By Rudi Filapek-Vandyck

As suggested by US index futures in the Memorial Day run up to yesterday's trading session, US equities were due for a technical bounce and bounce they did in last night's session. All major indices opened on a clear positive note and managed to hold on to gains of more than one percent at the sound of the closing bell.

The S&P500 closed up 1.11%, 14.60 points, at 1332.42. The Nasdaq gained 33.46 points, 1.18%, to close at 2870.99 and the DJIA rose 125.86 points to 12,580.69.

After a disappointing performance on Monday, European bourses also put in a positive performance overnight, with exception of Spain, where equities dropped yet another 2% (see more below).

One interesting observation stands out nevertheless: all three major US indices reached their highest point for the day in the morning, subsequently lost momentum and put in one last effort in the final hour, but none of them managed to climb back to the high point reached earlier in the day.

The conundrum investors are facing in Australia on Wednesday morning is that a gain of 1%-plus is rather disappointing given the local market did exactly that, but two days in a row. The ASX futures market is reflecting that feeling of "now what?" by trading effectively unchanged from yesterday's reference point. Mixed base metals markets combined with lower prices for crude oil and precious metals (otherwise known as "hard currencies") further add to this morning's dilemma.

The general feeling of "what now?" is also pervading comments and views expressed across the globe. Consider, for example, the ones I picked up this morning:

- "So continues the slow grind towards Spain's inevitable bailout" (National Australia Bank)

- "Resource Stocks Could Present an Opportunity (for the Brave)" (Citi)

- "We note the Chinese stock market yesterday traced out a "reversal" to the upside (Dennis Gartman)

- "US Dollar Chart Setup Hints Deeper Losses Likely Ahead" (FXCM)

- "You have an e-card waiting for you from a secret admirer" (Spam email)

Markets are in limbo as increasing optimism about election outcomes in Ireland and Greece combine with technical levels of support, temporary indications of assets being "oversold", with continued mixed economic economic data and signals of more policy support from China. Beijing is now indicating it will re-ignite yet another infrastructure spending program to stablise growth in the Middle Kingdom and this was one of the Big drivers of the rally in Australian equities yesterday.

In a telling sign, economists have already welcomed the move, but at the same time stated they will make no changes to their growth forecasts for this year, which seem to be concentrated around the 8% GDP level. General consensus still believes GDP growth might fall below the 8% mark this quarter, but the second half of calendar 2012 should see improvement. And that's why chartists' predictions of BHP Billiton ((BHP)) shares falling towards $28 or $26 have been proved too negative thus far. (To name but one of the more dire predictions out there).

One other observation adds to the mixed picture: all three major US indices are on track for their biggest monthly drop since last September (!).

As far as US economic data played a role (they basically didn't), US home prices ended the first quarter at new post-crisis low, according to the S&P/Case Shiller composite index of 20 metropolitan areas, while consumer confidence declined to its lowest level in four months, according to the Conference Board. The Dallas Fed manufacturing index slipped from 3.4 to 5.1, a low since September 2011.

Spain received yet another credit rating downgrade, this time from Egan-Jones. On the other side of the globe, China's biggest banks have accelerated lending toward the end of the month, according to the Shanghai Securities News.

Not difficult to see as to why technicals and sentiment rule these days.

US treasuries were mixed on Tuesday. Concerns about contagion from Spain's ailing banks were offset by the rally in equity markets. The yield on Spanish 10yr bonds hit a six month high of 6.54%, ensuring ongoing demand for safe haven US government bonds. US 2yr yields fell by 1 point to 0.29% while US 10yr yields were flat at 1.74%.

The euro fell to a near two year low against the greenback. The euro fell from highs around US$1.2575 to lows near US$1.2465 and closed US trade at US$1.2495. The Aussie dollar fell from highs around US98.95c to US97.95c but ended US trade near US98.40c. And the Japanese yen held between 79.60 yen per US dollar and JPY79.35 and ended US trade near JPY79.50.

Base metals prices in London were pretty much directionless for the day, with copper posting a minor loss. Gold had to endure losses as well, as did silver. Benchmark crude oil prices fell in a choppy trading session. US Nymex crude fell by US10c to US$90.76 a barrel. London Brent crude fell by US43c to US$106.68 a barrel.

On the local calendar today, we have April retail sales and Q1 construction work done. In the eurozone, we have business climate and consumer confidence for May and in the US we will see pending home sales for April being released. Data will get more important later in the week.

Greg Peel will return on June 11.

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