Share prices are closing in on session highs as shorts are covered ahead of the weekend.

Toronto's S&P/TSX composite index is up 107 points to 7831, the Dow Jones Industrial Average is up 113 points to 7665, the S&P 500 is up 11 points to 764 and the Nasdaq is up 15 points to 1331.

European stock markets closed with the Eurostoxx down 62 points to 1894, the UK FTSE 100 down 94 points to 3781 and the German DAX down 93 points to 4127.

"There's only one trade right now ... the global risk trade," said John Rothfield, senior currency strategist at Bank of America. "We can't continue with the trades forever, Citigroup can only fall by $2 for two more days."

Still, Rothfield said there's no reliable indicator of where risk aversion is heading.

The top data of the day was the Canadian consumer price index report. The all-items index unexpectedly declined 1.0%, the sharpest decline since 1959. Economists were expecting a 0.6% decline.

Rothfield said the drop in inflation increases the likelihood of aggressive Bank of Canada interest rate cuts.

The swaps market is fully pricing in a 50 basis point cut from the BOC at the Dec. 8 meeting and, following the CPI report, is pricing in a 25% of a 75 basis point cut.

The Canadian dollar is up 0.0072 to 0.7787 against the U.S. dollar (1.2843 USD/CAD) and up 2.02 to 74.30 against the yen.

The U.S. dollar is up 1.71 to 95.43 against the yen and the Dollar Index is down 0.087 to 87.882.

The euro is up 0.0103 to 1.2557 against the U.S. dollar, down 0.0026 to 1.6128 against the Canadian dollar, up 0.0050 to 0.8505 against the pound sterling and is higher by 3.14 to 119.83 against the yen.

The pound sterling is up 0.0035 to 1.4763 against the U.S. dollar and down 0.0136 to 1.8962 against the Canadian dollar.

WTI crude oil is up $0.52 to $49.94. The front month gold contract at the Chicago Board of Trade is up $51.40 to $800.10 per ounce.

Dennis Gartman said he is "more and more convinced that yesterday's lows [in crude] shall be the lows for a while," in his newsletter The Gartman Letter. "Call it trader's intuition, or call it what you will, but the panic selling late yesterday on the Nymex had the look and feel and smell of a major low."

In fixed income, the massive rally in Treasuries is unwinding, leading to a bear steepener.

Overnight Libor rose 26 basis points Friday. The three-month inched higher and the one-month and two-month fixings both slipped less than a basis point.

"The market loosening appears to have frozen with the renewed prospects of complete failures in the banking system," said T.J. Marta, fixed income strategist at RBC Capital Markets.

U.S. two-year yields are up 9.5 bps to 1.07%, with five-year yields up 12.6 bps to 2.02%, 10-year yields up 21.7 bps to 3.23% and 30-year yields up 26.3 bps to 3.75%. The Eurodollar March 09 contract is down 14.5 ticks to 98.10. The yield curve is steeper, with the 10/2-year spread up 12.2 bps to 215.41 bps.

Yields on two-year Canadian government bonds are up 4.0 bps to 1.83%, with five-year yields up 6.0 bps to 2.59%, 10-year yields up 11.6 bps to 3.48% and 30-year yields up 8.9 bps to 4.03%. The December 08 BAX contract is down 1.5 ticks to 98.07.

In Germany, returns on two-year German bonds are up 5.2 bps to 2.10%, with five-year yields up 3.9 bps to 2.66%, 10-year yields down 2.0 bps to 3.38% and 30-year yields down 1.5 bps to 4.01%.

Yields on UK two-year bonds are down 2.2 bps to 1.98%, with five-year yields down 3.9 bps to 3.03%, 10-year yields are down 2.5 bps to 3.86% and 30-year yields are down 10.0 bps to 4.21%.

All data taken at 12:47 p.m. EST.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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