- Equity trade remains volatile this morning with the major indices feeling the cross currents of a second straight day of plunging commodity prices. Oil futures are headed for two-week lows, falling to $136/bbl, while natural gas has fallen below its uptrend line to $12.48. Grain futures are getting hammered for a second straight session while September copper has slid some $0.30+ in the last five sessions to $3.70. The relief that many of the transportation and consumer oriented names are experiencing is being offset by declines in the commodity related stocks themselves. The OIH -3% is testing its 90-day EMA for the first time in more than two months, while XOM, CVX and AA weigh on the Dow. Steel, agriculture, iron ore, coal, and copper stocks are all seeing money flow out. Oil guru T. Boone Pickens has been making the rounds promoting his new energy initiative, inveighing against US dependence on foreign oil and promising to fund a campaign to reduce this dependency. Pickens notably concentrated on the promise of wind power, which is not surprising given his recent major investments in this sector. Financials are taking very little comfort from Fed Chairman Bernanke's comments this morning. Bernanke stated that the Fed may keep an emergency lending facility for big Wall Street firms open past year-end while it seeks to restore financial market stability. The XLF has bounced 1% but the major investment banks are lower, led by LEH -3%. FRE and FNM can't get any traction this morning, returning to negative territory after a (very) brief rally in the wake of yesterday's dramatic declines. A Merrill analyst was out defending the names before the open, saying shortfall concerns are premature, while OFHEO Director Lockhart told CNBC that the two institutions were adequately capitalized, insisting that worst-case scenarios are nowhere near occurring. The Wall Street Journal published an article overnight noting that the best worst-case scenario for the two GSE's would be to undertake a large capital raise, noting that one analyst at FBR believes that the two lenders might have to each raise $15B of added capital. Further trouble at mortgage lender IMB-41% is being seen as an ill omen for other lenders after the bank admitted that the OTS no longer considers it well capitalized. VMW-26% has dropped sharply after guiding FY revenue slightly lower than forecast and replacing its president and CEO this morning. ODP-34% cut its Q2 outlook and saw price target cuts.

- Treasury markets are posting modest gains, consolidating the flight to quality move made mid-way through yesterday's session on the GSE's weakness. The 10-year note future is higher by roughly a quarter of a point with the cash yield holding at 3.90%. The fed fund futures market are all but pricing out anything more than a 25 basis point hike by the end of the year.

- In currencies, Bernanke's comments helped lift the dollar from session lows, while his commentary and that of OFHEO's Lockhart have provided a welcome sense of calm. The European morning was characterized by a risk aversion theme following Lehman's comments on Freddie and Fannie bonds late Monday, which forced traders to question the quasi government guarantee and the institutions' AAA ratings. The carry-related pairs were off session lows as European stocks recovered from session losses that exceeded 2.3% at one point. EUR/JPY hit 168.15, lower by 10 pips, EUR/CHF is at 1.6140, up 10 pips, while USD/JPY is at 107.30, up 30 pips. The EUR/USD continues to consolidate in a 1.5630 to 1.5730 post-ECB consolidation range with stops orders building on both sides of the range. Dealers are also waiting to see whether the final day of G8 summit would bring a mention of the USD. Thus far little has emerged from the meeting on the currency front. However, the USD is benefiting from comments that German's PM pushed for language on currencies in economic statement.