By Greg Peel

The Dow fell 42 points, or 0.3%, while the S&P lost 0.5% to 1650 and the Nasdaq dropped 0.2%.

Last night the Dallas Fed president suggested the Fed should start reducing bond purchases with the goal of winding them back completely as the year continues. The president of the San Francisco Fed said QE could be reduced if the economy "continues to improve".

Late-season reporter Wal-Mart (Dow), America's biggest corporate employer, posted a profit result that missed expectations on falling sales growth.

US housing starts dropped 18.5% in April. This number looks like a shocker but for the fact the bulk of the drop was related to lumpy apartment block starts, while starts of single family homes fell only 2.1%. Apartment block starts jumped in March, so over two months the numbers are smoother.

The Philadelphia Fed manufacturing index has fallen to minus 5.2 this month from plus 1.3 last month.

The April CPI fell by 0.4% against expectations of a 0.3% drop. As was the case for Wednesday's PPI, lower energy costs were the main driver. US headline inflation is now running at a mere 1.1%, while core inflation (ex food & energy) is running at 1.7%, the lowest level for two years.

In such a low inflation climate, the Fed has plenty of scope to increase, rather than decrease QE. Yet all the talk is as to just how soon the Fed will start pulling out. There's no inflation threat, and the latest economic data are far from inspiring. There is a cohort within the Fed which, for good reason, would like to see the US economy taken off the morphine and allowed to recover for itself. Ben Bernanke is not among that number.

Speaking of morphine, and lots of it, the Japanese GDP grew by 0.9% from the December quarter to the March quarter for an annualised growth rate of 3.5%. Economists had expected 2.8%. In the June and September quarters last year, Japan's economy contracted. In the December quarter, in which Abenomics was outlined, it grew by 0.3%, and in the March quarter, in which Abenomics was implemented, it grew by 0.9%.

The jury is out on Abenomics, particularly with a GDP running at 3.5% growth when 2.8% was expected and would still be a big improvement. Is it all too much too soon? Could it all end in tears? Economists are watching nervously.

The US dollar index was little changed at 83.78 last night, but that hasn't stopped the Aussie taking another tumble over 24 hours, falling 0.9% to US$0.9807. Another weak day on the local bourse yesterday suggests a foreign exit still in progress. The weak US inflation number was no help to gold, which fell another US$6.90 to US$1386.00/oz.

The Japanese GDP result provided some rare upside for base metal prices in London, although earlier gains were crimped when the weak US data began to flow. A steady US dollar at least allowed copper to finish up 1% and other metals to be steady to slightly higher. The oils were also slightly stronger, with Brent rising US12c to US$103.80/bbl and West Texas up US75c to US$95.05/bbl.

The spot iron ore price continues to slip back in China, yesterday falling US$1.40 to US$125.00/t.

The SPI Overnight rose 3 points.

Tonight in the US sees the release of the Conference Board's leading economic index for April. I've never much liked this index given one of its major "indicator" components is the stock market. It is true that the stock market is a forward indicator, but good results for the index on the day tend to push the stock market up and vice versa, which to me implies the market goes up because the market went up. March's index was negative for the first time in months despite a strong stock market.