- Markets are posting gains this morning in the wake of better-than-expected April inflation data and good news at Freddie Mac. FRE was up sharply in morning trade after reporting a much smaller loss than analysts had expected and after news that the OFHEO would lower the GSE's capital requirements. Freddie's CFO noted that while the US housing market hasn't hit bottom quite yet, the firm has a "strong and sound" capital position and maintained the current dividend. Macy's was another winner this morning, trading up more than 6% after beating estimates and providing a positive outlook for the remainder of FY08. The retailer's CFO predicted that Macy's will be "well positioned" when the economy eventually turns around. SOL jumped more than 10% on a double-dose of good news, reporting nearly tripled profits and a large long-term supply agreement. Markets reversed themselves on HP this morning, with HPQ+3.4% as market commentators called yesterday's sell-off an "overreaction" to the EDS acquisition news. Semi-cap equipment giant AMATslipped lower on the open after yesterday's lukewarm earnings and negative revenue outlook, but the stock had firmed a bit by mid-morning to trade down less than 2%. DE has tumbled -7.7% after barely missing EPS estimates and noting that rising raw-material costs and parts shortages would impact operations for the balance of the year. WFMI -12% was down sharply after missing estimates and reporting falling Q2 profits.

- Treasury prices began the floor session under some pressure as yesterday's selling momentum carried over. The 10-year yield ticked as high as 3.95% early on, bringing the February high back into play, but yields backed off following the CPI data. Expectations the Fed is likely to raise rates later this year remain elevated, but have moved off their highs from before the release of the inflation data. The October Fed fund future saw the odds of a 25 bp hike rise towards 40% early but has since retreated back below 25%. Energy futures have seen some profit taking throughout the session with the release of the weekly inventory data continuing to have little overall effect. Front-month crude and heating oil are off roughly 1% while natural gas has been the outlier, trading up close to 2% for much of the session.

- In currencies, the dollar saw its earlier gains evaporate following the "softer" April CPI. Dealers noted that companies may be holding down prices to attract customers as the US economy struggles to maintain positive growth. EUR/USD continues to consolidate within a 1.54-1.55 range. Dealers continued to focus on the relationship between the US-German two-year note spread, which they said was holding below the -150bps level, favoring the USD prior to the release of CPI data. In addition, Former Fed Chairman Paul Volker remarked that dollar depreciation should not be allowed to get "out of hand." The GBP/USD knocked out an option barrier at the 1.94 level ahead of the UK quarterly inflation report, regaining its footing following the US CPI data release. The 1.94 area continues to remain a key pivot point on a weekly close basis. The pound remains vulnerable to the downside to a deteriorating medium-term economic growth outlook, as well as current account and public sector deficits. However, following the UK inflation report numerous banks revised their BoE interest rate outlook to a less dovish tone. The JPY was softer across the board as well as chatter circulated that a hedge funds was 'seen' exiting its Asian exposures across asset classes (currencies, bonds and stocks). JGB's bonds were broadly lower on inflation concerns. The AUD/USD encountered a slew of long position liquidations throughout the European session, but consolidated off its lows as interest appeared in Asia on the approach of 0.94. USD/CAD tested below the parity level for the first time in seven weeks. The Russian Central Bank said it would intervene regularly in FX to keep the ruble within a corridor against a basket. The Russians noted that the new FX policy would help in planning currency purchases for oil funds and smooth liquidity fluctuations.