Share Market Wrap 28 July 06

I never thought I would see the day when bananas are considered the cause of a rising inflation – but here we are. It seems that the rising cost of bananas, together with rising oil prices are responsible for the greater than expected CPI increase in the June quarter. While I expect oil prices to continue to rise, I believe the price of bananas will fall although I don’t see this having much of an effect on the current inflation rate – therefore we should be prepared for the inevitable interest rate rises expected next month. If interest rates do rise and the Australian dollar continues to rise, I believe this will have a negative effect on the share market and I suspect will put a nail in the coffin for the current bull market. 

The market has continued to be volatile over the last week as predicted although it has been more volatile that expected with signification swings in price. While the market is trading slightly higher than it was last week, I expected it to trade higher than it has but it would seem it has been held back by the expectant rise in interest rates. While I expect the current volatility to continue until at least the first half of next week, I believe the market will rise and in the process settle back down to a more normal rhythm.