By Greg Peel

The Dow closed down 19 points, or 0.1%, while the S&P lost 0.1% to 1666 and the Nasdaq lost 0.1%.

It was business as usual on Wall Street last night as the opening bell rang. The only data release of note was the Chicago Fed national activity index for April, which showed a fall to minus 0.53 from minus 0.23 in March. The indices opened lower, but then the familiar buyers came in and wasted little time in pushing further into blue sky.

For the past two weeks there has been a lot of Fed talk from various regional presidents, voting and non-voting, all of whom have indicated a hawkish bent. That is, they are not keen on maintaining the current level of bond purchases (QE) and have spoken of beginning to taper off said purchases before year-end, despite more recent US economic data being a little weak. This chatter has sent the US dollar surging, commodity prices easing, and gold collapsing.

The commentary has also seemed at odds with the last Fed policy statement, which suggested the central bank would top up QE further if conditions weakened. This contradiction highlights the fact the hawks do not hold the majority in the FOMC, and that the doves, led by chief dove Ben Bernanke, have the majority. Those doves have spent the last two weeks saying little.

That changed last night when Chicago Fed president and FOMC member, Charles Evans, stepped up to a microphone. Evans noted there had been "good progress" in reducing unemployment, but when asked if this progress was sustainable, he suggested "I think we need a little more time to assess that".

Evans may as well have dropped a bomb. The US dollar index plunged 0.5% to 83.80. Copper jumped 1%, and all base metals posted gains. The biggest victim of the hawkish Fed talk to date has been gold, and the market is short the metal. A short-covering scramble thus ensued, and gold rose US$33.60 to US$1393.80/oz. The Aussie has similarly been shorted heavily of late, and it rebounded 0.8% to US$0.9809.

The US stock market has shown itself to be somewhat enigmatic in May. Firstly, we have seen no "Sell in May", but that's no big deal as it doesn't happen every year and has been blown out of all proportion. More curiously, there have been plenty of dire predictions of not just a pullback, but a major correction if the Fed turns off the tap. Yet through all of the recent hawkish Fed talk, the S&P 500 has pushed higher.

Is it because recent data have been weak, hence Wall Street refuses to believe the Fed will see reason to back off any time soon? That would make sense on the old "bad news is good news" paradigm. Or is it because Wall Street actually wants the Fed to start backing off? Last night, when Evans made his remarks, stock prices immediately fell, and ensured a mildly weaker close. Under the bad news is good news paradigm, that's the wrong way around.

Whatever the collective thinking at present, Wall Street is nervous. The more this "unloved" rally continues, the thinner the air becomes. Yet there are plenty of commentators suggesting we are only seeing phase one. Phase two of the rally is when the cash comes off the sidelines in earnest, and out of bonds, into equities. Then the real rally will begin, they say.

Tomorrow night Fed chairman Ben Bernanke will make a regular testimony to Congress. The world will be watching and listening intently. As he reports on the state of the US economy and what the central bank intends to do from here, he may well put all this recent Fed chatter to bed and emphatically re-establish the policy position. It will then be interesting to see how Wall Street reacts, depending on whether Bernanke is forthright in emphasising the need for ongoing monetary support or whether he suggests a fresh timetable for a Fed exit. Congress is not the forum for policy change announcements, so presumably he will reiterate that bond purchases can be backed off if the economy is looking healthier, but can also be increased if the opposite is true.

Tonight on Wall Street will likely be quiet ? volume was low last night ? as the world awaits.

The oil markets are clearly more balanced than short at this point, given Brent rose US16c to US$104.80/bbl last night and West Texas added US64c to US$96.66/bbl.

Spot iron ore fell US10c to US$123.00/t.

The SPI Overnight rose 7 points.

Today sees the release of the minutes of the May RBA meeting, which gave us a 25bps rate cut. The Aussie has fallen about three cents since that rate cut, not because of it, nor because of the Federal Budget. The Aussie has fallen because the US dollar has surged and Chinese data have been tepid. This could render the minutes old hat, but still they will be closely scrutinised for any clues of when a further rate cut ? expected by most ? might follow.

Arrium ((ARI)) will provide a quarterly report today and Fletcher Building ((FBU)) will hold an investor day. Boart Longyear ((BLY)) holds its AGM, and if AGMs in this sector to date are any indication, look out.