Risk Appetite Recedes as China Growth Concern Drags Down Equities

Risk appetite recedes mildly today as China's stock market leads Asian equities lower on growth concern. China's National Development and Reform Commission raised domestic retail energy prices effective today. That's the second move in less than two months. Even though that still leaves a wide gap between international and domestic prices, investors are worrying that higher energy costs will drag down the already slowing Chinese economy. Separately, a BHP Billiton executive said that China's demand for iron ore is "flattening out" and demand for steel will drop to "single digit". A Rio Tinto executive also said that China's growth is more immediately slowing even though it's a case of soft landing.

The RBA unveiled in the March minutes a more optimistic outlook. The reason for leaving the policy rate unchanged was lessened downside risks in global economic outlook. Moreover, policymakers appeared to have weighed the gains from the mining investment boom again strength in Australian dollar. Overall, the central bank has moved to a neutral monetary bias from an easing one in previous meetings. More in RBA Left Interest rates Unchanged due to Less Downside Risks.

Overnight, New York Fed Dudley said that recent data has been " a bit more upbeat" and suggested that recovery are getting "better established". However, he warned that US is not yet "out of the woods in terms of generating a strong, sustainable recovery". He also noted that the economy still faces "significant headwinds" and "meaningful downside risks". Also, Dudley noted that there is no decision on QE3 yet. The decision will depend on economic data and will be about "costs and benefits" of adding another QE program.

After the two part auction held yesterday, the final pay out of 78.5 cents on dollar on Greek debt CDS was fixed, slightly high than the initial payout of 78.28 cents on dollar. The result was basically inline with market expectations and would eventually translate into $2.5b of payouts from CDS sellers.

On the data front, UK inflation data will be a major focus in European session. CPI is expected to slow from 3.6% yoy to 3.3% yoy in February, getting closer to BoE's target of 2-3%. German PPI, Swiss industrial production and UK CBI trends total orders will also be released. From US, housing starts and building permits are both expected to rise slightly in February.