By Greg Peel

The Dow fell 39 points or 0.4% while the S&P lost 0.7% to 1106 and the Nasdaq lost 1.0%.

In the past few weeks Wall Street has fallen on a continuous flow of weakening economic data and in the last week it has regained some ground on contradictory positive earnings reports. With the S&P 500 having once again touched its 200-day moving average, Wall Street is now feeling it has priced in positive news on earnings on the one hand but probably priced in a slower recovery as well. What happens now?

Well the usual rule when nothing happens is that markets drift lower rather than higher. It's safer to square up on uncertainty than it is to establish new positions. Having reached this limbo zone, Wall Street is seeing little reason to take on more risk ahead of the release of the first estimate of second quarter GDP on Friday. That figure will be a culmination of all recent reports, good or bad, even though first estimates are usually much revised in coming months.

Reports out last night provided little in the way of fresh incentive.

Energy giant ConocoPhillips beat the Street in announcing a 385% jump in profits over last June quarter, albeit most of that was down to the oil price. Gold leader Newmont also announced a big jump, but this time fell short of estimates. Newmont did, nevertheless, double its dividend. Boeing (Dow) disappointed on the revenue line and while Visa beat Street estimates it actually still posted a loss despite a 14% jump in card use year-on-year.

That mish-mash provided little to go by, so economic data came to the fore.

Economists had expected durable goods orders to increase by 1.0% in June but instead they fell by 1.0%. Take out a 2.4% fall in the lumpy transport segment and they still fell 0.6%.

Yet all of the above had Wall Street doing little more than bungling along the flatline. It was on the afternoon release of the Fed's Beige Book, however, that the indices threatened to take a dive.

The Beige Book is an anecdotal assessment of economic activity in the twelve Fed districts, and for this July the book is aptly named. Wall Street was heartened in June when markets were reeling over Europe but the Beige Book showed all twelve districts were nevertheless in recovery mode. However, this month only eight districts were happy, while Atlanta and Chicago noted a slowing of growth and Cleveland and Dallas suggested growth had stalled.

The Dow slid to be down 74 on this news by 3.30pm but buyers chimed in to provide a less ominous close. In reality, one must ask the question: Does each successive piece of weak data add to the puzzle or does consistently weak data simply confirm the same puzzle? And on that basis: Was the Beige Book at all a surprise?

Clearly not, or the fall would have been more substantial. The S&P 500 has now fallen back from its 200-day moving average at 1113 to be 1106, which could possibly mean this fourth attempt to breach the level since the fall-through in May will simply end in a fourth failure. But as noted, there's no point in taking too strong a view either way until the GDP result two sessions ahead.

Currencies were again quiet last night with the exception of the Aussie, albeit all the damage was done to the Aussie on the release of the CPI yesterday. The US dollar index is steady at 82.13 while the Aussie is down nearly a cent to US$0.8935.

Gold was also relatively steady after Tuesday's big fall, rising US$1.70 to US$1163.30/oz. Weekly inventories had oil falling US51c to US$76.99/bbl while US data served only to crimp otherwise underlying strength in base metals. Copper rose 1% and lead and zinc 2%.

On Tuesday the US Treasury auction of two-year notes met with muted demand but last night the Treasury put away US$37bn of five-years with ease. There are mixed messages here for the stock market.

While US Treasuries have proven to be the enduring safe haven outside of gold, it is the two-years which have drawn the most demand and hence resulted in a record low yield of a mere 0.6%. The “flight to quality” has steered clear of longer dates given a “lesser of the evils” concept – Europe might be no place to be but if the US is the only option, concerns of monetary inflation down the track given America's excessive debt levels mean longer dates are risky.

Having said that, if you'd bought US thirty-year bonds at the beginning of the year you're up 20%. In between, monetary inflation fears seem a long way off while price deflation fears dominate the short term. Stock markets perform poorly in deflationary climates, so mutual funds and more increasingly retail investors are choosing safe yield over stock market risk, despite the fact the S&P 500 is yielding more in dividends than the benchmark ten-year bond, which incidentally fell back to just below the 3% mark last night.

So the mixed message from this week's auctions - and tonight sees US$29bn of seven-years - is that the flight to quality scare has waned but risk assets are not yet overly palatable. In other words, more limbo.

The SPI Overnight fell 23 points or 0.5%.

It's one of the bigger nights for earnings releases in the US tonight. Local blue chips include Amgen, Barrick Gold, Colgate-Palmolive, Exxon (Dow), Goodyear and Potash, while international highlights include Shell, Sony, Vale and Volkswagon.

In Australia we have new home sales and earnings results from Austar ((AUN)) and Coal & Allied ((CNA)).

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