By Greg Peel

The Dow closed up 78 points or 0.6% while the S&P gained 0.7% to 1363 and the Nasdaq added 0.5%.

"The economic recovery is frustratingly slow" and "we stand ready if necessary". That's about all we need to know, and all Bernanke has said for the past few months. But it hasn't stopped Wall Street playing the headless chook game yet again, scrambling backwards and forwards on every attempt at subtle interpretation of the Fed's thinking. The fact volumes on Wall Street have been historically low in recent times is a contributing factor and the fact those volumes are even lower in the summer holiday period only adds to the volatility. Last night the Dow was down 82 points in the morning and up 102 points in the afternoon on exactly the same piece of testimony.

What Bernanke told the Senate Finance Committee last night was no different to any recent commentary. The Fed will implement QE3 ? or at least some new form of monetary stimulus ? if it appears the US economy is sliding away again. If not, it won't. If economic data improve from here, Wall Street should be happy. If economic data deteriorate, then Wall Street should be happy to know the Fed will be there. Yet for some reason in between, Wall Street is unhappy that the Fed is not there right now. Hence the volatility, fuelled by the uncertainty.

We've done this all before, in 2011 and 2010. Each (northern) summer the US economic data weaken, prompting double-dip hysteria. Each time, Fed speculation bubbles over. Each time, Wall Street has expected something to be done right away. Each time, the Fed has waited until the August conference at Jackson Hole. In 2010, QE2 was announced there. In 2011, Operation Twist was announced there. On that basis, the August Fed meeting, which precedes the conference, will not bring us QE3. Jackson Hole will, but only if the data stay weak or weaken further.

Having said that, last night it was revealed US industrial production rose 0.4% in June. The housing sentiment index has hit 35 this month ? the highest level since 2007. We must always remember, nevertheless, that this is a 50-neutral number. And the headline CPI was flat in June, with the core rising only 0.2%, which means QE3 has an open invitation.

On the earnings front, Goldman Sachs matched its peers with a drop in profits but a decent "beat" of expectations, and Coca-Cola (Dow) also beat the Street with sales to India the highlight. Toymaker Mattel was the stand-out on the day, with its shares jumping 10% post result. After the bell, Yahoo satisfied with its result, but Intel (Dow) has seen its shares fall 1% in the after-market.

On the running average to date, it's still a pretty poor season as far as the beat/miss ratio goes, and that's after some steep pre-season expectation downgrades. Nor has Q3 guidance provided much comfort overall. But if we shove an E in the middle of Q3 then we can all be happy of course.

The same rock'n'roll ride of Fed interpretation was present in other markets as well last night. The US dollar index shot up initially before dropping again to be down 0.2% at 82.98. They must have been expecting something more concrete over in the bond market given the ten-year yield bounced back from its near record low, up 4bps to 1.50%. Gold was also uninspired, falling US$6.60 to US$1582.40/oz.

Commodity markets were less excited about it all, with base metals all down a smidge, Brent up US26c to US$103.63/bbl and West Texas up US69c to US$89.12/bbl. The Aussie liked the RBA minutes yesterday, for some reason, and it's up 0.6% to US$1.0314.

I say "for some reason" because the market has taken the minutes as suggesting the RBA is "more upbeat" about the Australian economy than thought. All I could see was an admittance that the Q1 GDP was stronger than expected but also an acknowledgment that the data had been weaker ever since. Perhaps the market was a lot more convinced of an August rate cut, previously, than I was.

The SPI Overnight was up 8 points or 0.2%.

Wall Street won't have to wait long to learn what the Fed thinks of the US economy and its progress or lack thereof. Tonight sees the release of the Fed's Beige Book, which anecdotally assesses activity in each of the twelve Fed regions. On the earnings front, Dow components American Express, Bank of America and IBM will be the highlights along with economic bellwether eBay.

Locally we'll see the quarterly production report from BHP Billiton ((BHP)) and a full-year result from biotech Pharmaxis ((PXS)).

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