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World share market gets the “Jitters”. Inflation up in Asia/Australia and the US

Posted by Adrian on June 8, 2007

As mentioned in an earlier post the longer the Federal Reserve and the various Asian banks, including the Reserve Bank of Australia (recently left rates unchanged at 6.25% for the second time in two months), leave inflation unchecked – job figures and GDP come in showing price increases, mixed with retail consumption are all up.

So we are now seeing inflation edging higher due to retail consumption, higher fuel costs and various other inflation gauges that can’t be ignored or considered benign.

So what does this mean? A shift in asset markets. With the now possibly unlikely chance the Asian banks and American banks cutting interest rates anytime soon, we are going to see stocks as a less attractive place for investments. A switch to Fixed-Income Security on the premise that inflation is going to cause the Fed and other banks in the region to increase interest rates; becomes a more attractive investment.

As we all know, higher interest rates effect credit growth and slow down investments in the shares of companies that may have higher debt, and low cash yields

The Age Business Day

Bloomberg article here

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