Market bounces bank on strong US lead

Australian markets have moved sharply upwards this morning thanks to a surge of confidence in financial stocks both here and in the US.

At 12.45pm the S&P/ASX 200 is up 2.6% on yesterday’s close to 5500.2 after being up more than 3% earlier in the day. The US Dow Jones index led the way for this morning’s lift with a 3.19% rise to 12654.36.

Yesterday’s decision by the Reserve Bank of Australia not to lift interest rates has triggered speculation on just what kind of CPI figure would be enough to prompt another rise in rates next month.

Markets – and more than likely, the RBA – expect the headline CPI figure for the first three months of 2008, to be released on April 23, to come in at about 1%.

TD Securities senior strategist Josh Williamson says a headline inflation result above 1.2% could prompt the RBA to look at another rise, while St George Bank head of economic research Steven Milch says the figure would have to come in closer to 1.5%.

“A number around 1.5% would force them to go back and rework their inflation forecasts and make the judgement if inflation is so high it can’t be tolerated,” Milch says.

And a new report has been released showing business confidence has fallen substantially.

According to the SAI Global / ACCI Survey of Investor Confidence for April, The index of National Economic Conditions, which measures business’ evaluation of the general state of the national economy, fell to 62.6 in the March quarter from 65.0 in December quarter.

Business owners’ expectations for future sales, profits and business activity all fell slightly in the March quarter.

“The survey shows that interest rates and ongoing financial sector turmoil has significantly dented business confidence. The business community is calling for a break from interest rate increases until the effects of the last four increases on the economy can be assessed,” ACCI Director of Industry & Economics Greg Evans says.

“Adding to business concerns are costs from wages and input prices which have continued to grow strongly, though price growth is expected to moderate.”