By Greg Peel

The Dow closed up 146 points or 1.4% while the S&P added 1.5% to 1095 and the Nasdaq jumped 2.0%.

The Australian market put in a lacklustre performance yesterday, suggesting those institutions claiming at the bottom they would be sellers into any rally were at play. But if that's the case, those instos are underestimating the power of positive earnings.

Monday night in New York saw positive results both before and after the bell for railroad CSX and aluminium producer Alcoa. Both companies beat estimates on both the earnings and revenue lines and increased third quarter guidance. It's interesting to see how traders responded.

Having jumped 3% in the after-market on Monday, Alcoa ultimately only put in a 1.3% rally from Monday's closing price last night. CSX actually lost 1.4% given the guidance upgrade was not quite as good as analysts had hoped. Thus from a micro level, these results were so-so. But the 146 point rally in the Dow – in a session which opened higher, went straight up all day, and only pulled back slightly on the close – suggests Wall Street has taken a more positive macro view on the impact of positive earnings from within the transport and materials sectors.

Interestingly, for the last several quarters Alcoa has disappointed and come in short of consensus. By contrast, the following day's Intel result has always tended to blow the market away. For once we had a good result from Alcoa this time, and Intel certainly didn't disappoint.

As usual, Intel's result – released after the bell last night – beat the Street handsomely on all levels. Guidance was upbeat. Indeed, Intel's CEO announced the June quarter 2010 saw the best result in the company's history. Intel shares are currently up 7.5% in the after-market.

So it's three out of three so far, and Wall Street's 7% run in six days has challenged previous records. Between now and the weekend the big names to report include JP Morgan, Bank of America and General Electric. Last night the Dow just pipped 10,400 before selling was triggered at the death. More importantly, the S&P 500 made it 1099 – just shy of the 1100 level which is both psychologically and technically significant (a break of 1105 would be very technologically significant). All things being equal, Intel's result suggests such breaks will occur tonight.

In terms of all other markets, last night was textbook 2009. Demand for US Treasuries was tepid, the US dollar fell against all major currencies, and commodities rallied as a result. Not a tough one to decipher.

As I have noted a few times now, last year Wall Street would have been a little concerned about diminishing demand at US Treasury auctions given the size of the US deficits. But then the benchmark ten-year yield was closer to 4%, while recently it had fallen below 3%. It was thus heartening this time around for the stock market to see last night's auction of US$21bn of ten-year notes meet with only muted demand. This means the desire to hold low-yielding fixed interest instead of risk assets given the European crisis is waning.

Foreign central banks were nevertheless still willing buyers, snapping up 42% compared to a running average of 37%. But it was again back to 2009 as the US trade balance was released for May, showing the deficit widened by 4.8% when a contraction was expected. The direct deficit with China was US$22.3bn in May compared to US$17.5bn in May last year. This supports the big jump in export numbers reported by China last weekend.

Which means we're back to the old dilemma. If the US consumer is buying up Chinese imports then we're back to the conditions of the 2003-07 period which was, of course, a very positive one. Such results mean the US economy is perhaps healthier on a demand basis than recently assumed. However, it also means we are simply pushing the world further into the global imbalance which was very much part of the whole GFC catastrophe. The US needs to increase its exports and reduce its imports, particularly those purchased with debt. China needs to build its imports more than its exports to ensure a healthy domestic economy less exposed to Western economic problems.

What really needs to happen, of course, is that China needs to revalue the renminbi sooner rather than later. Last weekend's trade numbers added to that pressure. Tomorrow's data releases in China, including second quarter GDP, may well add more pressure.

Over in the other region of current global focus – Europe – the euro staged a rally last night despite news that might suggest otherwise.

Moody's downgraded Portugal by two notches from A1 to Aa2 citing weak growth prospects. While in May this might have spooked global markets, in July it caused mostly amusement. Moody's is so late to the party the hosts have already recovered from their hangovers. But then Moody's has long been considered a joke.

A weaker than expected ZEW sentiment survey for the EU might also been more problematic a couple of months ago, but the world has already discounted a European slowdown. What really drove the euro (in combination with US dollar weakness) was a successful, albeit mildly so, auction of US$2bn of six-month Greek Treasury bills.

The auction was 3.6 times oversubscribed and settled at a yield of 4.65% (US equivalent yield is 0.2%). At the last similar auction in May, the result was 7.7 times over-subscription and a settlement yield of 4.55%. But while the July result may look worse on such terms, one has to consider that the EU has had to bail out Greece in the meantime with emergency funding. This is the first open market auction since, so simply getting the bills away was seen as an encouraging result under the circumstances.

The US dollar index fell 0.9% last night to 83.51, sending the Aussie up 0.8 of a cent to US$0.8836. Gold continued its to-ing and fro-ing, with apparently odd dates now declared buying days and even dates selling days. So gold rallied US$14.20 to US$1211.30/oz.

Oil leapt 3% or US$2.20 to US$77.15/bbl on a combination of factors, including the weaker dollar, the positive economic implications of corporate earnings, an upgrade in demand expectations from the International Energy Agency, and the reapplication of the White House moratorium banning all offshore oil exploration until November unless the problem which caused the Deep Horizon well to rupture is nailed down.

It's a brave move from Obama given such a moratorium costs many potential jobs at offshore oil fields at a time when unemployment is a pressing issue for the Administration. Clearly the oil lobby is livid, but then you won't get a lot of complaint from out-of-work Louisiana fishermen. In the meantime, it appears the ruptured well is very close to being plugged. Success would be a big fillip for the markets.

Base metals were mostly 1-2% stronger in London, although copper and zinc slipped a bit in late trade.

The SPI Overnight was up 69 points or 1.6% after yesterday's sluggish performance, and with the Intel result known.

Watch out for Westpac's measure of Australia consumer confidence today and Rio Tinto's ((RIO)) quarterly production report, before tonight's US results which include Intel competitor Advanced Micro Devices, Google and JP Morgan.

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