolstered expectations that the Federal
Reserve will keep raising interest rates for longer. Yields on ten year bonds
reached 5.07%, breaking through the 5.05 % mark that has proved a barrier for
six of the past eight trading days. Equities were down by approximately 0.5
%.

The price of oil and gold fell
sharply and, if this signals a new trend – and who can tell, will provide another
boost to household and business confidence. Metal prices roared, however, (eg.
copper up a stunning 6 %) and the net effect on Aussie resource stocks may well
be positive.

Our popular Raff
report – written before the latest surge in metals prices – says: “As
far as metal prices are concerned the market is in uncharted waters and
determining exactly how much of the rise in metal prices is due to exuberance of
hedge funds is impossible to know. What we do know is that world growth is
revised upwards to 4.5-4.6% for 2006 and above 4% for 2007, so another two years
above trend. We also know that the “wave” in new production in some metals,
particularly copper, is not yet providing a significant hike in terminal
stocks.”

The Bank of Canada raised cash
rates overnight to 4%; with their economy at or just above trend. “Some further
modest increase in the policy interest rate” may be required.

The Aussie CPI for the March
quarter was released this morning, with an increase of 0.9%, implying a 3%
increase through the year, definitely above expectations and the TD estimate.
Additionally, oil prices have risen sharply since the measurement, so everyone
knows there is a further hike in headline to come. Now the PM has joined the
Treasurer (and Rory Robertson) in warning local interest rates have to rise, and
the game is on, gentle readers.

Read more at Henry Thornton.