Fed cut, Europe to head into recession.

Treasuries rose as home prices fell the most on record and U.S. consumer confidence sank, bolstering speculation the Federal Reserve will cut its benchmark interest rate tomorrow and keep it low for longer than anticipated. Government debt began gaining earlier after Deutsche Bank AG, Germany's biggest bank, reported its first quarterly loss in five years, underscoring concern financial institutions worldwide face additional losses linked to the U.S. subprime mortgage market.

The credit crisis is far from being over. The market's telling you the Fed's going to 2 percent tomorrow and will say in the statement they'll be in a sit-and-watch mode. The weak-economy type talk is pro-bonds. Today's home-price report is a reminder that the economy remains weak and housing has been a disaster, and we probably haven't seen a bottom in it yet.
Other reports this week will show the economy hardly grew in the first quarter and employers cut jobs in April for a fourth month, surveys forecast. Frankfurt-based Deutsche Bank, Germany's biggest bank, reported a quarterly loss after writing down the value of loans for leveraged buyouts and asset-backed securities by 2.7 billion euros ($4.2 billion). Europe is next, England will probably be kicking the recession off over there.


Futures contracts on the Chicago Board of Trade show an 84 percent chance the Fed will trim its target for overnight lending between banks by a quarter-percentage point to 2 percent tomorrow, compared with a 78 percent likelihood yesterday. The balance of the bets is for no change in borrowing costs. Traders also see a slimmer chance the Fed will start lifting rates later this year. The likelihood of an increase to 2.5 percent at Fed meetings in September, October and December declined today, futures show.