By Greg Peel

The Dow fell 128 points, or 1.0%, while the S&P dropped 0.6% to 1432 and the Nasdaq lost 0.4%.

The Spanish bond misprint explanation for Tuesday's sudden plunge on Wall Street, mimicking a plunge in the euro, still seems the most plausible explanation for what occurred in the space of about 20 minutes. However, Wall Street has been in the mood for a pullback as pressures build, and it seems the sharp plunge has provided as good an excuse as any to go on with it.

After the bell on Tuesday Alcoa (Dow) reported its September quarter earnings and actually beat the Street, however an accompanying downgrade to December quarter guidance, blamed mostly on the Chinese slowdown and subsequent reduction in demand for aluminium, provided the warning signal Wall Street had feared. Despite forecasts having been heavily marked down, net September quarter earnings growth is shaping up to be negative for the first time since 2009.

It didn't help that oil giant Chevron (Dow) also chose last night to announce expectations of "substantially" lower earnings on a combination of lost production from the Hurricane Isaac shutdown and lower oil prices due to the global economic slowdown.

Resonating around the walls at the NYSE have also been the back-to-back global economic growth downgrades from the World Bank and the IMF, for what they're worth, and as November approaches, the long spoken of "fiscal cliff" can now be clearly seen on the radar. With Congressional negotiations about to begin once more, there is no sign of compromise. Ratings agencies will be watching closely.

The Fed's decision to provide open-ended QE3 was a relief for Wall Street, but was already "baked in" when the announcement was finally made. More comforting to global markets was the similar "whatever it takes" pledge from the ECB, but the warm and fuzzy feeling generated back in September has now become a sinking feeling of deja vu as once again Europe dithers, dallies and disagrees. Will Spain ask for a bail-out of won't it? Will Greece be able to stay in the eurozone, or finally and reluctantly be shown the door? How long will it take to move to closer fiscal union?

Just how much will the eurozone economy recede before any of the above is sorted out?

And then of course there's China, which despite a couple of large liquidity injections into the banking system, has failed to provide the sort of monetary or even further fiscal stimulus expected and required to stop the contraction in the country's GDP growth. Will everything change when the new regime is ushered in next year? This is an unknown.

It must be acknowledged, however, that while the world despairs over China, comfort levels in Australia have been rising simply on the back of the rebound in iron ore prices. It's one of those classic cases of if you'd gone on holiday for a couple of months knowing US$110-120/t was the agreed "floor" in iron ore spot prices, and returned to find that last night the price rose US50c to US$117.50/t, you'd be wondering why all your colleagues seem to have aged a year in your absence. While prices in the 80s seemed incongruous and a rebound was expected by all and sundry, the iron ore price now seems to belie apparent weakness in the Chinese economy.

Yet if the Chinese economy is that weak, it hasn't stopped the locals discovering the new found joys of fast food, fat, sugar and obesity. Last night Yum Brands ? purveyors of KFC, Taco Bell and Pizza Hut delicacies ? reported a 23% jump in September quarter income, with China highlighted as a significant contributor. Not all US earnings reports are going to be horrible, it would seem.

On Tuesday night the Dow's triple digit fall reflected one sharp move mid-session. Last night saw simply a steady downward drift. It's the sort of pullback many a commentator would call "healthy", and talk has turned to at what point investors might be encouraged back in at more realistic prices. For the bulls, it's a matter of believing all of the above can be resolved. For the bears it's a matter of believing all of the above means we're going to hell in a handcart.

Commodity funds also suddenly felt giddy from the altitude last night, and started dumping base metals. Aluminium, lead, nickel and zinc all fell 2% although copper and tin managed to hold up. Copper is the only metal in the complex expecting a supply deficit ahead, while tin is in the hands of Indonesian export policy.

Oil was also sold, although only in West Texas form. Last night OPEC downgraded its global demand forecasts, while US inventories are expected to show another surplus when the EIA data are released tonight. West Texas fell US$1.04 to US$91.35/bbl ,while Brent, which is more impacted by Middle East tensions, was little changed at US$114.33/bbl. The Brent-WTI spread is now back out to its highs in 2012.

Falls in commodity prices came despite a US dollar index that was 0.1% weaker. Gold was only down a smidge at US$1762.90, while the Aussie is 0.3% higher at US$1.0236.

The greenback remained steady despite the US Treasury being knocked over in the rush at a ten-year note auction, which, like Tuesday's three-year auction, resulted in a lower than expected yield. It's back at 1.7%.

The Fed Beige Book was released last night and showed just a little improvement from the last release in August. In August three of the twelve Fed districts reported slowing growth while this time only two suggested such. The overall conclusion was of only a "modest" improvement is the interim.

The SPI Overnight was down 25 points, or 0.6%.

It's unemployment day today in Australia. Get your bets on for Cup Day.

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