Signs of recovery affecting Monetary Policy expectations...

Recovery signs put rate rises on agenda
Clancy YeatesJune 13, 2009 Sydney Morning Herald
MONEY markets have slashed the odds of further cuts to official interest rates after a string of indicators showing the economy and global conditions are holding up better than expected.
There is now only a one in four chance of a further 0.25 percentage point cut in rates later this year, as implied by market prices, whereas in March they were factoring in a cut of up to 0.50 percentage points from the current level of 3 per cent.
Moreover, futures markets are also tentatively pricing in rises in interest rates from early next year, though the outcome is difficult to predict at the moment.
Analysts say the change in sentiment is a response to persistent "green shoots" in global markets and the surprisingly resilient state of the domestic economy.
In the latest sign of global improvement, China again beat economists' expectations by notching up growth of 15.2 per cent in its retail sector last month, and further strength in industrial production.
The chief interest strategist at Deutsche Bank, David Plank, said the main reason for the changes in interest rate expectations was the improvement in international conditions.
"It's not that the global economy's in good shape, but it's not as bad as it looks," he said.
In another promising sign for world growth, crude oil traded near a seven-month high of $US72 a barrel after the International Energy Agency raised its outlook for oil consumption for the first time since August.
On the domestic front, Mr Plank said a more buoyant mood in markets was also lowering the odds that the Reserve Bank would provide further stimulus with cuts to lending rates.
This lift in investor confidence has also boosted the ASX 200 index to 4062.2 points, its highest close since November.
"We've seen more than a 30 per cent rally in equity markets, and credit spreads have come in sharply," Mr Plank said.
Yet despite the newfound optimism in credit markets, the Commonwealth Bank yesterday raised its main standard variable mortgage rate by 10 basis points, citing higher credit costs.
The chief economist at Nomura, Stephen Roberts, said the lower expectations of interest rate cuts also reflected a rise in key commodities used in industrial production, such as copper, which reached an eight-month high yesterday. And once again China is seen as the driving force behind the rise.
Yesterday's figures also said China's industrial production expanded at an 8.9 per cent annual rate, with car production almost double to 35 per cent last month, compared with 17.3 per cent previously.
"It's the latest piece of evidence that China, of all the economies in the world, is going to have a U-shaped recovery," Mr Roberts said.
Markets overseas are also pricing in an interest rate rise before the end of the year in the US, where official rates are in effect zero. Markets in New Zealand and Canada are predicting higher interest rates from early next year.
Despite the market optimism, the Reserve Bank said last week that "scope remains for some further easing of monetary policy".
See if you can locate some of these 'string of indicators' which are leading market confidence which has this journalist commenting... find them, share them in your comment and interpret them if you can.