SCOREBOARD: Fed dampener

Global markets retreated overnight as US Fed minutes hit hopes of further QE.

The good industrial data in the US continued overnight, with factory orders rebounding by 1.3 per cent in February after falling by 1.1 per cent in January. Excluding transportation the gain was 0.9 per cent. Capital goods orders also rose, by 2.4 per cent, with computer and electronics orders up 2.8 per cent in February. US ICSC Chain store sales rose 3.8 per cent last week and was up 4.2 per cent compared with a year ago. ICSC Research expects March same-store sales to rise between 3 to .5 per cent.

But the positive data was overwhelmed by FOMC minutes, which revealed that Federal Reserve policymakers appear less keen to launch another round of stimulus. The March meeting noted "a couple" of members thought additional stimulus might be needed that contrasted with the January meeting where a "few" members cited the need for additional stimulus. Policymakers also noted the recent signs of slightly stronger growth but remained cautious about a broad pick-up in activity.

US sharemarkets retreated, with investors disappointed that the Fed looked less inclined to provide any further stimulus. Cyclical stocks were the biggest losers with the energy sector down 1 per cent and the materials sector down 0.9 per cent. At the close, the Dow Jones was lower by 65 points or 0.5 per cent with the S&P 500 down by 0.4 per cent and the Nasdaq fell 6 points or 0.2 per cent.

Meanwhile, US treasuries fell, as the yields on the 2-year notes lifted by 4 points to 0.37 per cent and the 10-year yields rose by 10 points to 2.3 per cent.

European shares fell overnight, giving back most of the prior session’s gains after the release of the Spain's new austerity budget. Banking stocks led the weakness as fears grew that a crisis would resurface in the eurozone. Spain's debt-to-GDP was expected to rise from 68.5 per cent in 2011 to 79.8 per cent over 2012 – a 22-year high. Spain's IBEX fell 2.7 per cent while the European banking sector lost 2.4 per cent. The FTSEurofirst 300 index fell 1.1 per cent. The German Dax lost 0.5 per cent and the UK FTSE fell 0.6 per cent.

The greenback rallied against major currencies on Tuesday after the Fed minutes weakened expectations of more stimulus measures. The euro fell from highs around $US1.3365 to near $US1.3215, and was close to $US1.3330 in late US trade. The Aussie dollar slipped from highs near $US1.045 to lows around $US1.03 and ended near $US1.033. And the Japanese yen eased from ¥81.95 per US dollar to ¥82.95 and was near ¥82.80 in late US trade.

In the commodities space, benchmark crude oil prices fell in a volatile session. Caution about petroleum demand growth curbed prices despite North Sea cargo delays and the prospect of tightening sanctions on Iran's exports. The US Nymex fell by $US1.22 or 1.2 per cent to $US104.01 a barrel while London Brent crude fell by US57 cents to $US124.86 a barrel.

Elsewhere, base metal prices were mixed as another large build in warehouse stockpiles offset the upbeat Chinese manufacturing data. Nickel was the best performer up 1.3 per cent while tin lost 1 per cent. The gold price eased on Tuesday with losses accelerating after the release of the Fed minutes. The June Comex gold price weakened by $US7.70 or 0.5 per cent to $US1,672.00 an ounce.

In the day ahead, Australian international trade figures and the Performance of Services Index are expected. In the US, the ISM non-manufacturing survey will be released.

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.