SCOREBOARD: Treasuries triumph

Not really an exciting night at all, although US treasuries managed a decent rally as we come in into the end of quarter and also after a strong auction of 2-years. More than $34 billion was up for grabs and the market bid for $129.3 billion to give a bid-cover of 3.69 (average is 3.46). In the secondary market the 2-year yield finished just over 2 basis points lower to 0.319 per cent, the 5-year was down almost 7 basis points (1.017 per cent) and the 10-year yield also fell, about 7 basis points to 2.184 per cent.

The data flow, not that there was much, provided no real resistance to that price action, although it was all lower tier stuff. Consumer confidence for instance fell a bit in March to 70.2 from 71.6. Certainly not a significant move and it's not really telling us much that is new. Confidence has rebounded strongly from a low point in October (up some 30 points) but it's still below average (85) and well down on pre-GFC peaks (115). But it is improving, which is more than can be said for confidence in Australia.

That aside, one of the more concerning aspects of the survey were the 1-year ahead inflation expectations that consumers had. They don't seem to share Bernanke's benign view and with good reason. QE3 is coming and inflation has risen sharply already. Is still rising. And that's with, in Bernanke's view, weak growth. What happens if growth picks up?

In any case, inflation expectations shot up to 6.3 per cent from 5.5 per cent. The usefulness isn't in the point estimate obviously – I doubt anyone actually expects inflation to be 6.3 per cent – it's the direction that is important and people on the street expect inflation to shoot higher. Many at the Fed, in contrast, are pushing the line that inflation expectations are anchored. I don't think that is quite right and while the 5-year/5-year forward break even rate has come down sharply from its peaks in 2011, at 2.55 per cent it's still above average and about the same as what we saw through 2007. And that's with, in the Fed's view, weak growth.

Other data out included the Richmond Fed manufacturing index which dropped sharply to 7 in March from 20. A big drop, but not unusual in the scheme of things, as this survey is very volatile. The Richmond Fed index is well above average in any case (-1).

So equities had a fairly lacklustre session in the US. The S&P traded within a 0.2 per cent/-0.3 per cent range and finished 0.28 per cent lower (1412). Energy, telecommunications and financials were the key underperformers, while healthcare, utilities and tech stocks pushed higher. The Nasdaq itself was down 0.07 per cent though (3120). Otherwise, we saw the Dow end 43.9 points lower (13197), while the SPI fell 0.5 per cent (4306). In Europe, the Dax was flat, the CaC fell 0.9 per cent and the FTSE was off 0.6 per cent.

Commodities had a fairly boring session as well. Moves in the metals space were small – gold down $8 (from 1630) to $1680, silver fell 0.4 per cent and copper was off 0.4 per cent as well. Crude was flat pretty much on WTI ($106.9), while Brent fell 0.3 per cent to $125.3.

Then for forex we saw the Australian dollar down 60 pips to 1.0462 (from 1630 AEDT), having spiked higher initially in the European session (to a high of 1.0558). Euro, too, followed a similar path hitting a high of 1.3386 before the offer was on (1.3319 currently and down 30 pips from 1630). Sterling was then little changed at 1.5959 (high of 1.6001), while the yen rose to 83.13 from 82.87.

Bits and pieces otherwise. The Fed's Eric Rosengren said that the Reserve may need to provide more stimulus if growth doesn't pick up. So the bar has shifted and we don't need to see a deterioration. Activity, which has already picked up, just has to fail to pick up. Dallas Fed president Richard Fisher in contrast said he saw growth prospects improving in 2012 and that the Fed "had more than filled the gas tanks”. In the UK, the CBI said that retail sales were steady in March (expectations were for a fall).

Looking at the day ahead we get the RBA's Financial Stability Review at 1130 AEDT but there isn't much else for our region. It's worth watching out for US durable goods orders (February) and German CPI (March) tonight and there is some ECB speak from Bundesbank head Jens Weidman and also vice-president Vitor Constancio.

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

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