FINANCIALS
December Treasury Bonds and Treasury Notes are expected to open lower based on the overnight trade. The brunt of the selling is in the Notes.

Yesterday, as expected, the Fed announced an interest rate cut of 50 basis points and left open the possibility of further cuts later in the year. More cuts are expected by the European Central Bank and the Bank of England on November 6. 

The rally in the global stock markets is encouraging investors to sell treasuries and put more money in stocks. Many portfolio managers are also adjusting their allocations between bonds and stocks to reflect new risk parameters.

Today the market is going to focus on the Chain Deflator and Gross Domestic Product Reports. The GDP is expected to show a contraction in the U.S. economy. Traders will also be watching the Initial Claims report to see how the current economic situation is affecting state unemployment claims. Traders are looking for a number of about 470K.

Barring any surprises in the reports, look for more downside pressure in the treasuries.

EQUITIES
Global equity markets are trading higher overnight. Yesterday’s action was bullish for most of the day with the stock market surging after the Fed cut rates to 1%. The stock market sold off sharply on the close on what some traders now claim was a misunderstood news story regarding GM. Overnight the markets have been trying to regain the late session losses.

Economic stimulus plans announced by Japan and Germany are providing support overnight. Credit markets are loosening which is helping banks return to normal lending practices. Traders are starting to feel a little more confident in taking on more risk.

The trend is still down in the Nasdaq, Dow and S&P futures, but the market is getting close to taking out previous tops which would turn the trend to up. With so much cash available but still on the sidelines, it seems that it is just a matter of time before that cash finds its way to the stock market. One of the best signs of higher markets to follow will be the crossing of 992.75 by the September E-Mini S&P 500. Continue to look for consolidation as the markets build a strong support base. Based on the size of the support zone being built, the stock indices are getting ready to launch a huge rally.

CURRENCIES
The Dollar is down overnight against the December Euro and the December British Pound. The European Central Bank and the Bank of England decided to wait until next week to cut interest rates. With the Fed cutting rates to 1% yesterday, the Euro and the Pound are rallying because of the favorable interest rate differential. An economic stimulus package announced by the European Central Bank is providing additional support.

Despite the announcement of an economic stimulus package, the December Japanese Yen is trading lower overnight. Traders are reacting to the possibility of a rate cut by the Bank of Japan. The Bank of Japan wants to stem the rally in the Yen because of the risk to Japanese exports. The strong stock market is encouraging more carry trading which is putting additional pressure on the Yen.

The Canadian Dollar followed through to the upside following the reversal bottom on Tuesday. Strong commodity markets especially in crude oil, natural gas, lumber and wheat are helping to support the Canadian Dollar. Continue to look for more upside action today as long as commodities can remain firm. The only thing standing in the way of the rally is the threat of a rate cut by the Bank of Canada.

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