By Greg Peel

The Dow closed up 8 points or 0.1% while the S&P rose 0.4% to 1325 and the Nasdaq jumped 0.8%.

Economists had expected the US March quarter GDP to be revised up to 2.2% growth last night from the initial 1.8% estimate. We recall that the first estimate takes January data and extrapolates it for all three months, the first revision does the same for January-February, and the final revision in another month adds March to complete the picture.

As it turns out, it was retail sales that economists got wrong. That component was revised down to 2.2% growth from the initial 2.7%. These are all annualised numbers, so given the December quarter number was 3.1%, 1.8% represents a significant slowing. Bad weather in January-February provides some explanation, but realistically December's QE2-led recovery surge slowed in March, and is clearly slowing further in the June quarter as we approach QE2's expiry.

The weak revision was enough to inspire weakness in the US dollar, as well as send the Dow down 77 points from the bell. Adding to weakness in the dollar was strength in the euro, driven by a report suggesting Chinese and other Asian investors were interested in buying Portuguese bail-out bonds. But the euro rally was crimped when the president of the Eurogroup finance ministers said Greece will not reach its 2011 budget deficit target, which would force the IMF to withhold bail-out funds. In the end, the US dollar index fell 0.5% to 75.57.

It was bargain hunting time in Australia yesterday as offshore investors clearly decided that an 8% correction, coupled with an Aussie down from US$1.10 to US$1.05, was good enough reason to get back in. Stronger overnight commodity prices helped, as did a stronger than expected reading on March quarter capex (See Economy Watch). The Aussie has risen a cent to US$1.0636.

It would appear there are a few bargain hunters on Wall Street as well, given the Dow turned around at about 11am and rallied back to be up nearly 50 points at 2.30pm. Sparking the turnaround was a call from a major hedge fund investor for the head of the Microsoft CEO on a platter. Microsoft shares finished 2% higher on the day, helping along both the Dow and the Nasdaq. It's a nice vote of confidence, isn't it, if your company's shares rally on the thought of your resignation.

Despite the rally, Wall Street was also unimpressed with another jump in weekly jobless claims. Traders on the floor of the NYSE have begun to raise the topic of QE3 once more, fearing the US economy is heading into double-dip if another round of QE is not implemented and suggesting the Fed would act accordingly. Where would it end? Do we see QEs four, five and six?

The thought of a double-dip, along with ongoing euro uncertainty, had investors pouring into the US Treasury's seven-year note auction last night. Foreign central banks took 13% compared to a running average of 7%. The benchmark ten-year yield was slammed down 8 basis points to 3.06%, closing in on the low yields seen last December before QE2 kicked in.

It was a mixed bag in commodities last night. Base metals had been rallying again in London before the US GDP release but then abruptly reversed, with aluminium and zinc up 1% but nickel and tin down 2-3%. West Texas crude took the brunt of the US number, falling US$1.22 to US$100.10/bbl, while Brent was up US12c to US$115.15/bbl.

After a good run in recent sessions gold slipped US$6.40 to US$1519.40/oz despite the weaker greenback, and silver fell 2% to US$37.19/oz.

The SPI Overnight was up 5 points or 0.1%.

Trading in the US tonight will likely be thin given it's a long weekend for Memorial Day on Monday. No one feels inclined to take weekend protection however, given the VIX fell another 6% to just over 16 last night.

It has been the feature of this latest market correction, of which there were a handful in 2010 and earlier this year, that the VIX has not spiked up on the way to the bottom before returning to low levels on the subsequent rally. When it has returned to low levels, it's been pretty much a given that another down-move was soon to come. But this time the VIX has remained stubbornly low the whole time. The lack of fear and capitulation probably suggests a typical bounce out of the correction is not on the cards this time in any exciting way, despite signs of bargain hunting.

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