The continuing rebound in economic activity might produce another rise in interest rates a week today but it’s also having a positive impact on the states with growth and activity switching away from the resource boom areas of WA, Queensland and the Northern Territory.

At the same time figures yesterday from the Housing Industry Association showed an improvement in new home sales in February, but they also confirmed just how depressed the new homes market really was.

The HIA said a recovery in NSW pushed new home sales up 2.9 per cent in the month as buyers took advantage of stable interest rates.

New home sales totalled 8,193 dwellings, according to the HIA which said sales in NSW rose almost 17 per cent from January.

Sales of private ‘detached’ houses rose by 3.9 per cent, while sales of units fell by 4.2 per cent, the HIA said.

Western Australia had the second-fastest rise in sales volume with an increase of 11.2, while sales fell 3.4 per cent in Queensland.

But the apparent good news was just that: apparent.

February’s sales volumes were 5.2 per cent lower compared with February 2006 while in NSW sales in three months to the end of February were 21 per cent down on the figure for the three months to February 2006.

So housing still has a way to go to recover, especially in NSW but a rate rise next week would be the last thing the industry would want.

But according to the National Australia Bank the so called two speed economy is starting to disappear with the slower south eastern states picking up momentum.

In its latest look at the states the NAB said that the minerals and energy boom (again, while still present) was starting to lose impetus and the resource-rich areas (WA, NT, Qld) are no longer being pump-primed to the same degree.

“Moreover, the benefits of the boom have partly flowed to the South-East (of the continent) through various mechanisms – in particular, fiscal stimulus and equity prices.

“Government revenue has increased and the benefits partly reinvested in the South-East and seen lower personal income taxes.

“The business and financial services industry, which is primarily based in the South-East, has been given a fillip with strong corporate profitability, takeover activity and high equity markets – all partly resulting from the boom.

“Manufacturing and other services (NSW, Victoria, SA) continue to expand at a slower pace, due to lower returns and, to a lesser extent, lost competitiveness to China and others.

According to the Reserve Bank, Australians appear to have their finances in good order, the banks have low levels of problem loans while, as we know, the economy is going very well.

The Australian dollar closed over the 80 USc mark on Friday; another first as it was the first time it ended a trading week above the 80 US cent mark for a decade or so.

If you look at the performance of leading commodities last week then you’d be mistaken for believing that the Fed didn’t change policy last week on interest rates and inflation.

Gold was up, then down on Friday as US house sales rose more sharply than expected in February as prices fell.

Oil eased, and then rose on a combination of factors such as the level of US stocks of petroleum products and then geopolitical worries around Iran.

Nickel rose then fell as the first real flood of metal into stockpiles appeared mid week.

Copper rose, rose and rose and then eased a touch on Friday as demand from China continued to dominate thinking in the market.

And corn and wheat futures prices eased on Friday ahead of the release this week of the first estimate of the 2007 US grain plantings from the US Department of Agriculture (USDA).

Overall the Fed’s significant policy switch was seemingly forgotten, but will be remembered again this week with a far number of important indicators due for release in the US.

But with demand from China dominating so many markets, attention is elsewhere.

For example copper rose the third week in row, with prices reaching their highest levels since December.

Stocks held by the London Metal Exchange fell for sixth week in a row last week thanks especially to imports by China, the biggest user of the metal.

China’s demand continues to underpin the market as it soaks up metal to replace the rundown in copper stocks late last year when prices rebounded after the mid year slump.

China used its own stocks to avoid paying very high prices for the metal but has now been forced back into the market to replenish its position, thereby driving up prices once again.

May Comex copper futures ended at $US 3.069 a lb after touching $US3.133, the highest price since mid-December. Copper prices gained 1.9 per cent last week after jumping 12 per cent over the previous fortnight.

Copper prices have gained 29 per cent in the past year.

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Nickel suffered its biggest fall in more than six months as LME stocks continued to grow.

The metal has surged 27 per cent so far in 2007 to a succession of records and there are now suggestions that this may be forcing users to slow their purchases.

But stocks are low, even after the latest increase and all it could take is for one buyer to aggressively bid for metal on any day and prices could jump again.

