By Greg Peel

The Dow rose 56 points or 0.4% while the S&P gained 0.6% to 1402 and the Nasdaq added 0.5%.

It was a bit of a perfect storm in markets last night, if only subtly so. Stocks continued their upward push, led again by the new lease of life for financials post the stress test results. The rally has extended into seven days, which hasn't been seen since 2010, and to mark yet another psychological milestone, the broad market S&P 500 hit 1400 for the first time since June 2008.

Wall Street was spurred along early by results of the Empire State manufacturing index, which rose to 20.2 from 19.5 last month, and the Philadelphia Fed manufacturing index, which rose to 12.5 from 10.0. The Empire State result is the best in 21 months. Weekly new jobless claims numbers also fell.

But what was interesting is that while the rally of the past few days has been accompanied by moves up in the US dollar, which may ultimately act as a drag on export competitiveness, last night the US dollar index fell back by 0.5% to 80.20. We recall that for the best part of post-GFC trading, the US dollar and stock prices have moved inversely. The dollar has mostly been weakened by Fed money printing, and that encourages "risk on" as the dollar falls. If there is a global scare the dollar has rallied as a safe haven, and that means "risk off".

Yet since the Greek resolution it seems the dollar is reverting back to a more traditional relationship with interest rates. Traders have madly sold US bonds and bought equities this past week, and the dollar has risen. Last night the US bond sell-off stalled ? the ten-year is steady at 2.28% ? and the dollar fell. But stocks just kept on rising. This suggests a more fundamental approach being taken to the stock market ? one based on ongoing easy Fed policy, of course, but also on an improving US economy.

The weaker dollar allowed gold to bounce back somewhat, regaining US$16.60 to US$1659.20/oz. Base metals were also mostly stronger, with aluminium, copper, lead and zinc all up over 1%. The US materials sector recovered lost ground as a result.

And while oil would normally also rise on a weaker dollar, it fell last night. Not great for energy companies but good for everyone else. Yet there was an extenuating circumstance.

A rumour ran around markets last night in the wake of the meeting between President Obama and Prime Minister Cameron that, in light of the upcoming joint embargo on crude exports from Iran, the US and Britain would coordinate releases of their strategic petroleum reserves to keep the price of oil in check. On that news, both Brent and West Texas dropped US$3-4 immediately, until later the White House denied such an agreement. When the dust settled, WTI was only down US13c to US$105.30/bbl but Brent was down US$1.43 to US$123.55/bbl.

Despite the denial, there is a general feeling that strategic reserves have been released for less obvious "emergencies", at least in the US, so such a suggestion is not beyond the realms. This should now make oil traders a little nervous about pushing the oil prices up too high.

There remains a feeling on Wall Street from many that this rally should really be looking a bit overdone. The S&P 500 is, after all, up 27.5% from its October low. Yet even the sceptical are a little nervous about trying to step in front of this at the moment. One issue that has some concerned is the apparent increase in inflation last month, according to the PPI result. If inflation starts to move up with US economic improvement, then the Fed's easy policy comes into question. Tonight sees the CPI release, and it will be closely watched.

The SPI Overnight, which has now rolled into the June expiry contract, was up 21 points or 0.5%.

The SPI rollover may have had something of an impact on the ASX 200 yesterday, and tonight its the "quadruple witching" options expiry in the US, which can also cause distortions.

Rudi is in Perth today and tomorrow and will be presenting and manning a booth at the Trading & Investing Expo. Westerners are invited to drop in and say hi.

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