U.S. equity markets are called to open lower after a volatile Asian trade triggered by a possible debt rating cut in Japan and another sign that China is serious about tightening its monetary policy.

Yesterday’s gains were erased overnight before the markets mounted a strong comeback. The activity in Asia indicates that sentiment is shifting toward aversion to risk, however the early morning comeback indicates that traders will be influenced by today’s U.S. S&P Case-Shiller Home Price Index and the Consumer Confidence Report.

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U.S. equity markets are expected to open better this morning following last week’s hard sell-off. Investors dumped stocks late last week as sentiment shifted toward less risky assets. The combination of a stronger Dollar, monetary tightening in China and a proposal by Obama to end financial institution prop trading weighed heavily on traders last week. While these conditions are expected to continue to linger this week, the bulk of the focus will be on the Fed FOMC meeting which takes place on January 27th. Traders will be looking for clues as to when the Fed will decide to begin to raise interest rates.

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U.S. equity markets could feel downside pressure if President Obama’s plan to end trading by financial institutions becomes a law. Investors feel this proposal will have a negative impact on bank earning’s which could weaken their stock prices. In addition, the proposal is making the Dollar less attractive.

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