The LME stocks rose 14 per cent on Friday to 4,932 metric tons, taking the week’s increase to 38 percent.

But that was after an 85 per cent fall in stocks over the past year. The actual amount of nickel in stock is still small, an estimated two days global consumption at best.

LME nickel prices fell 6.5 per cent on Friday and more than 12 per cent over the week because of the sharp rise in stocks from less than a day’s supply to around two days. Prices had surged 10 per cent the week before.

Helping drive the fall was a 36 per cent rise late last week in the amount margin traders have to put up for each six tonne lot traded on the LME.

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Gold surprised with a sharp fall on Friday after looking set for further gains for most of the week.

It was the first fall in seven trading days for gold and came despite a rise in oil prices and tension in the Middle East.

The sharp rise in US home sales in February was blamed, but most traders said there were some solid profits to be had and they were taken.

April gold fell $US6.90 to $US 657.30 on Comex in New York, after rising around $US21 an ounce over the previous six trading days.

Oil prices finished 59USc higher at $US62.28 a barrel.

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And wheat, corn and soybean futures were all lower ahead of the important crop planting report from the USDA this week.

There has been growing speculation that the sharp rise in corn prices over the past year, mostly driven by demand from the ethanol industry, would result in the largest corn plantings in US history.

The fear is that this in turn will cut plantings of wheat and soybeans by US farmers.

Futures markets are all nervy about the result, especially with Brazil reporting good crops and rain returning to many of the drought areas of Australia in the past month or so.

For the first time in three years there’s a rising sense of optimism about the outlook for the Australian wine industry.

Is the Australian healthcare sector about to undergo another bout of takeover speculation?

So the Australian dollar is hovering above, at or just under the 80 US cent level, depending on the time of day in the trading cycle.

It finished above 80 USc Tuesday night and started trading around that level here today.

It’s risen to what is about its highest level in 10 years and analysts are all saying it was as a result of the low key warning on Friday by the Reserve Bank’s Deputy Governor, Malcolm Edey that some of the factors which pushed up inflation were still evident and still a concern.

Mr Edey is the RBA’s chief economist: he is the Deputy Governor, economic, and that probably makes him almost as influential as the Guv, Glenn Stevens.

That’s why his words last week were important where as a similar speech at the start of the month was not taken as seriously because they didn’t include phrases used on Friday.

This is the key phrase: “This outlook is still higher than ideal: it implies that inflation is more likely to be too high than too lower in the period we can foresee”.

It’s called jawboning, a word I’ve used many times to describe speeches by key officials in the US and here. Edey’s speech was no different.

Although it was a statement of the obvious to some in Australia, it also came as traders in the US started wondering if there was a chance of rates being cut this year, rather than left on hold.

Even though some looked at US producer and consumer price indexes last week as suggesting that inflation was returning (albeit in a small way), others looked through the figures, factored out volatile oil and food prices and said no way.

Then there’s the US housing slump and the problems in the subprime and lower levels of the prime mortgage markets which show no signs of improving. This week sees a number of key figures for the housing industry and the betting is that the problems still have a way to go before things get better.

Uranium bulls are snorting and stamping the ground as world prices rise towards the $US100 a pound level.

Just when we were basking in the strength of the economy, along comes someone to remind us of the need for a dark cloud or three.

It didn’t take long for the Chinese Government to act to try and further control an economy which is starting to look like it is getting out of hand.

Another series of tests for the sluggish American housing market this week which is trying to cope with lower demand, oversupply and now the crisis battering the subprime mortgage sector which is threatening to spillover into the sounder parts of the home mortgage industry.

Talk about being read the riot act.

If New Zealanders hadn’t got the message after last week’s interest rate rise to a new high of 7.50 per cent; and after more warnings this week after strong rises in house prices and retail sales, and a firm admonition from Finance Minister Michael Cullen, Kiwis copped a blast from New Zealand Reserve Bank Governor Alan Bollard.

He told a business conference yesterday that the days of easy money were over and that “exuberance” by consumers and banks (mostly Australian!) to borrow and lend had undermined his attempts to slow consumer spending and cool the overheating housing market.

