- Markets plunged in pre-market trading this morning after the preliminary Q2 GDP reading came in short of expectations and the Q407 number was revised to -0.2% from +0.6%, providing a strong whiff of the "R word," while weekly jobless claims hit their highest levels since April 2003. After some initial strengthening on the weaker dollar, crude has dropped $2 and is headed lower once again. Bristol Myers' offer for ImClone and strong healthcare and tech reports have helped the Nasdaq to reverse course, with the index shooting up to +1.0% from -0.8% in early trading, managing to hold on to the plus side; the Dow is making progress, but remains in negative territory, weighed down by disappointing earnings reports from the energy complex, especially XOM -3% and CVX -2%. BMY-1% offered to buy IMCL+38% in a deal valued at $4.5B, at $60/shr, representing a 21% premium to the company's closing price. BMY already owns about 17% of IMCL and is a longtime partner in the successful cancer drug Erbitux. Other biotech names AMLN+11%, GILD+2% and GENZ+2% are trading up on the meger news. Nasdaq 100 components SYMC+8% and ESRX+5% are also doing their part to push up the tech heavy Nasdaq this morning, after beating EPS estimates and guiding higher. MOT+15% is up after breaking even against expectations and guiding slightly higher. XOM-3.5% missed earnings and revenue targets by surprisingly wide margins, noting that its net income was impacted by a charge related to the recent Supreme Court ruling on damages stemming from the Exxon Valdez oil spill. Shell also reported a surging earnings and revenue, although the UK company's ADR is trading lower today. Leading credit card names V-2% and MA-7% are trading down despite beating estimates and offering positive guidance; it seems that yesterday's news that certain US senators may be taking a critical view of credit card interchange fees is weighing on the names. Financials are showing strength after loosing ground before the open; speculation continues on how much the major banks' CDOs are really worth in the wake of Merrill's sell off, while Oppenheimer's Whitney reiterated her view that banks would be reporting more write-downs on CNBC last night. IDCC+10% is off its best levels after spiking as much as 25% thanks to reports it had won a patent ruling against NOK. In other M&A news this morning, GG reported it would acquire Gold Eagle for $1.5B in cash and stock, while ZONS+50% said it is being taken private by its CEO at $8.65/shr in cash, for a total of $113.4M, representing a 59% premium to yesterday's closing price.

- Treasury prices surged following the weak pre-market data, and even the highest prices paid reading in the Chicago PMI since 1980 could not lift yields. The two-year note saw some of the most aggressive buying, with the yield pushing back towards 2.50% initially. The ten-year yield has slipped below 4% once again to 3.95%. Fed fund futures continue to see the likelihood of a rate hike pushed back. The Oct contact had priced in roughly 40% odds the Fed hikes by the Sep meeting but that has since slipped back towards 30%.

- The USD is having a turbulent morning as plentiful economic data underscores concerns regarding the US economy. Initial claims, annual GDP, and falling expectations (to 40% from 80% just yesterday) for any FOMC interest rate increase have made for rough going. The EUR/USD cross extended its earlier gains as dealers continue to note euro demand from Eastern European names, testing the 1.5700 level before chatter circulated that the ECB might be seeing a negative GDP reading in Euro Zone data. However, slower economic growth in Europe would not necessarily pause the ECB's monetary policy; the same sources note that the ECB would raise interest rates if inflation expectation continues to rise. Weaker GDP data from Canada kept the USD/CAD steady at 1.0250 as dealers continue to watch key resistance at the 1.0330 area. May Canadian GDP declined by 0.1% against expectations of a +0.2% increase. JPY-related crosses encountered good buying due to several uridashi issues due to launch over the next few sessions. Dealers noted that Japanese investors purchased good amounts of commodity-related currencies, namely AUD and NZD, but JPY firmed as risk aversion crept in following the raft of soft economic reports.