An early read from morning markets suggests the equity unraveling might be over, but much depends on the monetary policy announcement from the Federal Reserve Tuesday afternoon. The meeting is taking place during the volatile time in the equity market since late 2008.

Treasuries took a “wild overnight ride” according to a Merrill Lynch note but have since stabilized, with yields bouncing off earlier lows suggesting investors are finding other places to stuff their cash. 

The benchmark 10-year Treasury yield is six basis points higher at 2.38%, the two-year yield is a single basis point higher at 0.28%, and the 30-year yield is four basis points up at 3.70%. The Fannie Mae 4.0 MBS coupon is -8/32 at 102-26.

The S&P 500 is ready to open 19.6 points higher (+1.76%) at 1,130.90 while Dow futures are 154 points up (+1.44%) at 10,880. 

Outside the U.S., global equities tumbled overnight with shares in Hong Kong descending 5.7% and shares in Japan falling 1.68%, but BMO Capital Markets points out that despite the widespread losses, “most markets closed off their lows and Australia’s ASX 200 actually finished up 1.2% after falling 5.5% earlier in the session.”

Light crude oil rose 0.50% overnight to $81.65 per barrel and gold prices rose 2.44% to $1755 per ounce.

Key Events Today:

8:30 - It's well-known the Productivity & Costs report won't be a harbinger of optimism. Second-quarter growth was just 1.3%, slower than anticipated, which means unit labor costs, which are calculated based on output, were on the rise from April to June while productivity was minimal or in decline. 

The median estimate is for a 0.8% drop in productivity and a 2.3% rise in labor costs, thanks largely to more hours worked.

Moreover, the report includes three years of revisions to reflect the recent, slower estimates for GDP.

"The release will include revisions showing that productivity growth has been weaker than current estimates indicate, in line with the downward revisions to growth in the GDP accounts," said economists at IHS Global Insight, who predict Q2 productivity to drop at an annualized rate of 0.7%, with labor costs up 2.6%.

"Productivity growth in 2009 should be revised down a full percentage point, and while 2010 productivity growth may be revised up, first quarter 2011 productivity growth, currently estimated at 1.8%, will likely be revised down more than two percentage points," they added. "The near term outlook for productivity is not a happy one.  We expect its growth to remain sluggish over the next several quarters."

"Productivity appears to have fallen faster than previously reported during the recession and recovered less quickly following," added economists at Citigroup, who anticipate a worse-than-consensus 1.2% cut in productivity and a 1.7% gain in labor costs. "The lower productivity figures should translate into smaller declines in unit labor costs during the recession and larger increases in recent quarters."

2:15 - A changing economic outlook will be the focus of the FOMC Meeting Announcement. So will be the possibility of more quantitative easing. Safe to say the overnight lending rate isn't changing from the zero to 0.25% range any time soon, but it's difficult to say whether more monetary easing is in the cards. This statement will be scrutinized closely.

"We see little chance of significant interest rate or asset purchase program changes at the Fed's August FOMC meeting, though there's a possibility of tweaks to the Fed's portfolio reinvestment program," said economists at Janney Capital Markets. "With the federal government in full-on cutback mode, the only source of additional policy stimulus falls to the monetary authorities."

"The only problem," Janney continues, is that "additional monetary stimulus has very little chance of actually stimulating anything. Regardless of how it was packaged, QE2 was really a deflation-prevention mechanism more so than a growth aid. By virtue of there being little deflation risk today, there's likewise little use for QE3-style balance sheet expansion at the Fed."

Note that Chairman Ben Bernanke will not hold a press conference afterwards, as he did in the prior two meetings. According to Nomura Global Economics, Bernanke will next speak on August 26 at the Kansas City Fed's annual Jackson Hole conference. 

• Treasury Auctions:
• 11:30 - 4-Week Bills
• 1:00 - 3-Year Notes