By Greg Peel

The Dow closed down 36 points or 0.3% while the S&P lost 0.2% to 1352 and the Nasdaq fell 0.2%.

Alcoa reported after the NYSE close last night and in so doing unofficially marked the beginning of the US June quarter earnings report season. In reality while Alcoa is the first Dow stock to report, 25 of the S&P 500 companies have already reported for a net 9% earnings growth. Those same companies reported 15% growth for the March quarter and 72% of the 25 have downgraded September quarter guidance.

It's not a particularly good omen but it's a long way to go. Alcoa posted a slight beat that sees its share price up 0.1% in the after-market, although Alcoa is by no means considered a market bellwether. Heading into the season we've seen a lot of guidance and analyst forecast downgrades as an adjustment to Europe in recession, China slowing and US economic data revealing less inspiring results than were prevalent in the March quarter. The question is have expectations become too pessimistic? If so, we might see lots of "upside surprise". March quarter expectations had been lowered substantially in comparison to December, and by too much at the end of the day.

The big problem for US companies in the June quarter has been the strength of the US dollar, which has gained a lot of ground on the weakened euro, largely commencing when the first Greek election came in as a stalemate. In past quarters it has been those companies with a significant proportion of offshore revenues, particularly from emerging markets, which have outperformed. The stronger dollar acted as a revenue dampener over June. However, on the flipside we've seen much lower oil prices, which should have provided broad market cost relief.

We can but now wait and see, and with Alcoa in the bag we have to wait to the end of the week before the big banks take centre stage.

In the meantime, we've pain in Spain again. Last night the Spanish ten-year bond yield rose another 20bps to reach 7.03% ? above the line in the sand considered the point of no return, and of sticking one's hand out for bail-out funds. It's not the first time the yield has hit 7% recently, but with everything Europe has thrown at its problems in the interim, we're still here. The EU finance ministers will meet tonight to yet again address the issue, with expectations Spain will be granted a time extension on its budget deficit reduction requirement.

If the money's still leaving Spain where's it going? Well that's not hard to figure out. The US ten-year yield was down another 3bps to 1.51% but back on the continent history was made when both France and Germany auctioned six-month bills last night and both settled at a slightly negative yield. These are nominal rates, not real rates adjusted for inflation. Investors are so concerned about losing their wealth they will lend short-term money to France and Germany and pay for the privilege.

At the very least we can look forward to the US earnings season as providing a welcome distraction from the broken record that is Europe.

Yesterday we learnt that China's CPI inflation rate eased to a lower than expected 2.2% in June from 3.0% in May. While this should provide room for Beijing to ease policy further, we already had a surprise PBoC rate cut last week. It was a surprise because it came so quickly after the June rate cut, and yesterday's data provides the first clue as to why Beijing decided to move so quickly. Friday's GDP release may provide another.

Inflation may be easing rapidly in China but there will be some consternation as global benchmark soft commodity prices continue to go through the roof as the US midwest descends into apparent drought. It's great news for Australian farmers as the wheat price soars, assuming the local harvest meets no hurdles. It's not, however, good news for central banks looking to further devalue currencies in another global stimulus push as such devaluation by default will raise commodity prices further, albeit many central banks choose to ignore food and energy prices for policy purposes.

Speaking of energy, Norwegian offshore oil workers have now been on strike for three weeks over pay and pension demands. Negotiations on Sunday failed to reach a compromise and so Norway will begin to shut down oil production as of tonight. The news had Brent jumping US$2.39 to US$100.32/bbl last night, dragging up West Texas by US$1.30 to US$85.75/bbl.

The US dollar index was down 0.2% to 83.13 last night which also assisted commodity prices, sending base metals all up around a percent. Gold rose US$4.20 to US$1588.00/oz and the Aussie is steady around US$1.0206.

The SPI Overnight gained 5 points.

Local traders will be keeping an eye out today for the release of China's June trade balance, while NAB will release the results of its latest monthly business sentiment survey. US results will roll in again tonight, but things don't really start hotting up till next week.

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