By Greg Peel

The Dow rose 194 points or 1.5% while the S&P gained 1.6% to 1390 and the Nasdaq added 1.8%.

As we moved out of the December quarter and into the March quarter I started to believe that finally we would see the volatility of intraday price movements on Wall Street settle back to pre-GFC levels ? moves of maybe 20-50 Dow points a day with an occasional 75 but leaving behind the many back and forth triple digit days. Seems I was wrong.

It has also been noted that while brokers and traders have been bemoaning the lack of volume in recent months the numbers are really more representative of historical averages rather than any great loss of faith in stock markets.

However, recent volumes have been even lower, which over the past couple of weeks has led to an increase in intraday volatility. The triple-digit moves are back with a vengeance, but in both directions. Why? I suggest it's because despite the rally in the March quarter, investor funds were flowing out of the market, not in, as industry data confirms. Investor funds have been at low levels since the GFC, but as the S&P 500 pushed towards a 30% rally, and Apple a 50% rally, those still playing felt it was all getting a bit carried away.

Rather than selling down, nevertheless, even as Chinese data weakened and euro-fear reemerged, investors simply pulled out of the game. It's run too far to buy, particularly given lingering risks, but maybe this year it's not the time to sell as the US economy grinds out a modestly improving recovery and China, let's face it, seems more like achieving a soft rather than hard landing as each day goes by. This explains why Wall Street has struggled to correct in any meaningful way while still not being able to forge much ahead of the March highs. We're at an inflexion point, a toss of the coin, a wait and see, and the only players left in the market are the short-term traders. The very short-term traders. The ones you can only ever get two words out of ? zero or one.

It is in this vacuum that traders have jumped at the shadows of any daily piece of news, good or bad, and the high-frequency computers have madly pushed in either direction to provide these big moves up and down from day to day. It's not a conspiracy, it's just the reality of today's technological capability. What it does suggest, to me at least, is any real investors should take current daily moves with a grain of salt and wait for a clear trend to emerge. As to how long this takes will depend mostly on what happens in Europe, it would seem.

On that note, last night Spain held an auction of 12 and 18-month bills and the E3.2bn worth sold was more than the government had hoped for. Yields were, of course, a lot higher than a month ago and the buyers were mostly European banks which are loaded up with cheap money from the ECB with which they can play the spreads. As a result, the benchmark Spanish ten-year yield retreated from the supposed 6% line of no return and fell to 5.9%.

Good news, but not incredibly relieving fabulous news, given the short maturities. Tonight Spain auctions longer dated bonds, including tens, and that's where it could really get interesting.

European stock markets all surged 2-3%, and more in the peripherals, but there was also some impetus from Germany's monthly ZEW survey of business sentiment. It rose to 23.4 this month from 22.3 when economists had pencilled in a fall to 20.0.

And there was also impetus from the IMF, which updated its global economic forecasts following the March quarter. The new expectations are for 2.1% growth for the US in 2012, a 0.3% contraction for Europe, and 3.5% growth for the global economy. These numbers are all improvements on the previous quarter's forecasts (global previously 3.3%).

The economic news in the US was not so crash hot last night, but it doesn't much matter when computers are driving the steam train. Economists were expecting a rise in US housing starts in March but instead there was a 5.8% fall. Every time someone says the US housing market is turning, numbers like this come out. Building permits increased by 4.5%, which are the precursor to starts a couple of months down the track. So Wall Street shrugged. It also shrugged on the news March industrial production growth was flat when a 0.3% gain was expected.

US economy stalling again, at its usual time of the year? Ah shucks, buy it anyway. And so they did, pushing Apple back up to its highs once more.

In the "real" world, staple stalwarts Coca-Cola (Dow) and Johnson & Johnson (Dow) last night posted earnings beats and Goldman Sachs appeared to do the same, quite comfortably, until someone noticed a dodgy one-off deeper in the numbers. Tech biggies Intel (Dow), IBM (Dow) and Yahoo all reported after the bell and while all beat on earnings, revenues didn't set the world on fire. IBM is seeing the best after-market response with a 2% gain.

So here we are with the Dow back over 13k, the Nasdaq back over 3k, and the S&P just shy of pipping 1400 once more.

I have noted before that Wall Street considers the bond market to be "smarter" than the stock market because the pros trade bonds and the share market's full of muppets (with apologies to Goldman Sachs). If the stock market is up significantly you would normally expect bonds to sell off, hence yields rise, but last night the US ten-year rose only three bips to 2.0%. Was it really a "risk on" session?

Well if it was, the other markets didn't show it. The US dollar index is little changed at 79.57, gold is little changed at US$1649.50/oz and the Aussie is up 0.4 cents to US$1.0395. London base metals barely troubled the scorer.

The oil market is playing its own game for the time being as global traders absorb the implications of the planned pipeline reversal which will finally see refugee barrels of sweet light flee their overcrowded mid-west prison and escape to the sunny Gulf. The expectation now is that the Brent-WTI spread must close, which it already has begun to do. Last night saw West Texas rise US$1.21 to US$104.24/bbl and Brent rise only US10c to US$118.78/bbl. That's $14.54 on a spread that has seen $26 and analysts are suggesting $3 is the target ? basically where the spread used to be.

The question is, however, will we see lower Brent prices as a result, or just higher WTI prices?

The SPI Overnight is up 53 points or 1.2%. Good luck on that one.

Just as an aside, the US natgas price fell another 3.4% to US$1.95/MMBtu last night. Will we see BHP Billiton ((BHP)) write down part of its US shale investment today when it releases its quarterly production report? Or would that be a bit embarrassing this early on? It could get ugly.

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