By Greg Peel

The Dow rose 178 points or 1.5% while the S&P gained 1.5% to 1298 and the Nasdaq added 1.8%. The Dow reclaimed the 12,000 mark, closing at 12,036.

Wall Street has always loved a good war. Typically stocks fall on the threat of war and rebound strongly when pictures of the first plumes of smoke are broadcast. Speaking in Chile this morning, President Obama declared that he expected the exercise in Libya to last “days, not weeks”.

One is uncomfortably reminded of the laugh-out-loud comedy of George W. Bush playing dress-ups and landing in a fighter jet on an aircraft carrier under a banner proclaiming “Mission Accomplished”. That was in 2003, only months after the invasion of Iraq. So far there is no end in sight to that war.

Clearly coalition attacks have had their impact on Gaddafi's military capacity but as neighbouring Egyptians go to their first poll amid scenes of joy, the question is as to what sort of Libya will be left were Gaddafi to capitulate. Meanwhile, protesters have been killed in Syria, to add to the death tolls from Yemen and Bahrain. While the US joins the coalition to strike Libya in the Mediterranean, the US fifth fleet is stationed in Bahrain turning a blind eye.

The oil price was on the rise again last night, with Brent gaining US$1.02 to US$115.03/bbl and West Texas US$1.14 to US$104.25/bbl.

The news from Japan has ebbed and flowed over the past 24 hours, with a couple of reactors thought to be back to normal temperature and a couple of others spewing radioactive vapour. A pressure build-up in one reactor caused alarm at one point but that was later dismissed. So no real change at Fukushima, which is good enough for now.

Despite the higher oil price, Wall Street extended its significant bounce-back rally to three sessions. There was little conviction in a market that opened up 220 points and pretty much flat-lined for the rest of the day on low volume. The supposed de-risking of foreign influences was met by mixed news on the home front.

Monday is the day for mergers, and AT&T's US$39bn bid for T-Mobile is the largest since 2009. But while traders went hunting for the next merger target, the Chicago Fed national activity index came out with a slip into negative territory at minus 0.04. The compilers pointed to a benign inflationary environment in the US led by weak consumption and housing. Existing home sales fell a worse than expected 9.6% in February as house prices fell to their lowest level since 2002.

Endogenous events around the globe are influencing Wall Street at present, but investors are becoming concerned as to what might happen to the US economic recovery when QE2 stops in June. There remains expectation for QE3 among many, and low inflation numbers give the Fed an excuse.

Yet in a counter-move, last night the US Treasury announced it would begin to sell its portfolio of mortgage-backed securities acquired in the emergency of 2008. Some of these once “toxic” assets have returned to solid prices in the interim, and it makes sense that the Treasury should exit just as the government has been selling down its stakes in US banks for the same reason. Last night the US ten-year yield rose six basis points to 3.33%.

Meanwhile, fear that the G7 central banks will mount another coordinated intervention in yen trading after last Friday's effort had the yen falling once more against the US dollar. But the intervention also de-risks the global situation, which leads to renewed risk appetite, which leads to inflation. The euro thus pushed higher still on heightened expectation of an ECB rate rise and helped the US dollar index down slightly to 75.42. The Aussie's bounce-back since intervention continues, with the currency gaining almost another cent to US$1.0055.

Inflation is good for gold, and it rose US$7.80 to US$1426.40/oz. Silver added 2% while the more pragmatic base metals looked to weak US data in another mixed session. Copper was down 1%.

The SPI Overnight gained 30 points or 0.6%.

It is worth noting that last night the VIX volatility index fell 15% to 20. This puts it back on the threshold of complacency very quickly after its foray last week into concern territory above 30.

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