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• The UK FTSE this morning is up +1.05% and the French CAC40 is up +1.23%. The German, Swiss, Italian and Spanish markets are closed today for the New Year's holiday. In Asia, Japan, South Korea, Thailand, Indonesia and the Philippines were closed. Major mining companies are higher today with BHP Billiton up 2%. Rio Tinto is up 1.5% after announcing the sale of a unit to reduce debt.
• Mortgage apps – The markets will continue to watch the extent to which lower mortgage rates are helping the US economy by allowing homeowners to refinance to lower mortgage payments and by making home purchases more affordable. This morning's MBA report showed little change in mortgage activity (Market index unch, purchases +1.4%, refinancing -0.4%) following last week's surge (Market index +48.0%, purchases +11.0%, refinancing +63.0%). The purchases sub-index is only moderately above the recent 8-year low, but the refinancing index has soared to a 5-1/2 year high. The 30-year mortgage rate in the week ended Dec 25 fell another 5 bp to a new record low of 5.14%, down by a total of 132 bp from the 3-month high of 6.46% posted in the last week of October (the history of the series goes back to 1972). The recent plunge in mortgage rates was directly attributable to the Fed’s $600 billion program to buy mortgage securities and Fannie/Freddie debt securities.
• Unemployment claims – Today’s weekly initial unemployment claims report is expected to fall –11,000 to 575,000, giving back part of last week’s +30,000 increase to the 26-year high of 586,000. Weekly continuing claims are expected to rise +30,000 to 4.400 million following last week’s decline of –17,000 to 4.370 million. Continuing claims are just slightly below the 26-year high of 4.431 million posted in the last week of November. The US labor market situation is likely to get worse in January as businesses return from the holidays and think about laying off more employees if the US economic situation does not stabilize soon. The US unemployment rate is already at a 15-year high of 6.7% and may eventually be headed higher for a challenge of the 24-3/4 year high of 7.8%.

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• March S&Ps this morning are trading slightly higher by +3.50 points (+0.39%). The main bullish factor is continued support from yesterday's news that the US government completed a bailout of GMAC and that GMAC will expand its auto loan lending. The US stock market yesterday recouped Monday's losses and closed near a 1-week high (Dow +2.17%, S&P 500 +2.44%, Nasdaq Composite +2.67%).
• Bullish factors for stock prices yesterday included (1) a rally in US automakers with General Motors leading the way with a 5.6% gain and Ford with a 3.2% rise after the US Treasury said it will purchase a $5 billion stake in General Motor's lending unit, GMAC, and lend $1 billion to GM so the automaker can contribute to the financing arm's reorganization as a bank holding company, (2) the unexpected rise in the Dec Chicago purchasing managers index, and (3) the drop in the VIX volatility index to a near 3-month low, a sign that the stock market may be finally stabilizing after this year's rout.
• Bearish factors for stock prices yesterday included (1) the decline in US home prices at the fastest rate on record in Oct as mounting foreclosures and slumping sales depressed prices, (2) the unexpected tumble in Dec US consumer confidence to its lowest level since records began in Feb 1967, and (3) the -1.8% weekly y/y drop in US retailers' sales last week, according to the International Council of Shopping Centers (ICSC), which is the biggest y/y decline in 5-3/4 years as steep markdowns before and after Christmas failed to salvage one of the worst holiday shopping seasons in four decades.

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• March 10-year T-notes this morning are trading +5.5 ticks. March T-note prices yesterday reversed Monday's gains and closed down -14.5 ticks. Bearish factors for T-note prices yesterday included (1) the rally in the stock market, which reduced demand for the safety of Treasuries, and (2) the unexpected rise in the Dec Chicago purchasing managers index (+0.3 to 34.1 versus expectations of -0.8 to 33.0). Bullish factors for T-note prices yesterday included (1) the largest decline in US home prices since the series began in Jan 2001 (Oct S&P/CS composite-20 home price index -18.0% y/y), and (2) the unexpected drop in Dec US consumer confidence to its lowest level since the series began in Feb 1967 (-6.7 to a record low of 38.0 versus expectations of +0.8 to 45.7).
• The dollar/yen is little changed this morning and the euro/dollar is down -0.43 cents. The dollar index yesterday ended with slight gains. Bullish factors for the dollar yesterday included (1) Barclays Capital's prediction that Japan's economy will contract -12.1% in Q4, the sharpest drop in 34 years and far worse than the earlier prediction of -4.1%, (2) the plunge in the British pound to a 6-1/2 year low against the dollar after IHS Global Insight predicted the BOE will cut its benchmark rate to 0.5% with "zero rates being very possible," and "it's possible the BOE will engage in some forms of quantitative easing in 2009," and (3) the unexpected gian in the Chicago purchasing managers index for Dec. Bearish factors for the dollar yesterday included (1) the rally in the Russian ruble for the first time in a week, reducing flight to dollars, (2) the biggest year-on-year decline in US home prices in Oct since records began in Jan 2001, and (3) the unexpected decline in US consumer confidence in Dec to its lowest level since the data series began in Feb 1967. 
• February crude oil prices this morning are trading -$1.81 per barrel (-4.64%) a barrel and February gasoline is trading -3.27 cents (-3.51%) a gallon. The market is looking for gasoline inventories to rise in today's weekly DOE report. February crude oil prices yesterday closed down -$0.99 a barrel while February gasoline closed up +1.43 cents a gallon. Bearish factors for crude oil prices yesterday included (1) signs that South Korea, Asia's fourth-largest economy, is falling into recession after its factory production dropped by the most on record last month, (2) the stronger dollar, and (3) continued weak US economic data with US Dec consumer confidence unexpectedly dropping to a record low and US home prices in Oct falling by the largest amount on record, raising concern that US energy demand will weaken further. Bullish factors for crude oil prices yesterday included (1) continued Israeli air attacks on Hamas militants in the Gaza Strip, and (2) the assertion from PetroLogistics that oil supply from OPEC dropped to 27.1 million bpd this month, down from 27.5 million bpd in Nov and a sign that OPEC is adhering to its lowered output quotas. Expectations for today's weekly DOE inventory report are for a -1.7 million bbl drop in crude oil inventories, a +1.6 million bbl rise in gasoline stockpiles, a +1.5 million bbl gain in distillate stockpiles and a +0.5 point rise in the refinery capacity rate to 85.2%.

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