Benchmark interest rates made an aggressive move lower yesterday and tocks rallied to their highest levels since before the crash of Lehman Brothers, but equity futures are now slightly lower and interest rates are inching upward ahead of the October employment report.  

S&P 500 futures are trading 3.25 points lower at 1,215.50 and Dow futures are down 22 points at 11,365. In the past three months, the S&P 500 has gained 8.32% and the Dow has jumped 7.06%. 

In the wake of the Fed’s reflationary plan to inject an another $600 billion into the economy, the 10 year note pushed 12 bps lower yesterday and production MBS coupons set new record price highs. Currently both are retracing some of those gains. The 2s/10s curve is 2bps steeper. The 5yr note is -4/32 at 100-29+ yielding 1.058%. 7s are -4/32 at 100-27+ yielding 1.744%. 10s are -7/32 at 100-30 yielding 2.516%. The December FNCL 3.5 is -3/32 at 100-29 and the December FNCL 4.0 is -3/32 at 103-12.

In commodities, gold prices are -0.84% at $1,380. 60per ounce, light crude oil is 0.18% higher at $86.65 per barrel. 

The slight loss in equity value is consistent with European markets: London’s FTSE 100, Germany’s DAX, and France's CAC 40 were all about 0.1% lower in early trading. Markets in Asia closed higher, however, with the Shanghai and Hang Seng indexes up 1.38% and 1.39%, respectively, while the Nikkei climbed 2.86%.

Key Events Today:

8:30 ― The October Employment Report is anticipated to show 60k were created in October, including 75k private sector jobs. In September, the economy lost 95k jobs, but mostly as a result of temporary Census jobs exiting the data stream ― private employment grew by 64k in the month. No such distortion should be in this report.

Ian Shepherdson from High Frequency Economics said the report will be anti-climactic following the Fed’s resumption of quantitative easing Wednesday. He said private payrolls will rise a modest 100k, but the headline will be depressed by the continued loss of public jobs in the state and local government sector.

Economists at BBVA note that the expected increase will be the first in fourth months. 

“Job creation has been driven by sustained growth in private services employment,” they wrote. “Meanwhile, government layoffs will continue at the federal and local level, though at a slower pace.”

The Unemployment Rate is set to remain at 9.6%.

Economists at IHS Global Insight even expect it to rise a tad closer to the 10% mark.

“The unemployment rate is expected to edge up slightly to 9.7% from 9.6%, since the economy is not generating enough jobs to keep pace with the underlying growth in the labor force,” they wrote.

12:30 ― The Pending Home Sales Index is expected to rise 3% in September, following a 4.3% gain in August and a 4.5% gain in July. The report follows last week’s existing home sales report from last week, which showed sales jump 10% in September to an annualized pace of 4.53 million. But, sales were still down nearly one-fifth compared to one year ago.

“Strength was relatively broad based,” noted Deutsche Bank economists, speaking of the August report. “As we have noted previously, decade low mortgage rates and near record highs in affordability should help stabilize sales in the near term, however it will take meaningful improvement in the labor market to drive housing going forward.”

3:00 ― Consumer Credit is anticipated to fall for the 8th consecutive month in September, this time by $3.05 billion versus the $3.34 billion cutback a month before.  What this means is up for debate. On the positive side, less outstanding credit suggests consumers are deleveraging ― that is, paying off debt and spending less recklessly with money they don’t have. On the negative side, less credit means less growth in the economy, and may also indicate that banks are reluctant to give out loans.

Since January, consumer debt has shrunk $37 billion, according to economists at IHS Global Insight. They noted last month that the rate of decline of household debt has been slowing since the beginning of 2010, “indicating a slow recovery on the consumer side that goes in hand with very gradual improvements in employment and housing conditions.”

Other Events...

* 09:30 FRB Kansas City's Hoenig (voter) at National Association of Realtors forum
* 09:45 FRB Cleveland's Pianalto (voter) at "A Return to Jekyll Island"
* 2:00 Fed Chair Bernanke at Jacksonville University
* 3:00 FRB St. Louis's Bullard (voter) at "A Return to Jekyll Island"