By Greg Peel

The Dow closed down one point while the S&P lost one point to 1320 and the Nasdaq fell 0.5%.

Yesterday in Australia we saw weak housing finance numbers and a dip in consumer sentiment, the latter largely attributed to higher petrol prices and carbon tax fear. Along with ex-dividend influence, the market fell 0.8% despite the overnight rally on Wall Street. But it was resources stock which led the charge to the downside.

There's not much downside in further bashing already black and blue consumer stocks, but it's a different matter for previously buoyant resource stocks. It is they taking the biggest hit on an indirect influence from rising oil, as the resultant drag on economic growth translates in lower demand for iron ore, copper et al. As the situation in Libya in particular and MENA in general drags on, this is where confidence is really being lost.

While Wall Street has whipped around from day to day with every new piece of MENA news, the local market has largely marched to its own drummer. There is little doubt the US economy is still a major driving force (take QE2 for example) but more and more the Australian market is responding to wider influences and particularly those closer to home.

Last night in the US, Wall Street celebrated the second anniversary of the rally from the GFC low. The ensuing bull market has seen the S&P 500 rise 95% – its biggest move since the sixties. Prime Minister Gillard may have been in Washington talking up our own wonderful economy which “avoided” the GFC, but the ASX 200 is up only 52% in the same period. The falls from the pre-GFC peaks of both markets were nevertheless similar.

We may have had Pennies from Kevin and a 3% emergency RBA cash rate but we haven't had a QE1, let alone a QE2, and the cash rate is now at 4.75%. QE2 effectively puts the Fed's cash rate at minus 2.25%. And while a weak US dollar has allowed American companies to benefit from their exports to China, our exports to China have surged but now stand to ease off on Beijing's monetary policy tightening, which is inflation driven, which thus is also an indirect response to high oil prices. And we've been hit with an Aussie over parity.

After having dipped on Tuesday, last night Brent crude jumped US$2.27 to US$115.69/bbl as fighting in Libya intensified and Saudi Arabia suggested the monarchy should engage in dialogue with the dissatisfied masses before protests escalate. Be in no doubt -- the one price of oil that is most important to Australia is that of Brent. Even Tapis is waning in influence given more and more Brent oil is arriving in Singapore. And Brent is important most everywhere outside the US. On last night's Brent rise, European stock indices fell around 0.5%.

But Wall Street was flat. Why? Because although West Texas crude initially began to rise again with Brent, it soon turned tail on the release of the US weekly inventory numbers, which showed a bigger increase than expected. WTI fell about a dollar to US$104//bbl, thus re-widening the price gap. The storage facilities at Cushing, Oklahoma, are near to full. Available storage is thus now very expensive. If you have to pay a high premium to store oil (and WTI, by definition, is oil delivered to Cushing) then you will not pay as much for the oil itself. Storage costs in the Shetland Islands are much lower, and thus the price of underlying Brent crude is higher, and more indicative of the “true” price of oil. But all Wall Street saw last night was a “fall in oil”.

The oil price is being driven almost entirely by speculation – by the same commodity funds which last night sold down copper by 3%, aluminium by 1%, and all other metals by 3-4%. Foods are also being sold, and spot iron ore is falling. Ironic really – take the speculators out of oil and we wouldn't really have much of a problem.

Not that MENA developments are not a threat, except that right now there is actually very little disruption to global oil supply. Speaking on CNBC this morning, the CEO of ExxonMobil decried any thought of releasing strategic reserves at a time when there is no supply shock.

Many an analyst believes this oil spike is little more than temporary, albeit we still need to see how MENA unrest plays out. There are protests ready to go in Saudi Arabia tomorrow night. But perhaps the Australian market just needed a decent shake-out anyway. One man's selling rush is another man's buying opportunity.

While stocks in Europe were weak last night, the euro was relatively steady. The euro is currently caught betwixt and between, given higher oil prices mean inflation means rate rise means buy the euro, while PIIGS sovereign debt concerns mean sell. Last night saw relief when Portugal managed to successfully auction E1bn of two-year bonds, but the yield was 6% compared to 4% only six months ago. Six months of budget cuts and austerity measures have basically flown out the window. Debt restructuring cannot be far off.

Currencies were steady all round with the US dollar index slipping slightly to 76.71 and the Aussie little changed at US$1.0099. Gold was steady at US$1429.70/oz.

Whose debt does one buy at the moment? Not euro-debt and not MENA debt. Last night the US Treasury received solid demand for its auction of US$21bn of ten-years and the yield fell seven basis points to 3.48%. Foreign central banks bought 53% compared to a running average of 45%.

The SPI Overnight rose 2 points.

It's unemployment day in Australia today but most telling will be China's February trade balance, which will provide the latest data on imports of commodities.

Rudi will be on Lunch Money on Sky Business at midday.

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