By Greg Peel

The Dow closed down 62 points or 0.5% and the S&P lost 0.3% to 1300 while the Nasdaq managed a 0.1% gain.

As I write, the debt ceiling/budget cut bill proposed by House Speaker Boehner of the Republicans is being voted on in the House and is expected to pass. It is merely a symbolic gesture nevertheless, and a futile one. The Democrat majority leader in the Senate has declared the bill will be "dead on arrival", meaning we still have zero progress.

Clearly the idea is one of political posturing, signalling to the electorate that the Republicans have made the compromise and it is the Democrats holding up the proceedings. It is also a parochial gesture that smugly ignores the fears of the rest of the world. But there is some merit in the move, commentators suggest, as it sets a benchmark from which representatives from both sides can gauge what further compromises might be able to be made to reach a resolution. And we always assumed negotiations would go right to the eleventh hour, which in theory is Monday night.

In the meantime, the financial markets seem poised. If there is going to be a downgrade, I'd suggest Wall Street has already baked one in. If there is going to be a default, I suggest either (a) Wall Street refuses to believe a default really would be allowed to occur or (b) given any default would be merely technical and not fundamental, the ramifications are not actually that bad. In other words, the US is not Russia in 1998 which suffered a complete default ? a bankruptcy issue. For the US the problem is simply one of short-term liquidity ? an immediate cashflow issue ? which has come about not for any insurmountable economic reason, but simply because the world is run by politicians in the twenty-first century and they're all card-carrying morons who would never had got a job in the real world.

Of particular note is the benchmark US ten-year bond yield. It fell four basis points last night to 2.95% and has been hanging around the 3% mark through the entire debt ceiling farce. If the US private sector, and the public and private sectors of all nations, were seriously concerned about a default, why are US Treasuries yields not discounting such a possibility?

And investors bought US bonds ? the very paper which is supposedly set be be defaulted on ? despite a pretty tepid response to the Treasury's auction of seven-years. Foreign central banks bought 40% compared to a running average of 42% ? cautious perhaps, but not panicked.

Last night Wall Street actually rallied from the open, and the Dow was up 80 points at its peak. One presumes there is an element of "oversold" here, which again supports the "no big deal" position, but there were also some positive economic (real world) data released. Weekly new jobless claims fell below the 400,000 mark for the first time since April last week, and pending home sales rose 2.4% in June against a 2.0% expectation.

The rally could not gain traction nevertheless, and with still no debt resolution in sight the sellers won out by the close. Interestingly, the S&P 500 is sitting right on 1300 and that level has proven one of support/resistance over the past six months. So it seems like Wall Street has simply withdrawn to a safe base level.

There is still, however, a risk that bad news, such as a rating downgrade, could trigger panic selling by those with weaker constitutions while the smarter money stands aside. The 200-day moving average for the S&P is currently at 1283 and if that were broken ? well, we saw what the computers could do on Wednesday night when the S&P broker the 50-day MA. Any plunge would most likely be temporary however, before the smart money moves in to snap up the bargains.

Thereafter, any decent rebound will depend on perceptions of US economic growth, or lack thereof.

And on that note, tonight we see the release of the first estimate of US June quarter GDP. While consensus has the figure at 1.8% growth, down from 1.9% in March, the spread of estimates is as wide as the Mississippi. Some economists have their numbers set above 2% and others below 1%. Take away the petty politics, and this is the number that really matters right now.

As for the rest of the financial markets, last night they were, as I have suggested, poised. There were no moves of any consequence in currencies, gold, metals or oil to speak of.

The Aussie's sitting just above 1.10 and the SPI Overnight was down 4 points.

I'll be on Business View on Sky Business today at 2pm.

A reminder that a vodcast of the second outing of FNArena's new Market Insight program ? and arguably the best yet ? can be viewed at this link.