By Greg Peel

The Dow closed down 72 points or 0.6% while the S&P fell 1.3% to 1209 and the Nasdaq was Apple sauce, down 2.0%.

The latest from Europe is that negotiations have stalled. This was the comment from Nicholas Sarkozy as he headed to Frankfurt last night to meet with Angela Merkel and IMF chief Christine Lagarde ahead of the EU summit beginning Sunday. Merkel's comments from Monday ? that the world is dreaming if it thinks the Grand Solution will be decided by next Monday ? echoed in the background.

As I had suggested in yesterday's report, EU officials were forced last night to dismiss the Guardian report of Tuesday night which declared the EFSF would be leveraged up to E2 trillion. In the meantime, the German finance minister has suggested the facility could perhaps be leveraged up to E1 trillion. One assumes at this point that the only course of action for us onlookers is to sit and wait until next week. Otherwise we could speculate ourselves into an early grave. Eurozone finance ministers meet on Friday and the EU summit begins on Sunday. It's at least four more sleeps until some sort of communique is expected.

Markets did not panic on the news of the stalled talks. They remain wary, as indicated by the VIX volatility index which remains stubbornly above 30 in the US and closed at 34 last night. While European disagreement has been the theme of 2010-11, there is a pervading feeling that the leaders know they must do something, and do something sooner rather than later.

Wall Street opened relatively steady last night, with a push and pull of earnings reports keeping the range tighter than it has been lately. Intel's report late Tuesday provided some impetus and Dow co-component Travelers posted an early winner to see its shares up 6%. Once again the same bank accounting swifty was pulled, and hence Morgan Stanley's result kept its shares stable. The downer was Apple's rare miss posted late on Tuesday, which saw Apple shares down 5.6% and the Nasdaq underperforming in the session.

On the US economic front, the September CPI marked 0.3% growth on the headline to match expectations and imply 3.9% annual inflation. The result was in contrast with Tuesday's shock 0.8% jump in the PPI, and hence implies margin difficulties at the retail level. The Fed looks only at core inflation however, ex of food and energy, and it came in at 0.1% compared to 0.2% expectation. The annual core rate is 2.0% which is smack-bang at the top of the Fed's target range.

We must assume therefore that QE3 remains but a distant dream unless that number starts to fall.

There was more excitement in the housing market, with September housing starts showing a 15% gain which is the biggest in seventeen months. This would explain why Tuesday's housing sentiment index result showed a surprise jump to mark its highest level in seventeen months. The gain was nevertheless mostly in apartment blocks, which represent the very lumpy component of the number and contributes to often sharp volatility.

On all of the above, the Dow was up 56 points around lunch time before it began to drift off again. At 2pm the Fed released this month's anecdotal survey of activity in the twelve Fed districts, known as the Beige Book.

The Beige Book suggested the US economy was banging along in September at the same level of modest growth indicated in August. The good news is that all twelve districts noted expansion, but in most cases it was barely. What Wall Street didn't like was the suggestion business conditions remained weak and that there was "limited and selective demand for new hires". This implies no end in sight to America's stubborn unemployment problem and thus little hope for a pick-up in economic growth anytime soon.

Whether a specific trigger or just an excuse for the sellers, the Dow tumbled on the Beige Book release to be down 100 points. It jumped around in the final hour to the close.

London base metals traders seemed more jittery than Wall Street traders last night on stalled talks in Europe and so decided to have another sell-off. Worries about Chinese growth supposedly also weighed as copper dropped 3.5% and everything else fell 1-4%. Oil was similarly weak, with Brent down US$2.76 to US$108.39/bbl and West Texas down US$2.21 to US$86.13/bbl.

The falls came despite little movement in the US dollar index, which was pretty steady at 77.12. The Aussie fell 0.6% to US$1.0223 and gold fell US$21.40 to US$1641.90/oz as it continues to bounce around in a tight range ahead of any new news. US bonds also seem to have stabilised for the moment and the ten-year yield is currently 2.16%.

The SPI Overnight fell 37 points or 0.9%.

Two reasonable indicators of global economic health are the earnings of short-term credit card king American Express (Dow) and auction house eBay ? the latter more so for owning the PayPal online transaction service rather than the core business. They both posted results after the bell and suffice to say Amex shares are down 1% and eBay shares down 4% in the after-market.

Locally, Newcrest ((NCM)) and Santos ((STO)) will post quarterly reports today and Wesfarmers ((WES)) will publish quarterly sales figures for its retail stable, including Coles.

Rudi will appear on Sky Business today at noon.