By Greg Peel

FNArena's thoughts and best wishes go out to our mates across the ditch at this time.

The Dow fell 178 points or 1.4% while the S&P dropped 2.1% to 1315 and the Nasdaq shed 2.7%.

The two juxtaposed images which were most stark to me over the past 24 hours are that of an idiot sitting in a car with an umbrella to prove he was still in Tripoli and that of two Libyan fighter planes landing in Malta subsequent to their pilots' defection. At this stage Colonel Gadaffi (spell it how you will, I've seen about five variations recently) refuses to budge, just as his counterpart Mubarak had done initially. But Gadaffi has proven a lot more brutal than Mubarak.

There is talk of civil war but that seems to be coming from the government side as some sort of threat. In the meantime, Libya has declared force majeure on its oil deliveries and that has the global market spooked. Libya is Africa's biggest oil producer albeit its production pails into insignificance compared to that of Saudi Arabia. It is really Saudi Arabia that the world is worried about were the rolling upheaval to keep rolling. Just to heighten fears, the Saudi monarchy has pledged support to the monarchy in Bahrain which is currently trying to suppress the largely sectarian uprising. Protests in Bahrain are running along Sunni-Shi'ite lines which adds a more concerning factor compared to the more secular protests in Egypt.

At the close of the day-session on the Nymex, WTI crude was up US$4.73 or 5% to US$94.42/bbl. But again it must be noted that refinery activity in the US midwest is a heavy influence. The more relevant global benchmark, Brent crude, rose only US22c last night to US$105.94/bbl having jumped significantly in Monday's trade. The muted rise in Brent is likely a reaction to an announcement stemming from emergency talks between OPEC and the International Energy Agency that stockpiles can be released to make up for Libyan or any other shortfalls if necessary.

There has been a pervading feeling around markets all month that the risk trade – buying stocks and commodities and selling bonds – had run a bit too relentlessly and the oxygen was getting thin. Such opinion was unrelated to the Arab world upheaval, but then corrections usually need some sort of trigger. It's been a case of teeter, teeter, teeter, tip. As such, the reaction is one of welcoming a healthy correction and seeing Libya as merely an excuse. The profit-taking rush was on in the US last night, three weeks of grafted gains were wiped out, but it was not a geopolitical panic.

There was nevertheless a “flight to safety” undertone to Wall Street's session, bearing in mind that the US had to catch up an extra day. Stock selling was across the board (every one of the Nasdaq 100 stocks finished in the red, for example), all base metals saw 3-5% drops in London, and the benchmark ten-year US bond saw its yield fall 13 basis points to 3.46% as buyers rushed back in.

The Aussie global risk indicator has plunged 1.2% over 24 hours to US$0.9977 despite the US dollar index again being relatively steady at 77.81. The dollar has really become more of a spectator in global currency trade recently as money flows into the Swiss franc as the safe haven or Aussie, for example, as the risk haven. Last night the pound and euro were sold to balance out the dollar index (the Aussie is not in the dollar index) as again funds flowed into the Swissy.

Remember how I always say that when the VIX gets down to 15 you've gotta buy insurance because “something” always happens? Well something has, and last night the VIX jumped 30% to 21.

The only commodities not playing to the script last night were precious metals. It would seem the Yanks came back from their long weekend to see big moves up from the Monday, particularly in silver, and decided to cash in. Gold fell US$8.70 last night to US$1397.90/oz while silver fell 2.5% to US$33.09/oz.

The SPI Overnight fell 44 points or 0.9%, suggesting that amount plus yesterday's drop equals the S&P's drop last night. (Note that the Dow has a heavy oil stock weighting and we should ignore it.)

So is it Greece all over again? Probably not. As noted, last night's drop was more of an excuse than anything else, although that's not to totally underplay Arab issues. Uncertainty will reign at least for a little while yet.

In the meantime, it's another big day of profit results in Australia with Asciano ((AIO)), Coca Cola Amatil ((CCL)), Suncorp-Metway ((SUN)) and Virgin Blue ((VBA)) just some of the offerings.

For today's full result schedule please refer to the FNArena Calendar.

[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]

FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.

Subscribers and trialists should read our terms and conditions, available on the website.

All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.