Europe's stock market fell today and added to the negative attitude in US markets.The key US indexes at 9:00 down hard, the DJIA down 146 points. Earnings of 69% of S&P companies have been better but sales forecasts weaker, investors backing down with just two weeks until the election which at this point is the closest in many years. Moody's downgraded some of the regions in Spain today setting up selling in the key markets in Europe. The euro dropped from a five-month high against the yen on the credit ratings of five Spanish regions and French industrial confidence fell to the lowest in more than three years. According to a newspaper in Spain the government told the EU it would miss its budget deficit target this year. The Spanish government told the EU its budget deficit in 2012 will be 7.3% of gross domestic product, exceeding a target of Last night's debate on foreign policy, while not a love fest, did find the two candidates with common ground. Republicans think Romney won it, Democrats think Obama won it. It therefore was a tie. The 10 yr note is chopping around between 1.76% and 1.83% for the last six sessions; the key 200 day average is at 1.78%. This morning the 10 is trading at 1.77% after closing yesterday at 1.81%. 30 Yr MBSs weaker this morning following the 10 yr as they always do; yesterday the price for 30 yr mortgages was down 22 bp, this morning up 22 bp. No direct trend in either the 10 yr or mortgages. In the next two weeks it is likely there won't be much change in the bond and mortgage markets with the election still up for grabs.

There are no economic reports again today. The FOMC meeting is getting underway, it's a two day meeting with the policy statement at 2:15 pm tomorrow. Whenever the Fed is in play there is always some wild speculation about what may be expected; someone yesterday floated the idea the FOMC will announce an increase in the amount of MBSs the Fed agreed to buy at the last meeting. $40B a month is the amount the fed is currently committed to, it isn't likely the FOMC will add more to the monthly buying, but that doesn't stop gossip.

This afternoon Treasury will auction $35B of 2 yr notes beginning three days of borrowing. Tomorrow $35B of 5 yr notes, Thursday $29B of 7 yr notes.

At 9:30 the DJIA opened -166, NASDAQ -32, S&P -17. The 10 yr note 1.77% -4 bp; 30 yr MBS +37 bp.

The stock market is being pummeled this morning; yesterday the DJIA was down 100 points in early afternoon but in the final hour the index climbed back to close +2 points. The reversal yesterday was apparently due to a big buy program on Apple, this morning it is back to selling on weaker earnings outlook, the coming fiscal cliff, the election and what is almost a given, the end to the payroll tax cut at the end of the year. As usual, weaker stock market drives interest rates lower. Although the bond market is stronger this morning, the technicals are still slightly bearish. The relative strength index bearish and the 10 unable so far to hold below its 200 day average. While soft, the rate markets are subject to how investors see the next couple of weeks and the policy statement from the FOMC tomorrow afternoon.