SCOREBOARD: Chindia fears

Growth fears, especially over China and India, weighed on the market last night and risk appetite took a hit. European equities were down between 0.6 per cent and 0.7 per cent on the major indices, commodity prices fell (copper -1.9 per cent, zinc -2.6 per cent, nickel -1.6 per cent, oil -1.7 per cent to $79.9) and the USD index was up about ½ per cent.

Regular readers know I think these fears are misplaced so I'm not going to go into it much today. Just note volumes weren't great and these moves follow what's generally been a pretty decent run of global growth data – especially in the US considering the negative effect of weather. Over a longer time-frame stocks have just been treading water with no solid directional moves. Confusion reigns.

So coming into the US session, sentiment was already pretty bad, but there was the additional problem of the financial reform bill. The Democrat chairman of the Senate Baking Committee has finalised a bill (first attempt was November last year and most of which Republicans apparently support) that would create a financial oversight council to introduce greater regulation, allow the Fed to break up 'too big to fail' firms and prohibit proprietary trading for banks and impose restrictions on non-banks. The last point is idiotic and it never ceases to amaze me how legislators can get things so wrong. Rates held too low for too long and people getting mortgages they couldn't afford in a higher interest rate environment – that was what caused the crisis, full-stop. It was Fed policy that caused the financial crisis and there are no sensible or credible arguments to the contrary. Where is the legislation to fix that? Instead we find out that one of the biggest doves in the Federal Reserve system is probably going to be nominated for Vice Chairman of the FOMC – it's insane.

Anyway – US stocks hit the low shortly after the open (down 0.6 per cent to 1141) finding a bid about an hour later as financial stocks partially reversed earlier losses. The biding pace quickened into the close and stocks managed to end up smalls. On the S&P, stocks rose 0.05 per cent (1150), they were up 17pts on the Dow (10642) and off 0.2 per cent on the Nasdaq (2362). The SPI fell 0.1 per cent (4786).

Rates did very little on below average volumes (through Brokertec) and comparatively narrow ranges (3-4bps). The 5s were most active and the yields on the major notes were 0.9 per cent (2-yr), 2.4 per cent (5-yr) and 3.7 per cent (10-yr) all unchanged from 1630. Aussie 3s and 10s were also little changed at 94.71 and 94.31 respectively.

The data itself was actually okay-ish. US industrial production was a touch higher rising 0.1 per cent (market looking for a flat outcome) with capacity utilisation also ticking up. On the Downside the Empire State manufacturing survey dipped a couple of points in March (22.86) although the component data was much stronger and the index itself is well above average (points, therefore, to continued robust growth). Otherwise the NAHB index dipped to 15 in March from 17.

In Australia today we get the RBA's March minutes. To match the press release following the RBA's decision, they will probably have a bullish flavour. As I mentioned yesterday, I reckon the Bank is keen to gets rates to neutral quickly and that means two hikes out of the next three meetings.

In terms of the Fed tomorrow morning (0515), no change is expected and judging from the rhetoric of most of the voters, the 'extended period' language will still be included. Other than that watch out for US housing starts (weather induced fall expected), European CPI and the ZEW survey.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.