By Greg Peel

The Dow closed down 68 points or 0.6% but the S&P closed down less than one point to 1328 and the Nasdaq closed up less than one point.

Weighing on the Dow last night was the quarterly earnings report from component Hewlett-Packard. The PC-maker giant actually met expectations but it was downgrades to next quarter and full year earnings guidance which sent the shares down over 7%, and led to a wave of broker recommendation downgrades.

Does HP's perceived outlook represent a weakening global economy? The demise of the PC as yesterday's technology? Or the ascension of Apple? Well, none of the above probably. After the bell competitor Dell posted its earnings result and suffice to say Dell shares are up 5% in the after-market. It appears to be a company-specific issue.

So if we dismiss HP and thus the weak Dow result, we can look to the S&P 500 to suggest a flat market last night. However that's not the way the session began. At midday the Dow was actually down 170 points and the S&P equivalently weak. One is reminded of last Thursday's session when the Dow was down over 100 before pulling back to be 64 points lower on the close, following a dip and turnaround in commodity prices. Last night was another session in which markets attempted to consolidate.

Aside from HP, morning weakness was driven by economic data.

If the US housing market is ever going to recover, improving housing starts need to be apparent. But last night it was revealed April starts fell 10.6% to 523,000 annualised. Economists were looking for 575,000.

At least while the housing market has been double-dipping, other sectors of the US economy have been strong, with one area being industrial production. But March IP came in flat over February when economists had expected a 0.3% gain. It is notable that both the equivalent UK and eurozone IP numbers disappointed last week as well.

It was also alarming that capacity utilisation, which has been ever so slowly rising in recent months to suggest an economy reducing the number of idle plants and factories, dipped in March to 76.9% from 77.0%. This set of data disappointed Wall Street and again raised questions of how the US economy will fare when QE2 expires. There was at least some recognition that the tsunami in March cut of the supply of parts from Japan, such as auto parts, which forced factories to shut down temporarily.

The scene was thus set for a weak morning session. But by late morning it was clear that the “rotation trade” was firing up again. Investors have been switching out of the volatile resource sector in the wake of the commodity price pullback to shifting into defensives such as utilities and healthcare, but also into the “forgotten” financial sector which has been left behind in the commodity surge. The same was prevalent last Thursday.

Such consolidation at the bottom was enough to turn Wall Street around, and also to turn commodities around, such that the momentum on the close last night was a lot more positive.

Commodities thus closed mixed across the board last night. Brent oil was down US69c to US$110.15/bbl while West Texas has pushed through to be up US28c to US$97.65/bbl. Gold fell only US$3.60 to US$1485.80/oz while silver was up US30c to US$33.85/oz. Base metals were again mixed, with copper slightly positive but aluminium continuing its recent weakness, down 1.5%.

The US dollar index reached its session peak last night when stocks hit their bottom but fell back to be down 0.3% to 75.36. The Aussie dollar is up half a cent over 24 hours to US$1.0625, spurred on by the RBA minutes released yesterday which provided more grist for the June rate rise mill.

Again, its worth bringing up the VIX, which jumped up to 19 last night when the Dow was down 170 but fell back to be down by 4% on the day at 17.5. While there is still plenty to worry about – the approaching QE2 expiry, Greek debt issues, US debt and deficit issues, commodity price volatility, let's not forget MENA – there are plenty in the market who see this latest correction as just that. The euphoria which followed the implementation of QE2, and drove positive economic data, solid stock market gains and a speculative commodities bubble, has subsided. Now it's back to the more realistic grind of holding defensives, looking for value amongst large industrials, and targeting underperformers such as a quiet financial sector.

There might yet be more dips but the mood is more circumspect than anxious.

The SPI Overnight fell 4 points.

Today's local release of the Westpac consumer confidence survey will be one to watch, while tonight the minutes of the last Fed meeting will make interesting reading.

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