RBA raises rates, stocks and commodities fall

The RBA raised interest rates yet again on Tuesday. Bloomberg reports:

The Reserve Bank of Australia signaled a higher bar for interest-rate increases after becoming the world’s first major central bank to withdraw “emergency” stimulus used during the global financial crisis.

Governor Glenn Stevens raised the benchmark rate for a sixth time in seven meetings, to 4.5 percent, and said lending costs are back to “average” for most borrowers. The bank will hold off on a boost next month, according to all 24 economists surveyed by Bloomberg News after yesterday’s decision.

Positive economic reports from the US suggest that monetary tightening now is appropriate. From Bloomberg:

Factory orders unexpectedly rose in March and more Americans signed contracts to buy previously owned homes, indicating the U.S. economy gained speed entering the second quarter.

The 1.3 percent increase in orders placed with manufacturers matched the prior month’s gain, which was more than twice as large as previously estimated, the Commerce Department said today in Washington. Signed home-purchase agreements, or pending sales, rose 5.3 percent in March, according to the National Association of Realtors.

Markets, however, are looking vulnerable after investors turned their attention back to sovereign debt worries on Tuesday. Bloomberg reports:

U.S. equities tumbled the most since February and European stocks erased their 2010 gain, while the euro slid to a one-year low, amid concern a government debt crisis is spreading. Oil, copper and gold sank on a slowdown in Chinese manufacturing. Treasuries rallied.

The Standard & Poor’s 500 Index slid 2.4 percent at 4 p.m. in New York and the Stoxx Europe 600 Index plunged 2.9 percent, leaving it down 0.4 percent this year. The euro weakened below $1.30 for the first time since April 2009. Copper fell to the lowest since February, while oil sank the most in three months as the dollar rose against 14 of 16 major counterparts. The 10- year Treasury yield slid 8 basis points to 3.6 percent...

Yields on Spain’s 10-year debt climbed 8 basis points to 4.11 percent, near the highest since February. Credit-default swaps on Spain rose 50 basis points to 207.8, while Portugal added 71 to 346.6, CMA DataVision data showed...

Greek bonds fell for the first time in four days, with the yield on the government’s 10-year bond rising 90 basis points to 9.4 percent. Investors demanded an extra 645 basis points to hold Greek 10-year bonds instead of benchmark German bunds, up from 544 basis points yesterday. Credit-default swaps on Greece surged 85 basis points to 731, according to CMA DataVision prices, implying an almost 45 percent probability of default over five years.