By Greg Peel

The Dow rose 95 points or 0.8% while the S&P gained 0.6% to 1355 and the Nasdaq added 0.8%.

The people of the world might be preparing to be glued to their sets to see a humourless Royal Family orchestrate a UK economic recovery tomorrow night, but last night global attention was centred on the historic occasion of the first ever monetary policy press conference given by a chairman of the US Federal Reserve. The European Central Bank chairman gives a press conference after every monthly policy meeting, but in defending the Fed's transparency policy last night, which will see only four annual press conferences despite six-weekly meetings, Ben Bernanke noted that as late as 1994 the Fed did not even publicly announce its interest rate changes.

It was thus a golden opportunity for the world's financial media to try to extract some more definitive information from the man who controls the fate of the financial world.

The conference was not due till late in the session nevertheless, and so it was business as usual beforehand and not too much in the way of restraint as the US earnings season rolled on. Results were again mostly to the positive, albeit there were few big moves amongst the big names reporting last night. By session end, aircraft maker Boeing (Dow) had gained 0.8%, Gulf clean-up crew BP gained 0.5%, oil & gas major ConocoPhillips lost 1.7%, and Swiss investment bank Credit Suisse lost 0.6%. The standout was former entomologist Volkswagen with a 6% gain and a tripling of profits from selling cars to China.

After the bell, online auctioneer eBay is seeing its shares up 0.8% while alleged coffee maker Starbucks is up 1.6%. The bottom line however, at this stage of the US earnings season, is that 80% of results have surprised to the upside.

The one economic release of note last night was March durable goods orders, which saw a 2.5% jump when economists had expected 2.0%.

Prior to the release of the Fed monetary statement and the subsequent Bernanke grilling, the Dow was up about 50 points. London base metal markets had already pulled up the shutters for the night, and squaring up ahead of whatever Bernanke had to reveal meant copper, lead, tin and zinc all closed 2% lower. The precious metals, which were more likely to be directly impacted by US monetary policy, were steady.

The bottom line is that while Bernanke's mantra for some time has been, and remains, that commodity price hikes and thus inflation expectations will prove “transitory”, the Fed has now acknowledged there are inflationary pressures building. Empirically, the Fed has lifted its 2011 inflation forecast to a 2.1-2.8% range when its “mandate consistent” target is 1.7-2.0%. Anecdotally, Bernanke suggested that there is now a risk that “substantial” wage improvements cannot be achieved without the risk of the impact of higher inflation. Conclusion? There will be no QE3.

QE2 will, nevertheless, be allowed to run its course as scheduled to the end of June. Thereafter, the size of the Fed balance sheet will be maintained by repurchasing bonds after previous holdings mature. This is the “QE2.5” which most observers had been anticipating. It is the equivalent of keeping “rates” steady. A complete end to bond purchases would be an implicit rate hike, and QE3 would be an implicit rate cut.

The actual funds rate range of 0.00-0.25% will continue to be maintained “for an extended period”. What all the world wanted to know, of course, is just how long an “extended period” actually is. The short answer from Bernanke is that he didn't know. The period, he said, was “conditioned on resource slack, on subdued inflation and on stable inflation expectations”. Monetary policy tightening would only come “once those conditions are violated or we move away from those conditions”.

When pressed, Bernanke suggested that the FOMC would wait “at least a couple of meetings” before acting. That's twelve weeks of waiting plus another six weeks until the following meeting, which takes us to September. The first step towards tightening will be to stop repurchasing bonds, so speaking on CNBC this morning, bond guru Bill Gross declared his belief that it will be the new year before we see the first actual move up in the funds rate. For some time, economists have been targeting 2012.

So what was the reaction?

Given that there had been some anticipation in the market, and plenty of talk from rogue FOMC members, that inflation pressures would bring a premature end to QE2, the US dollar dropped to be down 0.6% to 73.35. The Aussie is up 0.8% to US$1.0869 but most of that occurred yesterday on the release of the local CPI. The real moves were in the precious metals.

Gold jumped US$22.70 or 1.5% to US$1527.30/oz. The more speculative silver, which had seen a sharp 10% reversal off its intraday high this week, was back in business. It jumped US$2.35 or 5% to US$47.77/oz.

Brent oil rose US99c to US$125.13/bbl and West Texas was up US55c to US$112.76/bbl.

US bond yields pushed higher, with the benchmark ten-year rising 4 basis points to 3.36%. On the subject of US dollar weakness, Bernanke made the usual politically necessary comment that a “strong dollar” is always the intention, and best for the US economy – a mantra also parroted by Treasury Secretary Timothy Geithner. No one believes them of course. The Fed and the US Treasury have, through their policies, been quietly orchestrating a strategic weakening of the US dollar ever since the GFC sent the reserve currency skyrocketing on a flight to safety.

What they don't want is a panicked collapse. Politics aside, US corporate earnings are now enjoying the benefit of a more competitive currency at a time when emerging market domestic consumption is driving global economic growth. The stock market gains of late are reflecting exactly that – solid earnings are being made by America the exporter, not by America the domestic consumer.

The SPI Overnight was up 37 points or 0.8%.

Tonight in the US sees the release of the first estimate of first quarter GDP. Earnings highlights include Colgate-Palmolive, Deutsche Bank, Dow Chemical, Exxon (Dow), Microsoft (Dow) and Shell. Australia's own ResMed ((RMD)) will also report.

Today in Australia we will see quarterly reports from Iluka ((ILU)), Oil Search ((OSH)) and Whitehaven Coal ((WHC)).

Rudi will appear on Lunch Money on Sky Business at noon.

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