By Greg Peel

The Dow fell 124 points or 1.0% while the S&P lost 1.0% to 1398 and the Nasdaq dropped 1.5%.

Wall Street took one look at Australia's trade deficit for February, released as traders slept, and immediately concluded it was a further sign of a slowing China. Hard landing talk was back in vogue. Then Spain, which has recently brought down a new, even tighter, budget, held a bond auction to a very tepid response. With QE3 determined to be off the table, and the March quarter providing historical gains, Wall Street had its selling cap on.

We, downunder, know of course that we can blame most of February's surprise deficit on that naughty Little Girl. Economists had expected a trade surplus of $1.1bn but the result came in as a deficit of $480m (seasonally adjusted), albeit representing a narrowing from January's deficit of $971m. The "miss" has been blamed on more wet weather impacting on coal mining and delivery in Queensland and New South Wales. Lower production and infrastructure bottlenecks meant lower coal exports were a supply-side issue rather than a representation of a fall in demand from China or anywhere else.

Hence exports fell 2% for the month and imports were down 4%. The question now is whether a drier March will provide a reversing offset. It remains clear that Australia's resource sector transport infrastructure development is still running well behind the pace of production development. One drop of rain and it all shuts down. Meteorologists suggest La Nina has slunk off back to Peru for now but just as the prior decade-long drought showed El Nino can quite enjoy coming and going for a while, longer term weather cycles suggest the pesky little lady could come back again at any time.

Spanish bond yields have been quietly on the move up again of late, as have Italian yields. To scenes of angry protests in the streets of Madrid and elsewhere, the Spanish government last week brought down its new annual budget, which is even more strict and austere than the last one. The question for global bond markets is as to whether Spanish debt reduction targets can truly be met, what impact that will have on the struggling Spanish economy, and whether the incumbent government can hang on in the face of a revolting population.

No offence amigo.

Such nervousness was reflected last night when Spain attempted to sell E3.5bn of bonds in the 3-8 year range but could only find buyers for E2.6bn. The benchmark Spanish ten-year yield jumped 11bps to 5.52% having opened the week at 5.28%. The Italian equivalent surged in sympathy, rising 19bps to 5.26%.

It didn't help that in his press conference following the ECB's April monetary policy meeting last night, ECB president Mario Draghi suggested the LTRO stimulus risked rising inflation and hence would only be temporary. He qualified his comments, however, by noting it was way too early yet to start talking about exit strategies.

The euro took a tumble on both counts and European stock markets tanked, falling 2.5 to 3%. Across the pond, Wall Street plunged on the open and the Dow was down 177 points at 11am. Having reached the 13,020 level, the Dow found support (no doubt with the 13,000 technical level in mind) and tried to battle back, but more selling towards the death ensured a weak close.

What was nevertheless notable was that volume was no higher than it has been lately as Wall Street has risen. Volume numbers have remained anaemic as retail investors remain squarely on the sidelines, meaning the March quarter rally and flash sell-offs like last night are all about short term trading and little to do with investing. There has been much talk of a correction being needed following the historical run from the November lows, so traders are ready to quickly take profits.

Further factors to consider lie with the risk indicators. The US ten-year bond yield jumped on Wednesday night after the Fed minutes implied no more bond buying but fell back only 4bps last night to 2.24% despite the fear generated by Spain. While Spanish and Italian yields are on the rise, they're still way below the peaks over 7% seen last year. The VIX volatility index shot up last night, sure enough, by 5%, which takes it all the way to 16. If this were 2011, that number would be more like 30.

Commodities did not come off so lightly, however. I noted yesterday the LME had closed before the Fed minutes were released on Wednesday night meaning base metal prices would wait for last night to provide a response, and provide a response they did. Aluminium, nickel and zinc fell 1.5%, tin fell 2%, and tin and copper fell 3%. Oil had also moved onto electronic trading ahead of the minutes, and last night Brent fell US$2.70 to US$122.34/bbl and West Texas dropped US$1.97 to US$102.04.

Commodity price falls were assisted by the stronger US dollar index, which rose 0.5% on a weaker euro to 79.75. Forex traders have now figured out there'll be an RBA rate cut in May, the February deficit was a surprise, and general Chinese slowing fear still hangs over the Aussie, so it's down 0.5% to US$1.0271.

The SPI Overnight was down 37 points or 0.9%.

Sell in May and go away, or get ahead of the pack in April? A healthy correction, or a renewal of European fears and general global slowdown concerns? The S&P 500 slipped under the 1400 mark last night, the Dow had a good look at 13k before rebounding to 13,074, and the Nasdaq, otherwise known as "Apple", settled at 3068. If we see a break of the 13k-1400-3k combo we could be looking at a proper pullback, perhaps of the 7% or so variety that has been popular since 2009. Or maybe the buyers will hold the fort at the support levels.

Either way, there's lots of chocolate to be consumed first. Have a safe and enjoyable Easter.

The "Monday Report" will be published on Tuesday next week covering overnight market trade on both Friday and Monday nights.

Rudi will be appearing on Sky Business at noon today and on Switzer TV tonight at 7pm.