Only 13 sleeps till the Reserve Bank reveals its hand on interest rates and confirms John Howard and Peter Costello’s nightmares, or is there? What could pop up between now and then to force the RBA to stay its hand?

It would have to be something very, very dramatic, dare I say as momentous as the worldwide credit freeze we saw start on 9 and 10 August , just after the RBA lifted rates to 6.50% on 8 August. Last night there were a couple of things that, that two months ago, would have fed into the climate of fear and loathing: US existing home sales are not at their slowest rate on record and the stock of unsold houses is at a 12 year high (almost 10.5 month’s of backlog).

Merrill Lynch said, “oops” we didn’t get that right and boosted its loss and write offs by 50% to well over $A8.8 billion and its third quarter loss ballooned to $US2.3 billion. And then Bank America revealed it was sacking 3,000 people after reporting a sharp loss of profit and big write downs last week. But Wall Street plunged, then recovered all but a tiny bit of the 200 point fall, so that won’t be enough to help the PM.

Tonight its new home sales, another important indicator of how bad the US housing market is, but they only account for around 15% of total sales, pre-loved homes account for the rest. The news won’t be nice for September, after all new home starts and permits issued for the same month fell sharply last week.

Durable goods orders will probably be a more important indicator tonight: they will show if the housing slow down is sapping the confidence of consumers and business, so far retail sales don’t tell us US shoppers are cutting back.

Next Tuesday and Wednesday it’s a two day meeting of the US Federal Reserve’s Open Market Committee and the betting is on an 84% chance of a 0.25% cut in the Federal Funds rate and a 14% chance of a 0.50% cut. Go for the small cut and watch the Aussie dollar balloon because speculators can get more for investing in Australia than in the US.

That could cause a swoon in our market because more an more big investors are getting very worried about the impact of the higher Aussie dollar on corporate profits. A week Friday night sees the US jobs and unemployment rate for October released. So far jobs have held up, but that won’t matter to us, it’s a key US indicator and one most punters expect the Fed to have anticipated by a rate cut.

Perhaps a collapse in China (where growth and inflation remain a concern) or another bank run in Britain may force the RBA’s hand. Well we have the China sell off in late February and the Northern Rock run last month in the UK and lightning doesn’t really strike twice, does it?

But conditions in global credit markets are tight: after easing, our short rates kicked higher yesterday after the CPI news, 30 day bills rose 0.10% to 6.79%, 90 day bills hit 6.95% and 180 day bills 7.11%. The hard heads in the money markets reckon rates are going to rise and are pricing loans accordingly.

The question is not if the bank raises rates, but if some financial groups try and sneak a higher than RBA rate through to try and make up for the higher market rates since mid August.