By Greg Peel

The Dow fell 59 points or 0.5% to below 13,000 while the S&P dropped 0.5% to 1409 and the Nasdaq lost 0.3%.

It seemed that no one was going to mention Cliff last night ? no politicians at least. This was a bit confusing for Wall Street as it meant there was no particular incentive to buy or sell, unless of course one was revert to the old-fashioned concept of assessing economic data. It was not a good day for such assessment, following a run of mostly positive US data recently which has been largely ignored in Cliff's shadow.

The good news from yesterday was the corroboration of HSBC's manufacturing PMI result for November of Beijing's official number released over the weekend. For many months the HSBC measure has sat below the equivalent official measure, taking the gloss off any signs of expansion from Beijing's point of view. But yesterday the HSBC number indicated a return to expansion for China's manufacturing sector in November, rising to 50.5 from 49.5 in October to mark the first result over 50 in thirteen months. Beijing declared a rise to 50.6 from 50.2.

The result was good news for Australia, and the stock market responded positively. This would tend to suggest the market has all but given up on Australia's own high-dollar-beaten-down manufacturing sector, the PMI for which fell to an unsettling 43.6 from 45.2, indicating even more rapid contraction. Contraction is also the trend for the greater developed world, with the eurozone seeing its sixteenth month of sub-50 numbers at 46.2, albeit up from 45.4. The UK similarly saw a slowing in contraction to 49.1 from 47.3, while the surprise of the night was a fall to 49.5 from 51.7 in the US.

For the US it was the lowest result in three years. While it would be easy to blame Sandy, the compilers suggested there was little Sandy effect in the numbers. If you want someone to blame, blame Cliff. The uncertainty Cliff generates has caused businesses in all sectors to back off on investment and hiring and to withdraw to safe mode. Until the level of tax hikes and spending cuts are known, it is of little surprise the manufacturing sector is slowing itself down.

Wall Street opened to the upside last night with the Chinese numbers a reasonable incentive. But they were quickly overshadowed by the US PMI and Wall Street turned south, speeding up the drop towards the close as computers scrambled over each other to play the momentum they were in fact creating themselves. But wait! Half an hour before the closing bell Cliff popped up his head in the form of a fresh Republican proposal.

The proposal involves keeping the Bush tax cuts for high income earners but achieving a net revenue increase through the tweaking of Medicare and social security age eligibility and cost of living adjustments. The announcement did little more than affect a brief and mild bounce before the indices slipped away again. Will Obama go for it? My immediate thought is no way ? Obama appears unmovable on ending the Bush tax cuts, and revenue raised by effectively taking from the lowest income earners does not feature heavily in the Democrat manifesto.

In Australia, the Chinese data are acting as a saving grace. The raft of Australian economy releases yesterday reads like a litany of disaster in Wayne's wonderful economy. Retailers would have felt a little ill ahead of the most important time of the year when retail sales growth for October came in flat after a 0.4% gain was expected. House prices remained flat in November, according to Rismark-RP Data. ABS figures have corporate profits down 13% in the twelve months to the end of the September quarter. The only saving grace is that the TD Securities measure of the RBA's core inflation rate remains well inside the comfort zone at 2.4%. What will the RBA do today?

There was some positive news, of sorts, in Europe as Greece began to buy back bonds as part of its debt reduction strategy. In an interesting twist, Angela Merkel was quoted as suggesting a debt write-off could conceivably be an option for Greece one day (Oh yes please Angie baby!) if, and here's the catch, the government can return the budget to surplus. Cue the porcine aerobatics team.

It was enough to push the euro higher nevertheless, helping the US dollar index to a 0.3% fall to 79.90. The Aussie took a dive on the local retail sales numbers yesterday, which heightened expectations of a rate cut this afternoon, but is only down 0.1% over 24 hours to US$1.0422. Gold is little changed at US$1716.90/oz.

It was a relatively quiet night for commodities, with base metals mixed on small moves. Spot iron ore fell US30c to US$115.30/t. The oils were virtually unchanged with Brent at US$110.92/bbl and West Texas at US$88.95/bbl.

The SPI Overnight fell 14 points or 0.3%.

Australia's September quarter current account will be released today including a separate reading of net exports for the period, ahead of tomorrow's GDP release. The RBA will announce its rate decision this afternoon and realistically the jury is still out. Australia is sinking but China is rising. What to do?