By Greg Peel

The Dow closed down 83 points or 0.7% while the S&P fell 0.8% to 1341 and the Nasdaq lost 1.0%.

I have been suggesting that the speed in which Beijing cut interest rates this month in relation to the cut in June provided a warning bell that the next round of monthly Chinese data, and the June quarter GDP result, will be weak. On Monday we had a weaker than expected inflation result, and yesterday China's June trade balance data was not the stuff Australia wants to hear.

Chinese exports rose a slightly better than expected 11.3% (year-on-year) in June but fell well short of May's 15.3% gain, while imports rose only 6.3% compared to 12.7%. Economists had expected 10.4% growth. The news reached Wall Street last night just as a spate of corporate earnings downgrades were being announced ahead of upcoming result dates. More than one company has noted that the June quarter represented a first in which sales to China slowed.

These revelations suggest US corporations with offshore revenues could be looking at a downside double-whammy for earnings ? a stronger US dollar undermining export competitiveness and a slowing economy in China impacting on once reliable revenue growth.

Wall Street had begun the session in buying mode, taking the Dow up 94 points from the opening bell. It was all down hill thereafter, however, with the computer chip industry leading the charge. Advanced Micro Devices announced a profit warning, citing an unexpected drop in sales. A similar downgrade followed from Applied Materials. Both stocks were heavily sold, and the tech sector in general was sold down in sympathy.

Wall Street pulled back to the flatline but after lunch news came through from engineering company Cummins, which specialises in converting engines to natural gas, that earlier sales growth guidance of 10% had been reduced to 0%. Cummins shares were sold down 10% and the news reverberated through the heavy industrial sector, with major exporter Caterpillar (Dow) copping a 3.5% beating. There are some very worried faces on Wall Street given signs that, even after significant forecast reductions ahead of the earnings season, the season may yet prove to be one of rare downside surprise.

When I woke up this morning, Sonny & Cher's I Got You Babe was playing on the radio. With contracting manufacturing data last week, more disappointment on jobs, and now fear over earnings result, the talk on Wall Street is of the US heading back into recession. You got it ? welcome back Mister Double Dip, it seems like not so long ago you were last with us. And what by tradition follows double dip speculation? Oh yes ? QE speculation. Bring on Round 3.

If history repeats then we will have to suffer such speculation through to next month when the Fed conference is held at Jackson Hole. Then we buy. Meanwhile, there is a deal of nervousness with this year's traditional round of "China hard landing" speculation, albeit we may need to wait a little longer before ascertaining whether the benefits of two quick-fire rate cuts from Beijing will become evident in ensuing data.

And then there's Europe.

The eurozone finance ministers met in Brussels last night and agreed to provide some relief on Spain's required austerity measures. Budget deficit reduction requirements have been eased off and extended by one year. It was also announced that E30bn will be available by the end of the month to directly assist Spanish banks. This was the good news. The bad news is that Italy's prime minister (no doubt hit with one of those doorstop curve balls from the press) said he could not rule out Italy having to seek bail-out funds in the future.

Speaking of the European Stability Mechanism, a challenge is being heard in Germany's Constitutional Court to the country's participation in funding the ESM. Clearly were the challenge to be upheld, disaster would likely follow. Were it to be dismissed we might all rest a little easier but the ESM was supposed to become operational at the beginning of this month and has been held up by this hearing. Last night the German court announced a ruling could take up to three months.

This news had the euro tumbling to a two-year low at US$1.226, and where goeth the euro goeth Wall Street. Throw in domestic earnings worries and the Dow bottomed out at 130 down before the last half hour of trade saw a familiar attempt at recovery.

Funds instead flowed into US bonds, with the ten-year yield now under 1.5% and looking at testing the previous historic low. The US dollar index gained 0.3% to 83.39 which was not good news for gold. It fell US$20.70 to US$1567.30/oz. The Aussie is proving resilient ? torn, as it is, between commodity currency status and safe haven status ? and is down only slightly at US$1.0192.

On Monday night oil shot up on news Norwegian oil production would be shut down due to an unresolved strike but last night the Norwegian government stepped in a ended the strike, forcing arbitration and heading off the planned shutdown. Brent crude fell US$2.35 to US$97.97/bbl and West Texas fell US$2.03 to US$83.96/bbl. Base metals were again all around a percent weaker.

The SPI Overnight was down 19 points or 0.4%, with the local market having at least already responded to the weak Chinese trade data yesterday.

Today in Australia we'll see monthly lending data along with Westpac's consumer confidence survey, while tonight the minutes of the last Fed meeting will be released. They may not be of much use, nevertheless, given weakness in US data has been prevalent mostly in the interim.

On the local stock front, Energy Resources of Australia ((ERA)) will kick off the June quarter resource sector production report season with its release today.

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