Australian markets have fallen lower this morning after bad news on growth and the shock of a new record oil price raised the grim spectre of stagflation in the US overnight.
The first blow came when the US Federal Reserve cut its growth forecast for the US economy in 2008 by 0.3% to 1.2%, down from the 1.3% to 2% growth estimate just three months ago.
That was followed by a surge in New York oil prices to yet another record high of $US134.10 a barrel, the spike triggered by a US Government report that oil stockpiles are lower than expected.
A slowing economy and rising prices for a key input like fuel is not the sort of thing markets and economists like to see, hinting as it does at the dreaded combination of economic decline and inflation, known as stagflation.
That sent the US Dow Jones Index down 1.77% to 12,601.19 and in turn triggered selling on Australian markets today, with the S&P/ASX200 down 1% on yesterday’s close to 5766.2 at 12.15pm.
It also did nothing to retard the recent meteoric rise of the Australian dollar. It reached a new post float high of US96.53c last night and is still at US96.39c at 12.15pm today.