By Greg Peel

The Dow fell 190 points or 1.6% while the S&P lost 1.7% to 1236 and the Nasdaq dropped 1.7%.

If it hadn't already, now it's just getting really silly.

At 2pm local last night the Dow was square. Some selling appeared so that by 3pm the Dow was down around 40. Then ratings agency Fitch came out and dropped an incredible bombshell on global markets. In a moment of sheer genius, the analysts at Fitch publicly announced that if the European debt crisis was not resolved there would be a negative impact on the US banking sector.

I had no idea, did you? And with that announcement banking sector stocks led the Dow down a net 190 points.

It rather puts into perspective the nature of stock markets in 2011. Nothing to do with fundamentals, little to do with earnings, not much about economic data, just everything about headlines, and all those headlines relate to Europe. And there were plenty of those again last night, even before Fitch piped up.

The latest tranche of Portugal's 2011 bail-out fund was approved last night. The new Greek prime minister easily won a confidence vote (having been there five minutes) which ratified support for his intention to push on with strictly imposed austerity measures. European bond prices chopped and changed last night as first yields rose again, then fell when the ECB barrelled in with buying support, and then resumed their rise. The Italian ten-year is still sitting above 7% and the Spanish ten-year above 6.25%.

The Dow might have been square at 2pm but it was down 100 points earlier on concern over those European bond rates, including a now worrisome widening of the French spread over the German bond. At that point the president of the Boston Fed publicly speculated that Europe's problems might necessitate a coordinated action between the ECB and the Fed. As to what that might be...well...he didn't say. But his comment was worth 100 Dow points up again.

Somewhere in the midst of all of this the US October CPI was announced, and it showed a 0.1% fall at the headline when a flat result was expected. The core rate nevertheless rose 0.1% which was expected. The fall in the headline came down to oil prices, and more on that in a moment. Suffice to say the US core inflation level is now growing at an annual rate of 2.1%, up from 2.0% in September. The Fed's target is 2%. Is QE3 off the cards?

Well possibly, if we note that West Texas crude jumped US$2.34 to US$101.74 last night to mark the first breach of 100 since May. For about a year now FNArena has been pointing out that WTI had become a misleading indicator given its price was being impacted by a lack of storage space at the Cushing price point since the pipeline in from Canada had been completed. Slowly but surely Australian energy analysts reached the same conclusion, and thus switched to valuing oil producers off the Brent price. The spread between WTI and Brent first blew out to about US$12 and then when Libyan supply was cut off, soared to as much as US$27.

With Gaddafi gone the spread has since removed that Libyan premium, but the storage problem at Cushing was always going to remain. And it was expected by many to remain for some time, given the time it would take to build a pipeline from Oklahoma to the Louisiana coast so that Gulf refineries could actually use the stuff. Until suddenly last night, an enormous penny dropped.

There are pipelines travelling to Cushing from the Gulf coast! Why don't we just reverse the flow in one of them? Brilliant! And so it has come to pass that there will shortly no longer be storage issue at Cushing which means there need not be a discount applied to the WTI price. Thus it jumped to over US$100 last night while Brent only rose US55c to US$112.39/bbl, bringing the spread into about US$10. As more traders reverse their spread positions, further compression is expected.