By Greg Peel

The Dow fell 136 points or 0.9% while the S&P lost 0.9% to 1676 and the Nasdaq fell 0.8%.

Last week House Speaker John Boehner indicated he would not prevent a debt ceiling increase but that he would be looking for spending concessions from the Democrat Administration. Now he has indicated he will only raise the debt ceiling if those concessions are agreed upon. On the other side, the president has indicated he will only discuss concessions once the debt ceiling is raised. As the US shutdown moves into its second week, a debt ceiling stalemate is looking more real.

The Australian market was not taking any chances yesterday, although with half the country on a public holiday, volumes were thin. Regional falls helped encourage the ASX 200 lower by almost a percent. The fall came despite a slight glimmer of positive news in the form of Australia's September construction PMI.

The PMI rose to 47.6 from 43.7 in August ? still indicating contraction, but at least a slowing in the pace of contraction. The construction result is consistent with results in the other two PMIs, having last week seen manufacturing jump to 51.7 from 46.4 and services to 47.1 from 39.0, with economists attributing the improvement to interest rate cuts and the election. Australia's economy is actually starting to look just a little better, and this week's confidence gauges will possibly provide further proof.

But any good news locally has to be taken in the context of a joke called the United States. It nevertheless has to be noted that Wall Street has really not fallen all that far under the circumstances, but rather has just pulled back from the game. No one honestly believes a resolution will not be reached in Washington, or at least an agreement to reopen the government and raise the debt ceiling before then discussing concessions. The only group believing a US default would politically be a good thing is the Tea Party nutters, while the Senate Democrats believe if they were to put through a bill raising the debt ceiling now, a sufficient number of Republican moderates would buckle.

And then there's certain overriding executive powers afforded the president which could be dusted off anyway. But it seems the Democrats want to win this battle the right way.

The other aspect to the shutdown/ceiling issue is that of Fed policy. While it appears the whole tapering debate which so dominated the headlines for the past few months is now off the front page, talk is that the stand-off in Washington has meant there is now little chance of the Fed starting to taper before year-end. So it's quid pro quo for Wall Street. Meanwhile the charade has to play out, which could mean a stand-off right up to the eleventh hour as usual. The debt ceiling deadline is Friday week.

We can all be bored rigid in the interim. The shutdown means no economic data from the government, and perhaps not for a while after the government reopens. We have already missed the September jobs report, and the October stats are not being accumulated as they already would be at this point, also putting an October release in doubt. The Fed's tapering decision is very reliant on the employment picture.

The safe haven plays drew a little more interest last night. Most notable was the VIX volatility index on the S&P 500, which has wallowed at the low end of the scale now for ages. It jumped 14% to 19 last night, mostly right at the death. The US ten-year bond yield lost two basis points to 2.63%. Gold rose US$11.70 to US$1322.60/oz as the US dollar index fell 0.3% to 79.94. The Aussie is steady at US$0.9429.

Commodity markets went quiet. China will return to action today after its week-long holiday, but in the meantime base metals went nowhere in London last night, Brent crude gained US19c to US$109.65/bbl, West Texas fell US72c to US$103.12/bbl, and spot iron ore remained closed. The oils settled down on news Tropical Storm Karen had dissipated.

The SPI Overnight fell 20 points or 0.4%.

While we may not be receiving any US government data at present, we will be receiving US corporate data this month in the form of September quarter earnings results. Alcoa will report tonight, which unofficially heralds the beginning of result season despite the stock not even being in the Dow anymore. Of more interest will be Friday's results from banking majors JP Morgan (Dow) and Wells Fargo.

Today in Australia brings the ANZ job ads series and the NAB business confidence survey. HSBC will provide its read on the Chinese service sector PMI and tonight in the US, the trade balance will not be released.