\n\tBy Greg Peel<\/p>\n
\n\tThe Dow rose 72 points or 0.6% while the S&P gained 0.6% to 1374 and the Nasdaq<\/span> added 0.8%.<\/p>\n \n\tAnd so the rally continues. It began before the EU summit when traders covered shorts amidst at least some expectation of new news. It continued in earnest after the summit, when that new news proved surprisingly positive. Of course, volumes on Wall Street continue to be to the light side. Indeed, Monday night's volumes marked the lowest daily turnover in twelve years. It might be a holiday week, but those stats include previous holiday weeks.<\/p>\n \n\tLast night doesn't count, because last night the NYSE closed at 1pm<\/span> and there were only three men and a dog at their posts anyway. US markets are shut down tonight. Those three men and the dog nevertheless liked the news on factory data.<\/p>\n \n\tEarly in the session it was announced May factory orders had grown by 0.7% when economists had expected 0.1%. Suddenly this was positive news in the wake of Monday's weak reading on US manufacturing. And when you get positive news, you buy. That's why the Dow rose 70 points.<\/p>\n \n\tBut hang on – isn't it when you get negative news you buy? Negative means QE3<\/span> is more likely so positive should mean the opposite. But it doesn't work that way, and that's why they call it on Wall Street “the Bernanke Put”. If the US economy is good, that's good, and if the US economy is bad, that means QE3<\/span>, which is good. It's win-win all the way. But don't remind anyone we've already had QE1<\/span> and QE2<\/span> and Operation Twist and still we've gone nowhere.<\/p>\n \n\tMost of that “nowhere” has been due to Europe, however, but now Europe's now getting in on the act. A new stimulus package has been announced and the ECB<\/span> is expected to cut its cash rate by at least 25bps<\/span> on Thursday night and may announce some other measures to boot. The Bank of England is tipped to increase QE as well. It looks like Europe's now caught the win-win bug, given the UK, French and German markets were all up yet another 1%, give or take, last night.<\/p>\n \n\tIt hasn't all been about Europe, however – let's not forget China. On Sunday Beijing released China's weakest manufacturing PMI for some time, but yesterday it was announced the services, or non-manufacturing PMI rose to 56.7 in June from 55.2 in May, which is pretty hot growth. One was bad news and the other is good news, but the bad news implies further policy easing from Beijing, which is good news.<\/p>\n \n\tSo what do we do about this supposed free ticket? Well if you're a commodity fund manager, you panic. Commodity prices all soared on Friday after the summit – knee-jerk, but unsurprising. On Monday night prices stalled as commodity fund managers no doubt sat down and thought about what they would do for the new quarter\/half\/year. They have been cutting positions, they are underweight, and the world is about to experience, one assumes, its biggest round of global stimulus since 2009, which may well include QE3<\/span> and the related USD price impact. We'd better buy, they decided.<\/p>\n \n\tAnd so they did. Last night base metal prices all rose 2-3%, silver 3%, and gold was up another US$20.60 to US$1617.70\/oz. Brent oil jumped US$3.34 to US$100.68\/bbl<\/span> (3.5%) and West Texas US$3.78 to US$87.53\/bbl<\/span> (4.5%). The telling factor here was that the US dollar index would usually have to be weak to see such commodity price jumps, but it only slipped 0.1% to 81.79. The Aussie is stronger, as one might expect, but only by 0.3% to US$1.0280.<\/p>\n \n\tThe US bond market is a tad confused at present. Having sent the ten-year yield up 8bps<\/span> on Friday after the summit, only to push it down 7bps<\/span> on Monday on the manufacturing PMI. Last night the yield was up 5bps<\/span> again to 1.63% on the factory order data. QE3<\/span> on, QE3<\/span> off – this will no doubt be the way of things until the Jackson Hole conference in August. In the meantime, the VIX<\/span> fear index has sagged further to under 17. What's there to be fearful about?<\/p>\n \n\tWhat could possibly go wrong?<\/p>\n \n\tThe SPI<\/span> Overnight was on steroids, given the commodity price movements, and it closed up 28 points or 0.7%.<\/p>\n \n\tSo it's all rocket's red glare tonight, and Europe might take the chance to have a little rest as well. Then it's US jobs numbers to wrap up the week, and they're the numbers that really matter.<\/p>\n \n\tHappy Fourth of July to our American friends.<\/p>\n