Resources hold up ailing market, and economy

Events on the market this morning provide a neat symbol of the importance of resources to the Australian economy.

Today yet again strong metals and energy prices have prompted buying of large and small resources stocks, somewhat compensating for the drop in financial and retail stocks.

As a consequence, at 12.30pm the S&P/ASX200 is down a relatively modest 0.4% on yesterday’s close to 5599.9.

A further piece of good news for the resources sector emerged this morning with the news that Australian coal companies have negotiated a price of $US300 per tonne for 2008-09 coking coal contracts, triple their current price.

That will further improve Australia’s terms of trade, which are already at extraordinarily high levels.

It may not be enough, however, to reverse Australia’s expanding international trade deficit. Figures released yesterday show that despite bumper resources prices the trade deficit expanded 30% in February to more than $3.2 billion seasonally adjusted.

The hike came despite a 2% drop in imports of consumer goods in February as interest-rate-stung consumers reduce their spend.

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