It was a good rise on Wall Street last night. The US market clearly got the message that their recalcitrant Congress members now understood they had done a silly thing and would pass the bailout later in the week. Moreover, the rise shows the weight of cash on the share market sidelines.

The US share market rose steadily all night as more and more buyers felt that yesterday we had touched the bottom. And for the time being that’s true and it could well be that September 29 (September 30 in Australia) was the ‘day of no hope’ that we have been looking for and that the market will now form a new base. There is a good chance of that, but no certainty. As my colleague Alan Kohler explains, it certainly will not be the bottom if the interbank market remains effectively frozen. Unless there is a dramatic change in the interbank market this is a dead cat rally.

We face a number of nasty hazards in the coming months. The bailout itself is not the simple system that Hank Paulson had originally suggested, but a political compromise. US banks will be reluctant to embrace it and will only do so if they have to. In other words, while it will prevent a meltdown in the banking system it will lock in an extended American downturn. I am not sure that the profit implications of a two-year downturn are priced into Wall Street. What the Congress showed was that there is a deep anti-Wall Street sentiment in the US (for good reason) and they want retribution, not realising that it is the general American public that will suffer.

The second hazard is that the September fall actually damaged the brittle confidence of the global banking system. Bank CEO’s have just faced the abyss. Even with the bailout that will make banks more cautious and lock us into and extended downturn.

Just think about it. Yesterday and today, unable to raise money overseas, some of our leading banks faced the need for government help, should the situation continue for an extended period. That’s a sobering experience and banks will be seeking to secure their position.

A small illustration was the willingness of John Stewart at the NAB to sacrifice profit for security. If confidence in the global banking system is not restored, we have most certainly not seen the bottom of the market. Hopefully the bailout will mean that US banks at least have an effective lender of last resort and confidence will return.

The third hazard is the wider implications of the global downturn which were locked in by the market fall (it was set to happen anyway). It may mean that the big fall in commodity prices will stay with us. The last quarter has been one of the worst for oil, copper and a range of minerals. Last night oil bounced with Wall Street indicating the hedge funds were active. But copper remained down, apart from reversing a sharp dip at one point during the night.

The commodities market is confirming that China has been affected by the US- and European-led global downturn and its own internal problems. Yesterday in the avalanche of material to read, many people will have missed my commentary on China and the Middle East, but I want to reiterate a couple of points because I think they’re very important.

Just as BHP CEO Marius Kloppers predicted, the fall in the commodity prices is driving Rio Tinto into the arms of BHP unless the move is blocked by the competition regulators.

But both BHP and Rio Tinto are adamant that what we are seeing in commodities is a correction and that the long term demand will recover. For Australia it is vital that they are right. If they are wrong then Australian governments face a major fall in revenue and they will either have to cut spending and fund allocations or go into deficit.

The Australian share market is dominated by banks and miners. We need commodities to recover and the banking crisis to pass.