SCOREBOARD: Pleasant Street

Modest gains lifted the Dow to a new record on the back of positive consumer figures and Chinese inflation data.

US stocks pushed modestly higher overnight, although there wasn’t really any news or an event as such to drive it. It’s just the same underlying buying pressure that we’ve seen for some time now. And the fact is you need bad news to cap it. We didn’t have bad news last night – so now the Dow is at a new record. Woohoo!

Alcoa’s results yesterday would have helped a bit (it’s seen as a bit of a bellwether, rightly or wrongly) and so the Dow closed almost 60 points higher to 14,673, the S&P was 0.4 per cent higher (1568) and the Nasdaq was up 0.5 per cent.

The only data flow that we saw was wholesale inventories – it's minor, never market moving, but it does contain useful signals. Last night’s useful signal is that demand proved stronger than business thought in February. Sales surged 1.7 per cent but this wasn’t met with an increase in production. Instead, inventories fell about 0.3 per cent. This is good, because a feature of this recovery is that business and consumer demand has consistently surprised on the upside. Business, listening to the Fed and other bearish soothsayers, hasn't really been prepared for this and consistently underestimates it. Eventually supply catches up, but there you have it.

The other thing maybe giving the market a boost was China’s inflation data. It was lower than expected at 2.1 per cent year-on-year, and that has got some talking about the possibility of stimulus from the People's Bank of China. That being the case though, inflation is still the biggest threat that concerns the bank. And they are right to be concerned.

In Australia there is this almost mindless adherence to the view that inflation is low and not a problem here or around the world. Nothing to worry about. A step back to the days of the 'Great Moderation' – you know, the term that was used though much of 2000-2007 when everyone thought that inflation was licked, just before it shot up and bit everyone in the bum. Then the inflation genie hysteria was on for real.

And it hurt. The International Monetary Fund wrote a special on inflation and released that just last night. This is something, as institutionally they are usually a bear cave and a mouthpiece of the US Treasury. For them to note inflation as a threat, even a mild one, means it is a clear and present danger right now. This is what the PBoC believe and the Asian Development Bank have also warned on it. That Australian economists are oblivious to it just adds to the case that we should be worried now.

It’s not that inflation is high right now – although in many countries it is at, near or above target. The problem of course is that inflation just spikes up and take people unawares. It always does. Policy this time is in no position to respond and with rates so low and so much stimulus in place it would take them years to deal with it if it does spike.

Anyway, back to stocks – by sector we saw energy and basic materials outperform and this had a lot to do with decent gains in the commodity space overnight. Crude was up 0.6 per cent ($93.96), copper surged 1.9 per cent, silver was up almost 3 per cent and gold was up $13 to $1585.

Elsewhere we saw some decent gains for the Australian dollar – up almost 70 pips to 1.049, and it actually broke through the 1.05 mark briefly. The euro is up 60 pips to 1.3086. The big performer though was the British pound – up a big figure to 1.5322, while the yen is little changed at 98.94.

Otherwise, there wasn’t much action on the Treasury front. The US 10-year yield was up a couple of basis points to sit at 1.75 per cent, the 5-year is at 0.697 per cent and the 2-year at 0.23 per cent.

So today the SPI suggests Aussie stocks will rise 0.2 per cent. In addition to that the key economic release will be consumer confidence at 1030 AEST.

So far we’ve seen a decent rebound in consumer confidence following the fact that all the doom and gloom espoused by many Australian economists and the Reserve Bank board didn’t eventuate – and also the fact that the Reserve Bank has seen fit not to panic people with needless rate cuts. In that regard, recent rhetoric from board members – John Edwards this time – has been very positive.

Edwards, having noted that the Australian dollar was "incredibly high", or "too high" or words to that effect, now says the that the Australian economy has proven resilient in the face of the exchange rate and that it’s not at a level that would require a response. A rudimentary analysis 18 months ago would have drawn the same conclusion – but better to have this revelation now than not at all.

Outside of that, keep an eye out for Chinese trade data that may come out today and we also get the FOMC minutes.

That’s the lot, have a good one...

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.