By Greg Peel

The Dow fell 265 points or 2.2% while the S&P lost 2.4% to and the Nasdaq dropped 2.8%.

In June, personal incomes in the US rose by 0.1% to mark the lowest increase since last November. Take out welfare payments and wages & salaries actually decreased. Economists had expected personal spending in June to rise by 0.1% but it fell 0.2%, to mark the first decline for two years. The savings rate rose to 5.4% from 5.0% in May.

This is why Wall Street is weak. Not on this data set alone but on the incremental picture it paints along with last month's unemployment report, last week's US GDP results, Monday's manufacturing PMI and anything data to do with housing. At the end of June the US Federal Reserve took the patient off the life support system, but the patient is deteriorating once more.

Last night the Senate passed the debt ceiling increase and budget cut bill ? a bill which can be considered fiscally anti-stimulus at a time when Keynesian economists are crying out for more government support, not less. While the budget cuts don't come into effect until 2013, the bill is still only a stop-gap measure aimed at avoiding default and discussions on further cuts will now continue. Some commentators are likening the new policy to the same mistakes made ahead of the Great Depression.

Wall Street has not received the bill with any enthusiasm, despite market participants being more Republican in ideology than Democrat. Either way, there was really no expectation of an actual default and predictions a compromise would be reached only at the eleventh hour after much political grandstanding have proven sardonically accurate. There remains the possibility of a credit rating downgrade, although it seems like a rather minor issue at this point. The Fitch agency last night confirmed its AAA rating, "for now". What Wall Street wants is measures to boost the economy, not to constrict it further. It wants action to boost jobs growth, not petty political posturing.

Does it want QE3?

The way things are going, the Fed must be moving closer to pre-arming the QE3 missile based on its own statements to date. Toward the end of this month, the central bank will hold its annual gathering at Jackson Hole. It was at this time last year when Ben Bernanke readied Wall Street for QE2 after the market had hit its 2010 nadir. Then, as now, the talk was of a "double dip". But if Wall Street was sure that QE3 is the solution, and is imminent, would it have been selling as aggressively as it has this past month?

Last night the S&P 500 broke its 200-day moving average early in the session and all indices began a steady slide on solid volume all the way to the close. The S&P is now down seven sessions and the Dow eight sessions in a row ? a run last seen in October 2008. At 1254, the S&P has closed below the December 31 close of 1257. Wall Street is now officially down for the year.

If the debt ceiling issue has been a distraction from the faltering US recovery, the US had been a distraction from Europe. With no new developments on the eurozone rescue front of late and the world's largest economy sinking into the sunset, last night the yields on both Spanish and Italian sovereign bonds blew out to record common currency highs. Most disturbingly, the yield on the much bigger Italian economy has caught up to that of the much smaller Spain. And Italy is quite simply "too big to fail".

Concurrent Euro-US debt issues meant the US dollar index ticked up slightly last night to 74.47. However yet another record was achieved by the Swiss franc. And word went out that the South Korean central bank was buying gold last night for the first time in over a decade. The world's favoured safe haven jumped US$38.50 to US$1658.80/oz as fearful investors empathised.

The Aussie dollar tanked twice over the last 24 hours ? once when the RBA didn't raise yesterday and again as offshore investors exited the risk trade proxy last night. It's down 1.7% to US$1.0790. The RBA statement suggested the central bank was very close to tightening yesterday, but for economic uncertainties in Europe and the US. Some wonder how a move could even have been contemplated.

While weakness in the world's two largest economies should translate into weakness in consumable commodities, the risk of further forced US dollar weakness is holding traders back. Base metals were lower but little moved bar a 3% drop in tin, while West Texas crude dropped US$1.63 to US$93.26/bbl and Brent fell only US35c to US$116.46/bbl.

Schizophrenic silver fell 4%.

When economic growth is slow, investors shift out of stocks and into bonds. Now that there is no risk of default and a very good risk of QE3 there is no holding back. The US ten-year yield is down 14 basis points to 2.61%, rapidly approaching the low of 2010 set just before Jackson Hole.

The SPI Overnight fell 76 points or 1.7%.

Tonight in the US sees the services sector PMI and the ADP private sector jobs report. Given recent weak economic data, forecasts for Friday's non-farm payrolls number have been reined in severely. The joke going around the floor of the NYSE now is that the jobs added result will no longer be released as a number, but rather a short list of names will be read out.

Before all of that, today sees Australia's service sector PMI and China's non-manufacturing equivalent. Australia also sees retail sales, and there's a feeling of dread on Bridge Street. Note the opening paragraph of today's Report. It's the same song sheet.