THE DISTILLERY: Dollar flourish

There's hardly an underlying theme in this Monday's shooter from The Distillery – classic euphemistic language for a mixed bag. But there's some important analysis to be devoured. The Australian's David Uren kicks off proceedings with some insights into buying of the Australian dollar, while The AFR's Karen Maley say attention is once again shifting to Spain's debt worries. Also this morning, there's a sense of restlessness on the Telstra register and a wry take on the mind of Treasurer Wayne Swan.

But first, The Australian's economics editor David Uren says there's been a shift away from currency purchases from benchmark indices to something else.

"There is an emerging trend for bond funds to benchmark against GDP. It makes a difference. For example, Japan is more than 50 per cent of a Citigroup index that includes the Group of Seven countries except the US, whereas it is just 12 per cent of Barclay's global GDP weighted index. Australia is 1.7 per cent in Pimco's GDP-weighted global government bond index against 1 per cent on a standard market capitalisation benchmark. Adam Bowe, senior vice-president in Pimco's Sydney office, says changes in the way bond funds are benchmarked are a driver of global support for the Australian bond market. ‘Given the increase in sovereign risk, investors don't want to be forced to keep chasing the index weights of the most indebted nations,' he says. Pimco is the world's biggest private bond fund with $US1.8 trillion under management."

As Fairfax's Clancy Yeates explains, the changes in currency strategy and Australia's newfound status as a safe-haven currency is causing the dollar to behave in ways we've never seen before. Remember when the dollar would plunge as the market turned off risk sentiment?

That risk could be turned off again quite soon, given the report this morning from The Australian Financial Review's Karen Maley. The European expert says officials are already putting together plans for the event that Spain requires emergency financial assistance.

"Their plans hinge on the new round of structural reforms that Madrid is expected to unveil this week, which have been painstakingly negotiated with European officials. Paris and Brussels hope this package – which is expected to focus on structural reforms, such as lifting the retirement age, rather than tax hikes and spending cuts –can then be used as the basis for Spain's eventual bailout program. Markets are becoming increasingly anxious for Spain to request a bailout. They're worried that the country faces the daunting challenge of repaying €30 billion ($37 billion) in debt this month, at a time when more Spanish regional governments are likely to request extra funds. Already four Spanish regions – Catalonia, Valencia, Murcia and Andalusia – have requested billions of euros in financial assistance from Madrid."

The Australian's John Durie says Telstra chief executive David Thodey has done a lot right, but growth is becoming increasingly difficult to come by.

"Thodey has revolutionised Telstra from within, and the top management team is the most united it has been for some time, each member is bullish and talking up the prospects. Costs are being taken out of the business while customer service has increased demonstrably…Thodey is talking up Asia but more as a natural extension of his existing business; he's talking it up in much the same way that banks such as Westpac are following their customers into Asia as opposed to the ANZ strategy of buying a string of new businesses. The right levers are being pulled, but like much of Australian business the missing ingredient is booming sales growth, which is outside its control.

And Business Spectator's Shane White had this to say in his weekly column The Last Gasp, which cracked The Distillery right up.

"The federal government came under a variety of fire this week amid rising concerns over its spending plans in the face of a seemingly precarious surplus position. With the ALP's reputation staked on getting the budget back in black next financial year, recent policy announcements have got the opposition and even its own party members asking questions. A number of Labor backbenchers this week have raised issues over the government's plans in the party caucus room, including Senator Doug Cameron who called on Treasurer Wayne Swan to consider broadening the tax base to pay for some of the programs. He backed his claims by quoting from the treasurer's weekly economic note, in the first recorded case of Swan not enjoying having his own work read back to him.”

Fairfax's Peter Martin reports that the company tax rate is unlikely to fall below 30 per cent anytime soon. A business tax group working on a proposal has been told by the Tax Institute and the Chamber of Commerce and Industry that they can't support a tax cut that's paid for by closing business tax breaks.

Fairfax's Eric Johnston has picked up on some jostling between the banks over fixed-rate mortgages – admittedly not the most common form – in anticipation of a rate cut at the Reserve Bank's next board meeting.

Fairfax's Tim Colebatch reminds us of the enormous and still growing importance of Indonesia as an economic power.

The Australian's Robin Bromby looks at the potential decision from Beijing to ban the sale of rare earths to Japan. Expect to hear more about this story.

The Australian's Scott Murdoch examines the potential negative consequences of a third round of quantitative easing from the US Federal Reserve.

And finally, Fairfax's Michael West covers the historic court win for Australian councils over what's left of Lehman Australia.