Fed fund futures are now pricing in a 50 percent chance of a half point rate cut.

If this week’s non-manufacturing sector data signals that the services sector may be faltering, fixed income, forex, and equity markets may continue to price in a reduction in interest rates on December 11.

A second devastating wave of writedowns from major banks has rocked confidence. To add to the gloom there are mounting fears that the problems could engulf other types of American debt – credit cards, car finance and unsecured loans.

The market is currently pricing in a 60 percent chance of a quarter point rate cut by the Bank of Canada even though economists do not expect a move.

On Tuesday, the Bank of Canada will announce whether they find it necessary to cut interest rates by 25bp to 4.25 percent, as downside risks to growth continue to mount and credit markets remain tight.

Currency strategist Boris Schlossberg analyzes the major currencies for the week of December 3.

Professional system trader Art Collins shares his daily biases in the index, bonds and currency futures markets for December 3.

This week John Mauldin takes a look at problems at the edge of the economy which threaten to derail not only the recent robust growth (at least in the statistics) but also the markets.

A report on the seasonality of the US dollar found that the dollar has a greater tendency to fall in the month of December. The risks are higher this year with problems in the financial sector still plaguing the US economy.

Banks typically borrow short and lend long. But when short rates are so high, how can they make any money lending for long-term mortgages? They can’t. So they stop lending. And without ready mortgage credit, buyers stop buying houses. And when buyers stop buying houses, house prices fall.