By Greg Peel

The Dow fell 128 points or 0.8% while the S&P lost 0.6% and the Nasdaq dropped 0.4%.

Here's a turn up. The overnight SPI futures are showing a 5 point gain yet the Dow closed down 128 points and Washington is still in a stalemate as we speak. How does that work?

Let's consider that yesterday was the end of the quarter on Bridge Street, and that the ASX 200 closed up a substantial 8.7% for the quarter. The index peaked on Friday, and if we had closed then, the gain would have been 10.5%. The potential for a US government shutdown and a subsequent weak Friday session on Wall Street provided an excuse, but realistically there was always a very good chance the quarter would end with Australian fund managers booking solid gains in the last session.

By contrast, the S&P 500 finished the quarter up 4.7%. We can probably put Australia's outperformance down to the Aussie and the RBA rate cuts which helped the currency lower. The Aussie actually ended June around 93 and that's where it is now, but at end-March it was 102 and the impact always runs on a lag. We can also look to an apparent turnaround in China's fortunes over the period, which provides a greater boost to Australia than to the US. Although yesterday in particular China disappointed.

HSBC's final measure of its Chinese manufacturing PMI for September came in at 50.2, up from 50.1 in August. That may have been an okay result if HSBC had not issued a flash estimate a week ago forecasting a result of 51.2. As far as flash-to-final discrepancies go, this was as big as we've seen for a while. And as far as Bridge Street is concerned, it was not the best day to pull that one out. It also didn't help that the iron ore price fell back a bit on Friday.

Wall Street might only have risen 4.7% in the quarter but it's up 17.9% year to date without ever posting a typical correction on the way. Australia is up 12.2%. Most traders on Wall Street are also thus looking to this latest Washington charade as a reason to simply lock in profits and better still, perhaps an opportunity to reset for the next rally at cheaper levels, assuming a brief shutdown and some lower prices. While few can see a compromise being reached before midnight (2pm Sydney), few believe any shutdown will be more than temporary and even then only partial.

The more moderate Republicans might be pointing out in the meetings that when the party shut down Clinton in '95, he was subsequently returned for a second term with a landslide in '96. The only sticking point is Obamacare, and if Americans on average didn't want Obamacare they could have said so at last year's election. Yet still the Republicans are trying to push through a compromise on that particular funding bill as we speak, while the Democrats are standing fast on their presumed mandate.

In economic news, last night's Chicago area PMI showed a rise to 55.7 from 53.0.

Stock markets are about the only financial markets around the globe acting scared on a possible US shutdown, and even then the profit-taking question is raised. Last night the US ten-year bond yield was as good as unchanged at 2.61%. The US dollar index was as good as unchanged at 80.24. The Aussie is up a tad to US$0.9318. Gold fell US$7.80 to US$1328.90/oz, but gold has no idea what it's doing.

Base metals barely moved in London. The oils are a little lower, with Brent down US31c to US$108.32/bbl and West Texas down US57c to US$102.30/bbl. Spot iron ore is down US50c to US$131.40/t ahead of the four-day Chinese holiday.

As noted, the SPI Overnight closed up 5 points.

We probably won't see much action on Bridge Street this morning, given the shutdown negotiations are still playing out live. It is also notable that Wall Street's fall last night was on low volume.

Today will bring Beijing's official manufacturing PMI (despite the holiday), along with Australian, eurozone, UK and US numbers over the next 24 hours. Australia will also see retail sales and house price numbers, and no one expects the RBA to budge when the board meets today. The language will nevertheless be scrutinised.