Using words that recalled former Federal Reserve Governor Alan Greenspan’s 1996 comment about “irrational exuberance” in stock prices as the net and tech booms gathered pace, Bollard sent a very strong signal that he may have to increase interest rates even further consumers curtailed their current borrowing binge.

“We need to see realization amongst borrowing households and lending banks that this period of cheap international money has been unusual. That means thinking about other eventualities ahead, and in some cases showing less exuberance.”

According to the RBNZ’s website, total household debt rose 13 per cent to NZ$150 billion in January from the same month in 2006. That’s an almost doubling in the past five years.

Analysts say New Zealand has become a favoured destination for some big international investors who borrow at half a per cent in Japan in yen and then move the money to New Zealand where the gross margin is around seven per cent: much of this cheap money is being organised by the big local banks who then use it to finance their current mortgage war.

Before last week’s increase official rates were steady at 7.25 per cent for well over a year.

Complicating the matter is that well over 80 per cent of all home loans in New Zealand have an interest rate that is set for a fixed term, unlike here in Australia where we favour variable rates. That means it is very hard to influence the housing and home buying sectors in NZ by moving interest rates.

The downside is that the rates on business are variable and these are transmitted very quickly (and rates on personal loans and credit cards are variable): so you can have declining exports, a sluggish economy but booming house prices and solid activity in and around the industry.

No wonder Governor Bollard is sounding more than a little frustrated and why pie in the sky ideas of a levy on mortgages have surfaced and then been knocked down.

The Governor summed up the situation with this comment: “It is New Zealand households’ desire to keep investing in housing, while at the same time consuming strongly, that fuels their demand for funds”.

I think the chances are rising there will be a very rough landing.

With the NZ economy increasingly dominated by Australian corporates (banks, media and retailing) the fallout will bounce back here through the various profit and loss accounts and balance sheets.

It won’t be shattering, but it will be a reminder that being big in a very small market can hurt financially.

There may be worries about global growth and the health of US financial markets but here in Australia its been a surprisingly upbeat week: sunny in fact.

The economy is going well, retail sales are humming (a bit too fast for some), business and consumer confidence has recovered strongly from the battering at the hands of oil and petrol prices in the middle months of 2006, the resources boom shows no sign of tiring, the Chinese and Japanese economies are surging.

Inflation is a bit too high for comfort, wages growth is at the top end of the limit of around 4 per cent a year, our terms of trade are improving and personal income continues to rise.

The only concern is for problems among the no doc/low doc mortgage borrowers and some credit card debt.

Compared to the gloom around in the September quarter and towards the end of the year, the turnaround has been remarkable.

It seems like we have rebounded strongly but in fact it’s been a small but noticeable uplift.

It’s the change in confidence that’s made the difference, and now for the impact on the broader stockmarket.

With all the reservations expressed last month by Reserve Bank Governor, Glenn Stevens in the first Monetary Policy Statement of the year and then before the Housing of Reps. Standing Committee on Finance and the Economy, it’s clear the Australian economy is galloping along very nicely.

So after the upbeat figures on confidence and the second tentative signs of a recovery in housing finance, yesterday’s labour force figures for February were a bit of the same stuff.

Some economists however worry that another month with 22,000 jobs created (293,000 in the year to February) sends a flashing warning signal to the RBA.

There was lots of chat about capacity constraints, wages dangers, inflation and underestimating a rate rise but this is not New Zealand with its unbalanced economy, with surging house prices and an ‘easy money regime’ that again drew the ire of Dr Ian Bollard, head of the NZ Reserve Bank, in a speech yesterday.

The February labour force figures show that employment rose 22,000 in the month after falling a revised 4,800 in January.

Markets have recovered from this week’s reminder that things have changed: risk is being rediscovered and downside is now an option and not something someone remembers from history.

Monday it was booming house prices, Tuesday it was booming retail sales: the New Zealand economy is starting to be buffeted by pressures that are proving almost impossible to control without causing wider damage.

There’s been a lot of talk about big nasty private equity buyers and how they are buying up Australia.