By Greg Peel

The Dow closed down 6 points while the S&P was steady at 1332 and the Nasdaq added 0.1%.

March purchasing managers' indices from the service sector were the focus around the globe yesterday. China already released its non-manufacturing PMI on the weekend ahead of the two-day holiday, and it showed a rather astounding jump to 60.2 (very rapid growth) from 44.1 (contraction). HSBC will release its independent equivalent PMI today, so that will be worth comparing.

It will be all academic nevertheless given Beijing yesterday raised interest rates by 25 basis points, taking the deposit rate up to 3.25% and the lending rate up to 6.31%. Once upon a time the market freaked out about a Chinese rate rise, but now the market has built in expectations. Of more interest currently is the possibility of rate rises in developed nations.

There was no rate rise in Australia however, as expected, with the RBA again citing subdued household spending as the offset to strong commodity exports which is keeping inflation at bay. Australia's services PMI fell further into contraction in March at 46.5, down from 48.7.

The UK index jumped to 57.1 from 52.6 and the eurozone chimed in with a rise to 57.2 from 56.8. The US spoiled the party with a drop to 57.3 from 59.7, but the February number had been the highest in five years. How is the “old world” doing in services? On the numbers, 57.1, 57.2 and 57.3 – solid and consistent rates of growth.

Such results simply focus more attention on inflation and interest rates, and by Friday we may have seen the first post-GFC hikes from both the ECB and Bank of England. As far as the Fed is concerned, well the jury's still out. The minutes of the last FOMC meeting, released last night, only served to confirm the rift of opinion among committee members – between those suggesting rising inflation needs to be attacked with rate rises and those suggesting the US economic recovery is not yet of sufficient strength to handle rate rises.

Ben Bernanke did not address any specific questions over QE2 in his speech yesterday, but he did reiterate that he believed the recent jump in commodity prices will prove transitory and that inflation will remain low in the US. He has nevertheless noted that inflation expectations need to be contained, but economists have pointed to the moves afoot in Congress to sharply reduce government spending, and thus the budget deficit, as a reason the Fed need not panic on the hawkish side. Bernanke has been curt in his suggestions that fiscal policy must be contained for monetary policy to be effective, and that the Fed is not prepared to carry the can alone. Fiscal tightening means monetary tightening can be postponed.

So again we have no real clues as to what might happen in June and beyond, and just like last year – when we spent months debating first the “will they/won't they?” on QE2 followed by the “how big?” – we will now spend a few months in limbo.

Precious metal markets are not going to die wondering however, given anyway you slice and dice it inflation fears are prominent across the globe at present and central banks are responding. Last night gold rose US$22.30 to US$1456.80/oz -a new nominal high- and and silver jumped 2% to US$39.28/oz.

Underpinning inflation expectations is of course oil, and last night Brent crude rose another US$1.16 to US$122.22/bbl. West Texas dipped slightly, but again it's all a matter of lack of storage at Cushing. There is no supply shock at present to drive oil higher (there is actually still oil coming out of Libya), simply an underlying fundamental driver in expected ongoing emerging market demand growth and an immediate speculative push based on disruption in MENA.

The US dollar was stronger last night against the yen and Swissy on inflation talk but the race is being won by the euro and pound, so the dollar index was steady at 75.89. The dollar was stronger against an Aussie that saw no rate rise however, and so we continue to slip back from that US$1.04 high. The Aussie lost about 0.4% last night to US$1.0328.

Base metals mimicked stocks last night in going nowhere. Wall Street seems content at present just to wait it out until a fresh set of indicators emerge in the form of first quarter earnings results, and official disagreement over monetary policy is doing little to encourage conviction.

The SPI Overnight was down 3 points.

Australian housing finance data are out today, and the construction PMI release will probably show that we again have a trifecta of contraction, in all of manufacturing, services and construction (unless Queensland has begun to swing the dial already on rebuilding).

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