By Greg Peel

The Dow fell 279 points or 2.2% while the S&P lost 2.3% to 1314 and the Nasdaq dropped 2.3%.

How's this for a global tale of woe?

Over the past 24 hours it has been revealed that the Australian manufacturing purchasing managers' index (PMI) fell to 47.7 in May from 48.8 in April to mark its eighth month of contraction in nine; China's equivalent fell to 52.0 from 52.9 to its lowest level in nine months, albeit 51.6 was expected; the UK's fell to 52.1 from 54.4 to its lowest level since 2009; the eurozone's fell to 54.6 from 58.0 to mark the biggest monthly drop since 2008; and the US plunge to 53.5 from 60.4 marked not only the lowest level in thirteen months but the biggest monthly drop since 1984.

The only good news here is with the exception of Australia, all PMIs still represent growth, however modest. But while China is deliberately slowing its economy, the results for the UK, eurozone and US have now fallen a long way back from their 60 plus results earlier in the year. Mind you, 60 plus results represent soaring growth and are rare. Remember that PMIs measure rate of growth, not nominal growth, so a healthy economy is happy with numbers at least somewhere in the 50-60 range.

So perhaps all we are seeing is a normalisation from the rapid bounce in activity in late 2010-early 2011 when the GFC was trying to be shaken off. In the UK's case, austerity measures have appeared to work and have provided confidence. In the eurozone's case, the economies of France and Germany have remained solid and benefited from a euro weakened by peripheral economy issues. In America's case, there's been QE2 which has weakened the currency, supported exports and thus supported manufacturing.

But we now have yet another round of euro-fear, and last night Moody's downgraded Greek debt yet again and put it on negative watch. Moody's is suggesting a 50/50 chance of Greek default. This should be of little surprise to the market given Greek bonds rates are already trading as if restructuring were inevitable, but when nerves are frayed the news is just another kick in the guts.

It was certainly a kick in the guts for Wall Street which was already reeling not just from the big drop in the PMI, but from a very disappointing ADP private sector jobs report for May. Economists had expected 175,000 private sector jobs to be added following April's addition of 177,000, so given the spate of weak US data recently you can imagine the response when the screen read 38,000.

Wall Street opened lower and then continued lower in a straight line all session. If there were any thought of a last-hour recovery this time, which has often been the case of late, it was killed off by the Moody's downgrade. The Dow was never any lower than its closing price. There were nevertheless a couple of straws the bulls could clutch on to.

I suggested yesterday that the late rally in the Dow to close up 128 points smacked of month-end window-dressing after a weak May. So if we take that out the Dow fell only 151 last night. The other straw is that while volume on the NYSE was a little higher than the low levels of late, it was by no means high. This was not a stampede. There was nevertheless a rush to option protection, but even a 20% jump in the VIX took it only to 18. In sessions such as these over the past couple of years we would normally be looking at a VIX of 30.

It was however a slightly more panicky tale in other markets. The US ten-year bond yield plunged 11 basis points to 2.96%, its lowest level in six months. In normal circumstances one would expect the market to sell the bonds of an economy clearly weakening, but not in the case of the US. The question is: where else does one go for a safe haven? Europe? Japan? And the other question is: if the US economy is heading into double-dip, just as was the fear this time last year, will the Fed respond in the same way it did last year, which means QE3? That would justify lower bond yields.

It would also justify a higher gold price, and last night gold shot up US$20 to US$1550 ? that is until the Moody's news. When news of Moody's 50/50 Greek default call hit the screens the euro, which had been relatively steady to that point, tanked. This meant the US dollar index, which in theory should have been lower on the weak data, finished the session up 0.4% to 74.91. Gold thus turned around, and it looked more like a case of ?sell everything for cash? from there. Gold finished up only US$4.80 to US$1539.10/oz.

The story was the same for silver, which had been hanging in there right up to the Moody's call. It fell 4% in an hour to US$36.82/oz. Silver is, of course, both a precious and base metal. So how did the base metals fair in London? Well we don't know. They were all at least 1% weaker on the US data (copper 2% weaker) when they closed, but they closed before the Moody's announcement.

Oil was ongoing however, and Brent fell US$2.20 to US$114.23/bbl while West Texas fell US$3.02 to US$99.68/bbl.

So what of this Moody's downgrade and default warning? Well for starters, all the ratings agencies are famous for making their calls not just after the horse has bolted, but after the horse has crossed the far paddock, passed through the town, jumped on a cruise ship and is half way to the Bahamas with a carrot daiquiri in its hoof. Given that Greek bond yields have been to 25% ? total junk ? but have since pulled back sharply on news of a likely delay in restructuring and another injection of bail-out funds, it would appear this is again the case. Default risk? Of course. We've known that for months. So have the EU, the ECB, the IMF and the bond markets. That's why officials are discussing everything possible to avoid such a result.

It doesn't mean, nevertheless, that a jittery market can't knee-jerk and react as if it were all a shocking revelation. Some traders argued last night that the Wall Street sell-off seemed overdone. As to whether that is the case, we still have a nervous market. And Friday brings the official US jobs report, the forecasts for which have now been hastily downgraded in the wake of the ADP shock. The earlier guess was 195,000 jobs added but that's now been pulled back to 145,000 or less.

Yesterday the Aussie rose on the news of the weaker than expected GDP result, but only because the weaker than expected result was not as weak as some more alarming estimates had suggested. When the US dollar jumped late last night the Aussie lost 0.5% to US$1.0614.

The SPI Overnight fell 72 points or 1.5%.

Australia's March quarter trade balance was weaker than expected in yesterday's GDP result, and today the trade balance is released for the month of April. Will we see a pick-up in commodity exports yet? The savings growth number in the GDP was quite a surprise, so today's April retail sales result will also be interesting.

Sky Business will be in Queensland today but Rudi won't, so no regular Lunch Money appearance this week. But before you go sticking your head in the oven as a result, I'll be on Business View tomorrow at 2pm.