Treasuries and mortgages opened fractionally better this morning; stock indexes also started better as did the euro currency. Somewhat confusing early with stock indexes better, euro stronger and stock indexes better. We would have expected the bond and mortgage markets a little soft with stocks and the euro currency better. At 9:00 the 10 yr note +5/32 3.47% -2 BP, mortgage prices +2/32 (.06 bp), the DJIA +63, crude oil at 9:00 up $1.75. At 9:30 the DJIA opened +70, 10 yr +4/32 and mortgage prices +3/32 (.09 bp).

At 8:30 all of the data today; April PPI down 0.1%, the core (ex food and energy) +0.2%. It is the second decrease in three months, signaling the global economic recovery from the worst recession in the post-World War II era has yet to stoke inflation. The decline in April was mostly on the decline in energy prices. The debt issues in Europe have sent commodity prices lower on thoughts that the economy in Europe will slow and reduce any speculation that inflation is about to heat up There is so much slack in the economy that we see nothing on the horizon that would legitimately increase inflation concerns. April housing starts were expected up 4.5% but jumped 5.8%, April building permits were thought to be unchanged from March but fell hard, down 11.5%. There was no initial market reaction to the data in either the bond or stock index trading.

Nothing new from Europe overnight; a plus for US equities and somewhat peculiar that the bond and mortgage markets are acting so well so far this morning. Although nothing new out of the EU, European finance ministers are meeting in Brussels today, not anything yet as the meeting hasn't started yet. Have to wait until later this afternoon to see if there is anything revealing. The debt issues in the EU haven't yet met the test; will taxpayers and governments be able to cut spending as much as necessary to make the $960B bailout work?

Difficult to speculate how the markets will act through the rest of the session. No more scheduled data or other events that could move markets. The equity markets are likely to continue the highly volatile trading, mostly moving on the euro currency trade, which at the moment is stronger against the dollar. Technically the euro is very oversold and overdue for a bounce, so far yesterday and this morning the bounce has been rather muted with the solid view that the euro currency will continue to fall against the dollar.

Although treasuries and mortgages have opened a little better this morning, we doubt that can hold if equity indexes remain firm, particularly this afternoon. There isn't as much enthusiasm for stocks these days compared to a month ago, but equally it doesn't appear investors are ready to wholesale bail. Under it all the issues in Europe that sent fear into the US markets is ebbing; hearing chatter that the European problems won't cross the pond and infect the US. A nice thought but one we would not want to get behind now.