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Tuesday, June 24, 2008 Afternoon Update

The same old market evils are back after a brief respite yesterday. There’s pressure on US financial stocks, oil refusing to budge significantly below $130, dramatic drops in US consumer confidence and the US housing collapse showing signs of accelerating not subsiding. Yesterday was the slowest trading day since May 12th, but market makers are certainly earning their crumb today as traders jostled for positions ahead of tomorrow’s FOMC interest rate announcement. Traders are pricing in a 90% probability of a no change verdict and a 10% probability of a hike. Even though a hike is unlikely, the Fed is expected to take a very tough line on inflation with hints of a tightening bias. Just want the market doesn’t want to hear. Without a significant catalyst we cannot see the recent trend reversing until we revisit the March lows. If the Fed is too forceful in their inflation fighting language, we could see those lows before the week is done.