Stocks Rally On Hopes for Greece; US Housing Permits Surprise

S&P 500 Index futures are currently up 0.7 percent indicating a higher open as investors are hanging their hopes on the Federal Reserve's announcement of "Operation Twist" and maybe something more which could lower the interest rate the Fed pays commercial banks on their deposits with the Fed. Operation Twist is a balance sheet maneuver where the Fed buys treasuries further out on the yield curve than 10 years against selling those with shorter maturities.

In pre-market investors got numbers on U.S. housing starts for August which came out at 571K annual rate compared to 590K expected. More importantly the leading indicator building permits rose 3.2 MoM compared to minus 1.8 percent expected. Despite today's numbers it is fair to say that housing will not drive the economy forward in any meaningful way for the next many quarters.

Greece debt talks productive; Italy downgraded by S&P with negative outlook
In Europe, the Euro STOXX 50 Index is up 1.5 percent driven by gains in Banco Santander (+2.9%), BASF (+3.4%) and Siemens (+2.3%) as Greece said its debt talks with the Troika were productive and amid growing optimism ahead of tomorrow's Federal Open Market Committee meeting outcome.

Early this morning Italy's debt was downgraded by S&P from A to A+ with a negative outlook which we must say reflects that rating agencies remain behind the curve. Prices on Italian bonds and credit default swaps have long shown that the market thinks Italy's debt is of a deteriorating nature. In fact we would argue that with the size of Italy's structural deficits and 0.2 annualised growth rate in the last decade the country should have an even lower credit rating.

Adding further to the negative news stream, the Zew Survey (index of investor and analyst expectations) for September came out at -43.3, the lowest reading since December 2008 as Europe's debt crisis continues to worsen. Today's Zew numbers support that the probability for a recession in Europe is higher than in the U.S. The biggest problem for Europe right now is that the lack of market dynamics within the ranks of policymakers are resulting in too slow reactions to the problems. Europe is slowly approaching the critical point where the situation could get out of control if the prophecy of Europe's downfall materialises among corporates and individuals.

More stock specific, Deutsche Lufthansa is out announcing that it is cutting its full-year forecast as economic concerns are hurting bookings. The announcement comes after very confident statements from management that earnings would increase. The shares are down 5.9 percent in Frankfurt trading