By Greg Peel

The Dow closed down 7 points while the S&P gained one point to 1096 and the Nasdaq was flat.

Let's remember back to April when global stock markets were happily hitting their post-GFC highs, spurred on by what appeared to be a solid recovery in the US economy. Pretty quickly the mood changed, and it wasn't due to just one specific factor.

Having believed the Greek crisis was sufficiently isolated, markets were spooked by a realisation countries such as Portugal, Spain and even Italy also had major sovereign debt issues. Europe was threatening to crumble. In the midst of the fear, China was taking steps to slow down its economic growth machine, only exacerbating concerns for the global economy. Out of the blue the US Securities and Exchange Commission announced a fraud suit against Goldman Sachs. A fire on an oil rig in the Gulf of Mexico morphed into the biggest oil spill in history. And hanging over all of it was the Obama Administration's determination to pass tough new financial regulations which threatened to stymie the earnings power of Wall Street banks.

It was an unprecedented set of negative influences, and proved enough to ultimately send global stock markets down 15%. But it is the extent of the list which makes July 15, 2010 such an extraordinary day.

Firstly, yesterday China's GDP was confirmed to have slowed from 11.9% to 10.3% in the June quarter. It was in line with China's policy of soft landing, it was not a collapse, and lower than expected inflation numbers suggested no need for the authorities to tighten further at this stage. The result took some unease out of the market.

Secondly, last night Spain – the country the world has been most worried about given its economy is much larger than Greece's – found strong demand for an E3bn issue of 15-year government bonds. The successful Spanish auction was the last in a session this week which has seen Greece and Portugal, as well as Germany, draw encouraging demand for sovereign debt. Last night the euro leapt 1.5% to over US$1.29.

Thirdly, Wall Street opened with the knowledge Obama's financial regulation bill had made its final passage through both houses of Congress and was now before the president to sign into law. While some in the market saw this as a negative – they would have preferred more success from the lobby pushing to water down the regulation – the fact remains the bill is passed, the speculation is over, and although banks are still somewhat unsure on detail, at least the uncertainty of what might have been has now been removed.

Fourthly, late in the session last night BP announced that it had plugged the leaking oil well and that it was now testing the cap. Tests so far had found no further leakage. BP is erring on the side of caution, but it appears the spill has ceased.

And just as Wall Street was absorbing this news, a rumour ran around the floor that Goldman Sachs had settled with the SEC. The rumour proved to be true. Goldmans has been fined US$300m – the biggest fine in SEC history - and ordered to pay US$250m compensation. Under the settlement, Goldmans is deemed to have simply been remiss, not fraudulent, in its disclosures regarding short sales of CDOs. On that basis, Goldmans cannot have a civil suit brought against it. US$550m? That's chump change compared to what might have been.

In short, a lot of the fear and uncertainty hanging over global markets these past few months has now been either snuffed out or tempered over the last 24 hours. But there is a flipside. The flipside is that the world is now focused back on the US economy. For three months the US has been a safe haven, but now reality is biting.

Two of the most important US manufacturing regions lie in the north east in the Fed districts of New York and Philadelphia. Last night the Empire State manufacturing index was announced to have fallen from 19.6 in June to 5.1. The Philly index fell from 8.0 to 5.1. These are zero-neutral indices in which anything positive means growth, and numbers over 20 are rare. So both areas are still seeing growth, but that rate of growth has slowed substantially and by more than expected.

The producer price index was expected by economists to have fallen 0.1% in June but it fell 0.5%. Such a figure confirms Fed fears of consumer disinflation – at least at the headline, which includes food and energy prices. The core reading rose 0.1% as expected. While low inflation means no chance of a rate rise from the Fed, a healthy economy is one that has to deal with inflation pressures.

Weekly new jobless claims fell by 29,000 to 429,000 last week which is the lowest level since August 2008. This sounds encouraging, but the bigger than expected fall was attributable to the deferral of GM annual car factory shutdowns.

The only piece of good news was that US industrial production rose by 0.1% in June when a 0.1% fall was expected. But then 0.1% is not much to get excited about anyway.

This raft of weak economic data ensured the Dow was down by 125 points early on in the session. I noted yesterday that it looked like the sellers might be lining up again after a week-long rally, and they were, with good reason. The swing factor of course is ongoing earnings reports.

Last night JP Morgan announced an earnings result which blew Wall Street away. However, JPM's CEO was quick to point out the Street-beating result included a write-back into profit of previous provisions against bad debts. So realistically the result was not as good as it appeared as it did not reflect earnings from the present, rather write-backs from the past. But the fact JPM was confident enough to reduce bad debt provisions is in itself good news.

The positive result was nevertheless lost in the wave of weak economic data. Wall Street fell and stayed down for most of the session, at least until the BP news broke. That was enough to turn the market around, and the very late kicker of Goldman Sachs news ensured all of the losses were recovered by the bell.

BP shares finished the day up 7.5%. Goldman Sachs shares, more importantly, rose 4.4% before the bell rang and are up another 5.5% since. The Goldmans news helped to turn around all financial stocks at the death.

After the bell, chip maker Advanced Micro Devices announced a Street-beating result which has its shares up 3% in the after-market. Google announced a revenue number which comfortably beat expectations but it fell short on the earnings line. Google shares are down 4% in the after-market but did have an 11% run up to the announcement over the month to date.

So on balance, the good news is expected to outweigh the bad news as we await the last trading session of the week – one which includes earnings reports from Bank of America, Citigroup and General Electric. The fortnightly Michigan Uni consumer confidence survey will be another factor, as will the June CPI release.

What we saw last night was a switching of focus away from the likes of Europe and China and back to the world's largest economy. It was a zero sum game. No more is this evident than in currency movements. The strong euro and weak US data saw the US dollar index plunge 1.2% to 82.35. While this might normally be a fillip for the “risk indicator” Aussie dollar, and for commodity prices, the Aussie (US$0.8835), gold (US$1208.40/oz), oil (US$76.62/bbl) and London base metals were all as good as unchanged by the end of the New York session.

Overall, this is a positive. The biggest problem we have been facing is European debt disaster, and while this has by no means gone away the fear is beginning to subside. In the meantime, the US economic recovery is indeed slowing but the signs are for simply a slower pace of growth and not for the double-dip recession many have been fearing recently. It is not the stuff that drives raging bull markets, but nor is further disaster imminent. And we still have a long way to go in the US earnings season.

The SPI Overnight was down 8 points or 0.2%.

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