By Greg Peel

The Dow closed up 67 points or 0.6% while the S&P rose 0.3% to 1297 and the Nasdaq added 0.5%.

Wall Street opened lower last night on the release of the US February new home sales, which fell 16.9% from January and 28% from a year ago to 250,000. Economists had expected a slight rise to 290,000.

The disparity and the size of the drop led many to question what is always a highly volatile number, with talk of possible weather effects for one. But the reality is that existing homes are so cheap at the moment new homes just don't get a look in. Such weak numbers in both new and existing sales ahead of the spring season do not bode well, and analysts are suggesting it appears the US housing market is rolling over again – double-dipping from what was never much of a recovery in the first place. And the real issue behind these numbers is that some 28% of homeowners are in negative equity.

This reality, and accompanying high unemployment, again puts the focus squarely on the Fed in June. Can the US economy stand on its own two feet? It relies on a consumer contribution of 75%, and those consumers are also suffering from higher food and oil prices which the Fed ignores.

That's the situation on the home front for Wall Street, but it has not been the home front drawing market attention of late. Despite reports of radiation in Tokyo's water supply, it seems as if the Fukushima situation is sufficiently stable now, such that fears of a major disaster are abating. Unrest continues in MENA in the meantime, but there has been no change in that situation of any note. Last night West Texas crude rose US43c to US$105.40/bbl, but Brent slipped US15c to US$115.57/bbl.

The story was, however, different in other commodities.

On the news of the Japanese earthquake commodities initially sold on the basis of reduced immediate demand. Then came the nuclear threat and commodity funds panicked and bailed out of their risk positions, which included gold. Now that the nuclear threat has abated, attention has turned to that which everyone had been talking about from Day One anyway – the pending increase in demand for commodities from Japan once it enters the rebuilding phase. The Bank of Japan is expected to inject around US$300bn of monetary stimulus, and the government is set to match that figure fiscally. Throw in the G7 intervention to cap the yen, and we have a more stable environment in which to concentrate on getting set in commodities once more.

And let us not forget that the underlying theme remains – that of China, India and other emerging markets driving longer term demand. Last night aluminium, lead and nickel rose 2%, copper 3%, and tin and zinc 4%.

The theme is thus also inflationary so gold continued its rise, up US$12.40 to US$1438.90/oz. Silver was up another 2.5% to US$37.34/oz. Gold's rise came despite a rise in the US dollar index of 0.5% to 75.87, and the commodity-supported Aussie added another 0.3% to US$1.0144.

The US dollar rise was affected mostly by the euro, and by the fact global intervention has capped, but not reduced, the yen. The euro is caught betwixt and between at present given the ECB is expected to raise rates next month, as is the Bank of England. Rate rises are positive for a currency, but late in last night's session news came through that the Portuguese parliament had rejected the latest austerity bill – the fourth since the crisis began.

This was not really new news, given the Portuguese opposition had already flagged its intentions. However it does confirm for many what is likely to happen next. The last time Portugal tried to sell sovereign bonds the ECB had to step in as a buyer given lack of demand at high yields. The higher Portuguese yields rise, the more the additional cost of budget finance negates any austerity cuts. The Portuguese prime minister had indicated he would resign if the bill was rejected, so now the expectation is that Portugal will enter a period of governmental limbo. The ECB is unlikely to step in again in such circumstances and the next step is for the EU to bail out the stricken economy, just as it has Greece and Ireland.

As it happens, the EU leaders begin a two-day summit tonight which supposedly will result in more details on the new bail-out fund and additional measures. It might be a good opportunity to sort out Portugal sooner rather than later.

The late news took some of the gloss off the rally on Wall Street which had been led by commodity producers. The Dow was up over 90 points at one stage in the last hour. The question is, nevertheless, as to whether a bail-out of Portugal or even a rash of sovereign debt restructuring will make a lot of difference to a world now largely expecting such an outcome anyway. Spain? Now that would be different. Italy? Oh please let's not go there.

Renewed sovereign debt fears should, by rights, send the euro crashing again, but we have a likely ECB rate rise on the other side. A weaker euro means a stronger US dollar, which should in turn mean weaker commodity prices, but then commodity prices have been paying little attention to the US dollar for a while now.

The SPI Overnight was up 19 points or 0.4%.

Rudi will appear on Lunch Money on Sky Business today at noon.

[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]

FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.

Subscribers and trialists should read our terms and conditions, available on the website.

All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.