By Greg Peel

The Dow closed down 26 points, or 0.2%, while the S&P closed flat at 1633 and the Nasdaq was also as good as flat.

Yesterday Beijing reported that Chinese retail sales grew by 12.8% in April, year on year, meeting expectations and exceeding March's 12.6%. Industrial production rose 9.3%, up from 8.9% in March, but short of 9.4% consensus, and fixed asset investment grew 20.6% in the four months to April, down from 20.9% and below 21% consensus. All up, the results were declared "weak".

Weakness is only relative to expectations, and you'd never bet your life on the efficacy of Beijing's statistics, but either way the Australian market was still up yesterday when adjusted for ex-dividend moves.

The hot topic around town now is nevertheless the Fed's exit strategy. A Wall Street Journal article has appeared suggesting the Fed is pondering just how it should exit QE, with a slow-and-steady withdrawal designed to not cause market volatility not necessarily the option the central bank might take. The Fed is worried that having supplied the US economy with so much morphine over the past four years, it has become addicted, and at risk of overdose in the form of overheating.

Such news might otherwise have sparked a big plunge on Wall Street, but this has not eventuated. First of all, an exit all comes down to the matter of timing, which is as yet unclear. Secondly, only last month the Fed's monetary policy statement suggested QE could be incrementally topped up if the economy was once again faltering, or incrementally reduced. This is not the talk of a central bank about to pull the pin.

And finally, of course the Fed is discussing an exit strategy ? it's been doing so for months. Was the WSJ article "news"? Not really.

Were the Fed to begin winding down, the implication would be that the US economy is beginning to regain health. That should be good news, albeit there will no doubt be an initial panic sell from the drug addicts. Not that this would necessarily be a bad thing when everyone is worrying that Wall Street has run too far without a pullback. It will be an issue, nevertheless, that a QE pull-out will mean a stronger US dollar and less US export competitiveness.

Well diddums. The S&P 500 has traded into post-GFC blue sky this year. The ASX 200 is still 30% shy of its high. That gap to a great extent represents the Aussie dollar, and the Aussie dollar to a great extent represents Fed QE. Would a correction on Wall Street by default imply a correction on Bridge Street, or would a lower Aussie be the catalyst for closing the valuation gap?

A stronger US dollar will, of course, mathematically, and all things being equal, reduce commodity prices, at a time when commodity prices are already under pressure. But with mining growth having peaked, it was never mining that was going to drive the next leg of any Australian bull market. And if the US economy is improving, it suggests China's economy should benefit, and if China benefits, Australia benefits. All things may not necessarily be equal.

Last night data showed US retail sales rose by 0.1% in April when economists had expected a 0.6% fall. Lower oil prices meant spending at the pump fell by 4.7%, so if this element is subtracted, retail sales rose by 0.7%. The result was enough to ensure Wall Street wasn't simply spooked by scary Fed talk.

The US dollar index rose 0.1% to 83.24 and ? ring the bells, hang out the bunting, sound the trumpets ? the Aussie is trading at US$0.9952, down 0.6% from Friday night.

Commodity markets had to weigh up Fed exit talk, and the "weak" Chinese data, but the impact was felt mostly in the oils. Brent was down US$1.12 to US$102.79/bbl and West Texas fell US$1.05 to US$94.99/bbl. London base metals were nevertheless mixed on small moves, with copper steady. Gold was the more likely victim, and it fell another US$12.80 to US$1430.40/oz.

Spot iron ore fell US20c to US$129.40/t.

The SPI Overnight rose a seemingly unconcerned 16 points, or 0.3%.

There are no major data releases in the US tonight, but Europe will see industrial production and the ZEW investor sentiment survey numbers. Tonight Wayne Swan will bring down a Federal Budget.

Dead man walking.