By Greg Peel

The Dow closed unchanged but the S&P fell 0.3% and the Nasdaq dropped 0.7%.

India surprised markets yesterday by raising its cash rate. The surprise was not in the fact the RBI raised, but that after eight consecutive 25bps hikes to 6.75%, the RBI this time went 50bps to 7.25%. The reasoning is a no-brainer nevertheless. India's last headline inflation number came in at 9%.

India may thus be breathing at least a little sigh of relief after last night's market action. Wall Street staggered and stumbled along to a weaker close (notwithstanding a flat Dow) with a lot of attention focused on the commodity space. The commodity of the moment is silver.

The CME last night raised its margin requirements on silver futures traded on the exchange's Comex subsidiary and silver responded by falling another 5% to US$41.55/oz. Silver is now effectively down 20% from its intraday peak just below US$50 last week which is a crash in anyone's money. But while there is no doubt some blood on the Comex floor, no one is hugely surprised given silver's recent parabolic run.

In reality the margin increase was not a trigger. The CME also increased margins twice last week and they did not spark the crash, they simply introduced some nervousness. It was Osama who sparked the crash – a geopolitical trigger which was really just the excuse. Silver is not now dead in the water, it's just looking a little more real.

But it has had ramifications. After a big fall on Monday night, gold fell again last night by another US$9.30 to US$1536.30/oz. Oil also fell sharply last night, by US$2.67 in Brent to US$122.45/bbl and by US$2.70 in West Texas to US$110.72/bbl.

The oil market is concerned that West Texas futures – a much, much bigger market than silver – will also be hit with margin increases. Beyond that, there is still uncertainty as to whether Osama's death relieves geopolitical pressure on oil prices or heightens it given possible retaliation. Either way, the uprisings across MENA are a mutually exclusive issue and ongoing.

Commodity falls were assisted by a slightly stronger US dollar, albeit the dollar index dipped first before closing up 0.1% at 73.11. Weakness was felt mostly in the pound given a negative reaction to the delayed UK manufacturing PMI release. It fell to 54.6 in April from 56.7 and killed off any thought of a BoE rate rise on Thursday. Mercifully, the RBA's lack of movement yesterday helped the Aussie finally retreat against the American peso. It's down 0.8% to US$1.0855.

London metal traders were probably dealing with hangovers after a four-day weekend, so base metals were mixed on sub 1% moves despite missing two full trading days. There was nevertheless a lot of chatter in the aluminium pit.

Rumour has it that Rio Tinto ((RIO)) is gearing up to make a tilt at Alcoa. Have they gone mad?, one might be forced to ask. It was Rio's Alcan acquisition ahead of the GFC which nearly sent the leading global miner out the back door. But given both companies issued a terse “no comment”, maybe the synergies of such a deal are indeed sufficiently attractive. As for competition considerations, well one finds it hard to see authorities allowing both Alcan and Alcoa, born as the aluminium companies of Canada and America, to operate under the same roof.

Alcoa (Dow) shares were nevertheless up 2.6% last night while Rio's fell 3%. On the earnings front, drug pusher Pfizer (Dow) missed on revenues and it fell 2.8%, while consumer transaction bellwether Mastercard was well received and gained 2.6%.

The bumping along on Wall Street last night led itself as much to switch out of energy and material names and into financials and other recent underperformers rather than to any conviction on market direction. Analysts have been anticipating such a move for some time given the sharp run in many commodity prices. With the bulk of earnings season now complete, and only a long tail to come, traders are not seeing any more glaring upside. And there is a growing feeling the US dollar must soon bounce given the one-way traffic of late. Thursday night's ECB rate decision will be crucial, but not definitive.

On the economic front, US factory orders jumped 3.0% in March or 2.6% if you take out lumpy transport, ahead of economist expectations of a 2.0% gain. Vehicle sales were also strong, with a 26% gain in General Motors vehicles (yoy) sending GM shares up 2%.

Whatever happened to the expectation of surging US bond rates in the wake of the QE2 expiry? The US ten-year yield fell another couple of bips last night to 3.25% with commentators suggesting there is a growing concern the US recovery is slowing. Tonight sees the first employment indicator for April in the form of the ADP private sector report.

How's that fully sick local market feeling today? The Aussie's off a bit. But the SPI Overnight is down 29 points or 0.6%.

Westpac ((WBC)) will release its half-year earnings result today.

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