US economic data was mixed overnight, as the ADP employment report confirmed another substantial gain in private sector jobs of 209,000 in March. The February reading was revised up to 230,000. Meanwhile the ISM non-manufacturing report eased from 57.3 to 56.0 in March, while the business activity index slipped from 61.2 to 58.9, with the new orders index also falling from 61.2 to 58.8.
In Europe, the ECB left its refi rate unchanged at 1 per cent at its fourth policy meeting of 2012. Again there was no discussion of the need for further monetary policy easing. The ECB governing council still expects a "moderate recovery in activity” in the course of the year, although the economic outlook remains subject to "downside risks.”
The Spanish government auctioned €2.6 billion of bonds maturing in 2015, 2016 and 2020. Bid-cover ratios were respectable at 2.41, 2.46 and 2.96 respectively. But yields were significantly higher than at auctions in March, explaining why the Spanish Treasury chose to sell just €2.6 billion compared to a maximum target of €3.5 billion.
European shares fell to two-month lows, after the disappointing Spanish debt auction reignited fears about the euro zone debt crisis. The eurozone banking index fell 3.1 per cent, while the FTSEurofirst 300 index fell 2 per cent. The German Dax lost 2.8 per cent and the UK FTSE fell 2.3 per cent.
US sharemarkets retreated, with investors still digesting the Fed's stance on less stimulus. In addition the rise in Spanish bond yields added to investor concerns. The S&P materials sector fell by 1.4 per cent, while the CBOE Volatility index, or "fear gauge", rose 5.4 per cent. At the close, the Dow Jones was lower by 125 points or 1 per cent with the S&P 500 down by 1 per cent and the Nasdaq 45 points, or 1.5 per cent, weaker.
US treasuries rose on Wednesday (yields lower) as the stock market sell-off enticed buyers to switch to safe-haven assets. US 2-year yields softened by 3 points to 0.35 per cent and US 10-year yields dropped by 8 points to 2.23 per cent.
Meanwhile, the euro fell to three-week lows against the US dollar, slipping from highs around $US1.3210 to near $US1.3110, and was close to $US1.3140 in late US trade. The Aussie dollar slipped from highs near $US1.03 to lows around $US1.024 to end near $US1.026. Meanwhile, the Japanese yen strengthened from ¥82.75 per US dollar to ¥82.10, and was near ¥82.40 in late US trade.
In the commodities space, benchmark crude oil prices fell for a second straight session on Wednesday after the release of the latest inventory. US crude oil inventories soared by 16.1 million barrels in the second half of March – the largest two week gain since 2001. US Nymex crude fell by $US2.54 or 2.4 per cent to $US101.47 a barrel while London Brent crude fell by $US2.52 to $US122.34 a barrel.
Elsewhere, base metal prices were weaker on Wednesday following the broad retreat from risk assets and a day after the US Fed dashed hopes of further stimulus. Copper lost 3.2 per cent – its most in nearly two months. The gold price slumped on Wednesday with the June Comex gold price down by $US57.90 or 3.5 per cent to $US1,614.10 an ounce – its lowest level in nearly three months.
Craig James is CommSec's Chief Economist. Adam Carr is on leave. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.