Australia’s ASX/200 is back above 6,100. Despite the correction, it is the best of times. Local investors focused on Glenn Steven’s remarks yesterday that, “High world commodity prices remain an important source of stimulus to Australia’s national income and spending.” You can say that again, guv.
Stevens’ remarks show that Australia and the US may now find themselves at a point of economic divergence. In the US, the bearded Ben Bernanke denied the credit junkies on Wall Street a rate-cutting fix earlier this week. Already worried about the dollar’s six-year slide on global currency markets, Bernanke fears inflation and an even more pronounced decline in the greenback. American stocks again rallied in a strange and somewhat suspicious late afternoon trading pattern. But is the American market headed toward the worst of times?
Stevens, meanwhile, also fears inflation. But the inflation he fears in Australia is largely driven by tight labour markets, business spending on capacity expansion, and government spending on infrastructure (and lots of other election year goodies.). True, high borrowing levels by the consumer are also driving inflationary fears. But when it comes right down to it, Australia’s economy is clearly hitched to the China wagon, and that seems to be good news for the earnings potential of local shares, both financials and miners alike. Stevens is worried about sustainable growth, Bernanke about hyper-inflation and/or a credit market meltdown.
The Daily Reckoning Australia