SCOREBOARD: Hike watch

The first day of the Northern spring started off well. Europe is looking a little better now that it appears Greece will get the money it needs to refinance, allowing punters to instead focus on solid earnings. Then we had a fairly sizeable jump in base metal prices (copper up 2.9 per cent, nickel up 4.4 per cent and zinc up 1.2 per cent). In the end we saw the major European indices up between 0.96 per cent and 2.1 per cent.

This optimism flowed across the Atlantic, US stocks bouncing on the open to be up about 0.9 per cent (S&P500 at 1114) as I write.

The ISM survey last night aided sentiment, as it continues to show the US manufacturing sector expanding at a reasonable clip – the index at 56.5 from 58.4 in January (average 51). Importantly the employment component continues to rise (56.1 from 53.3 and the highest level since January 2005). Personal income and spending data ( 0.1 per cent and 0.5 per cent respectively in January) also provided a measure of support to markets although consumer stocks weren't the key outperformers. This honour went to basic materials, utilities and tech stocks, with financials, telcos and energy (crude down 1.1 per cent to $78.73) underperforming (although firmly in positive territory). With about 20 minutes to go the Dow was up 71pts (10396), the Nasdaq was up 1.5 per cent (2270) and the SPI rose 0.5 per cent (4711).

Rates did zip, with US treasuries trading within a 3-6bps range and yields on the major coupons down only 1 or 2bps. Currently the yield on the 2-yr is 0.8 per cent, the 5-yr is at 2.28 per cent and the 10-yr is at 3.6 per cent. Aussie futures did nothing on a 3/4 tick range 3s at 95.15 and 10 at 94.51.

Not much more for FX, although sterling was smashed over a big figure (-173pips to 1.4984) as markets worry less about debt in Greece and Spain and look toward bigger fish. Overall the dollar index is up 0.3 per cent; EUR at 1.3559 (down 50pips), yen at 89.07 from 89.11 and AUD at 0.900 ( 30pips).

Other news and data showed Canada joining the US, China, India, Japan and a bunch of other countries showing very strong 4th quarter growth figures. GDP was up 5 per cent in the quarter, (mkt looking for 5.2 per cent) and the 'yeah but' brigade have nothing on this figure, as consumption was a key driver. So too residential investment and exports. It's going to be difficult for the BoC to ignore this. Then we had construction spending falling 0.6 per cent in the US. Just note that Kohn of the Fed announced his resignation effective from June of this year. As a key bear and proponent of the rates lower forever doctrine, this could be a positive development for US policy. It depends who he is to be replaced with.

Speaking of the 'yeah buts', I got quite a few emails yesterday asking why I wasn't making much of the tax bonus in yesterdays import figures – the implication being that this must have been the key driver of imports growth. This was largely because I disagree with that view and also the bonus has been well flagged – it has been around for a while. So while it certainly helped boost the figures I was trying to emphasise how, in fact, the rise in imports wasn't all tax bonus induced. We have to remember that the bonus is just that (the tax deduction lifted from 30 per cent to 50 per cent and for small business), so it helps, but you have to front up with most of the funds to start with and you get only a small portion of it back.

Moreover, when you see other imports growing strongly – travel services up 13 per cent, industrial transport up 20 per cent, other capital goods up 11.6 per cent, primary industrial supplies 15 per cent, chemicals 7 per cent etc – this stuff is not all tax bonus induced. Car sales are showing us that as well with both passenger car sales and SUVs rising strongly (not as strongly, fair to say) alongside utes and light trucks (obviously bonus induced). There is broad-based strength here and it is a mistake to think it is all stimulus.

Moving on to today's events – the RBA is at 2.30pm and futures are now looking at a 60 per cent chance of a hike. I argued in February that the RBA would be unable to 'pause' for any length of time in the face of strong economic data (both domestic and global). So after the dataflow of the past week or so I feel even more confident in that view. Despite what some people say, the facts show that the global dataflow is actually quite good – GDP figures show this, so do manufacturing (ISM last night), trade and industrial production. The main downside (outside of some weather-induced falls in housing) is all the negative press surrounding Greece – and Stevens said this wasn't even a major factor.

So all up, the news flow and general market feel would back a hike as well. Stock markets over the past week have generally been more buoyant – it was a good session last night, and the news-flow less pessimistic than February. Clearly for a "finely balanced' decision this will weigh. So I think we are odds on for a hike today, although I still wouldn't bet on it given the arbitrary decision in February. If for whatever bizarre, random reason they decide to hold off today, a 50bps hike in April/May becomes a possibility.

Prior to the RBA's meeting we get retail sales and building approvals at 1130. I'm expecting reasonably decent results for both, with sales up 0.8 per cent and approvals up 1 per cent (not too different from market at 0.5 per cent and 1 per cent). I think you'd need a collapse in the retail figures to see the RBA hold today though.

Outside of that, we have the BoC meeting (no change at 0.25 per cent expected – GDP rose 5 per cent q/q, go figure) euro zone inflation and a bit of Fed speak.

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