By Greg Peel

The Dow closed down 83 points or 0.7% while the S&P lost 0.7% to 1347 and the Nasdaq fell 0.5%.

With big name earnings reports beginning to thin out in the tail end of the season, attention turned back to the US economy last night and it was not a pretty picture.

Earlier in the week it was revealed the US manufacturing PMI had slipped back to 60.4 from 61.2 but this was really little cause for concern. Any number over 60 means red hot expansion and the manufacturing sector represents only 20% of US output anyway. Wall Street has thus, in recent times, begun to pay more attention to the less traditional services sector PMI, and economists had expected last night that April would see an increase in that index to 57.8 from 57.3.

So when it came in at 52.8 there was an audible gasp. The mood was not helped by the ADP private sector employment data for April which showed that only 179,000 new jobs were added when economists were looking for 200,000 or more. Job additions in the private sector have averaged 196,000 over the past four months but a figure like 330,000 is needed to actually put a dent in the unemployment rate.

What also isn't helping Wall Street at the moment is ongoing momentum in the “risk-off” trade. Weaker economic data might mean a lower-for-longer Fed funds rate and maybe even hint at QE3, but right now the precious metal trade is reversing fast following the bursting of the silver bubble. Silver was down another 5% last night, falling US$2.23 to US$39.32/oz. Gold followed suit with a 1% or US$20.00 drop to US$1516.30/oz.

And LME traders were finally shaken out of their long weekend haze. Weaker US data and general commodity aversion all of a sudden had commodity fund computers dishing out programmed sells and technical traders jumping on the bandwagon. Aluminium was down over 1%, copper, lead and zinc down over 2%, tin down 4% and nickel down 5%.

Weekly US oil inventories are volatile numbers and should be appreciated as such but the release of last week's data showing increased crude supplies and lower gasoline demand, at a time when oil is also caught up in the commodity purge, ensured that Brent fell US$1.26 to US$121.19/bbl and West Texas plunged US$2.28 to US$108.77/bbl.

The weak data at the open also had the US dollar index dropping to 72.70. Not only is this about as low as the index reached at its nadir in 2008, at the same time the euro reached nearly US$1.495. At this point, euro traders said that's too much of a run up on expectation of an ECB rate rise tonight and so they started selling. In the end, the dollar index closed little changed at 73.13 but it didn't matter to commodities.

The Aussie, however, fell a beautiful 1% last night and is now at US$1.0748.

And still US bonds yield fall, with economic data a good enough excuse last night. The ten-year was down another three bips to 3.23%.

The SPI Overnight fell 22 points or 0.5%.

The Australian market is in an interesting dilemma. The US market had been pushing higher on commodity prices and earnings results and the local market had been following until the Aussie hit 1.10. That was the selling trigger locally, led by offshore profit-taking, yet still Wall Street pushed forward.

It was the death of Bin Laden which triggered the silver burst, and since then commodity prices have been dropping like stones. This has brought the Aussie back from its peak but now the local market is weak on weak commodity prices. The obvious question is thus: what on earth is going to make the local market rise again? It seems to be in a lose-lose at present.

Well, the key would be a big bounce in the US dollar. Such a bounce would be triggered if the ECB doesn't raise tonight and despite all the world assuming it will, I reckon there's an outside chance it won't. Even if it does, then we might still see a “sell the fact” pullback in the euro and with the world short dollars and the 2008 low looking like a possible concrete floor at this point, there seems to be a lot more short term upside potential in the US dollar than downside.

A dollar bounce would hopefully send the Aussie crashing back down toward parity, but given the extent of the commodity sell-off these past couple of days one would not expect those prices to react quite as much. If the Aussie can go lower, and the ASX 200 is now basically at a typical 7% correction point, it just might be buy-time.

One can only dream.

News Corp ((NWS)) released its quarterly result after the bell in the US incidentally and it showed an Avatar-less drop from last year and also missed expectations on both the top and bottom lines. News shares are down over 3% at present in the after-market.

It's retail sales day in Australia today ahead of the ECB's decision tonight. In the US, it will be day-before-jobs-report trading.

Rudi will be appearing on Lunch Money at noon on Sky Business today.

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