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U.S. equity markets are called to open lower after a volatile Asian trade triggered by a possible debt rating cut in Japan and another sign that China is serious about tightening its monetary policy.

Yesterday’s gains were erased overnight before the markets mounted a strong comeback. The activity in Asia indicates that sentiment is shifting toward aversion to risk, however the early morning comeback indicates that traders will be influenced by today’s U.S. S&P Case-Shiller Home Price Index and the Consumer Confidence Report.

Treasury futures are once again trading higher because of increased demand for safer assets. Traders leaving equity markets are flocking into the Treasuries, driving down yields. Look for March Treasury Bonds and March Treasury Notes to continue to rally as long as traders prefer to take risk off the table.

February Gold is trading lower. The stronger Dollar is helping to pressure precious metals this morning. New that China is serious about tightening their lending requirements as well as their monetary policy is also encouraging liquidation of speculative positions in precious and industrial metals.

March Crude Oil is under pressure overnight. Demand for safer assets is pressuring commodities and stocks. China showed evidence that it was serious about tightening up excessive lending, this means less demand for speculative assets.

The U.S. Dollar is up sharply overnight after a slew of negative economic events drove traders to the safety of the Greenback.  The Dollar is up against European and Pacific Rim nations while falling to the lower yielding Japanese Yen.

Greater demand for lower-yielding assets is helping to drive up the March Japanese Yen this morning.  Much of the weakness occurred early last night after the S&P debt rating service put a negative outlook on Japan’s AA credit rating.  Talk is circulating that S&P may cut the rating to -AA after expressing concerns about Japan’s ability to gain control of its growing debt levels as well as stave off the deflationary pressures.

The Bank of Japan also voted to keep interest rates unchanged. The BoJ also reiterated its thought that deflation is its number one concern. In the meantime, it raised its deflationary forecast from a predicted drop of 0.8% to 0.5%.

In addition to the debt rating story, the news that China singled out the banks required to raise their reserve ratios for excessive lending while telling others to stop lending are signs that the Chinese government is serious about shoring up its finances and cooling down the economy.

General weakness in higher risk assets is helping to pressure the March Euro. This market is trading weaker overnight but still above last week’s low at 1.4027. A failure at this price could trigger a further decline to 1.3800.  Losses have been limited because of the possibility that Greece’s debt problems may be cured by a better than expected bond issuance.

The March British Pound is trading sharply lower after the U.K. GDP report showed the economy grew slower than expected. The low figure of 0.1% was smaller-than-forecast and showed that the economy narrowly avoided prolonging the recession.
 
Lower crude oil and gold continue to provide reasons for investors to sell the March Canadian Dollar while threatening to weaken the Canadian economy. Downside momentum indicates that .9303 is the next target. Recent action by the Bank of Canada to provide stimulus to the economy is also helping to weaken the Canadian Dollar.
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