Weaken

U.S. stock indices sold off after Thursday’s hike in the Fed discount rate. The immediate reaction by traders was to sell because many traders thought this move served as a sign that the Fed would begin tightening its monetary policy. The Fed, however, is emphasizing that this move is not a deviation from its policy statement that interest rates will remain low for an “extended period”.

Commodity and stock markets are trading lower overnight as risk aversion is driving investors toward safer, lower-yielding assets. U.S. economic reports may have to take a backseat today as traders express their concerns with growing European sovereign debt issues by selling off higher risk assets. Trading may be volatile today as thin conditions ahead of tomorrow’s U.S.

Stock Index Futures are trading lower overnight as investors are shifting out of higher risk assets. Concerns that a tighter monetary policy in China will lead to a slow down in the Chinese economy is encouraging traders to lighten up on higher yielding assets. Traders are also being cautious ahead of today’s earnings reports. Momentum has slowed down despite higher prices this week.

Global stock markets weakened overnight after Alcoa released mixed results following yesterday’s close. In addition, news that China may begin raising interest rates is pressuring demand for higher yielding assets. Commodity related stocks may feel pressure today because of an expected drop in demand for raw materials.

U.S. stock markets are expected to open lower based on weaker markets overnight. Traders are taking risky positions off the table in response to another debt rating downgrade of Greece. Traders now fear that the debt crisis could worsen in the Euro Zone and perhaps spread to U.S. banks. This news is triggering a rally in the Dollar and subsequent weakness in the U.S. equity markets.

The U.S. Dollar continued to weaken overnight against most major currencies after China announced that its manufacturing sector rose to a seasonally adjusted 55.7 last month. This growth rate was the fastest pace in five years or since the index began being tracked.

The EUR USD is trading sharply higher overnight as speculators increase bets the U.S. economy will continue to weaken. Traders are basing their expectations in part on U.S. economic reports this week which are expected to show a slower than expected recovery.

The stronger Dollar is putting pressure this morning on both equity and commodity markets as traders dump risky assets for the safe-haven Dollar. Equity markets were down in Asia and Europe. This weaker trend is expected to spillover to the U.S. stock markets.

Stock index futures closed higher but weakened late in the session after soaring in the morning. Yesterday’s quick surge early in the trading session put them into overbought territory, giving investors an excuse to take profits. Throughout this entire rally since March, traders have not been too fond of chasing markets higher, so a correction from current levels will not be unusual.

The U.S. Dollar mounted a strong recovery late in the trading session as equity markets weakened into the close for the second day in a row. Trading has been lackluster for the past few days in the Forex markets highlighted by choppy, two-sided trading on light volume.