Weekly jobless claims this morning were better than expected, at least on the headline; claims fell 12K to 377K against a decline of 4K expected, but last week's claims were revised higher. Claims last week were reported at 383K, today revised to 389K; continuing claims increased from 3.259 mil to 3.293 mil, the 4 wk average up 4K. Prior to the 8:30 data the 10 yr note traded -2/32 and mortgage prices were unchanged, the DJIA futures were up 64; the initial reaction sent the 10 yr up 5/32 and mortgage prices on 30 yr fixed up 4/32 (.12 bp). In an unexpected move, China cut its interest rates today, the first cut since 2008. Concerns spreading that Europe's inability to effectively deal with its debt mess is dragging down the entire global economy was the reason for the cut. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People's Bank of China said on its website today. The one-year lending rate will fall to 6.31% from 6.56%. Banks can offer a 20% discount to the benchmark lending rate, the Peoples Bank of China said, widening from 10%. Today's move signals policy makers are concerned that the cost of borrowing is crimping companies' spending and holding back expansion in the world's second-biggest economy. The State Council warned May 23 that downside risks to growth are rising and three bank officials said the nation's biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes. The Bank of England left its asset-purchase program on hold as the threat from above-target inflation overrode policy makers' concern that the euro area's debt crisis has weakened economic growth in the U.K. At 10:00 Ben Bernanke is beginning his testimony at the Joint Economic Committee in Congress. While we still hold the Fed won't do another easing move, the markets are increasing the bets the Fed will do another easing. China's easing move today is adding to that outlook. We cannot rationalize the reason for easing because there is no evidence that lowering interest rates (assuming an easing would actually accomplish that) will have any impact on the economy. Nevertheless we have to go with the flow and right now there is an increasing belief the fed will announce another easing when the FOMC meets on June19 and 20. Yesterday two Fed officials commented that the Fed might consider some sort of ease, possibly extending Operation Twist that is scheduled to expire at the end of the month. The Twist, the Fed sells short-dated maturities while simultaneously buying long dated maturities like 5, 10 and 30 yr terms. Atlanta Fed Pres. Lockhart said yesterday the Fed could move, then yesterday afternoon Federal Reserve Vice Chairman Janet Yellen said that stalled improvement in the labor market and weakening financial conditions may lead the central bank to boost its record monetary easing. That China in essence eased today is increasing the idea that central bankers are about to ease further to fend off another global recession as Europe is sinking all economies. Not much new from Europe this morning; Spain was able to sell debt at its auction today, lessening the impact of comments from an official yesterday saying Spain has been cut out of the debt markets and asked for assistance from the ECB. The clock is ticking louder for Europe to get some cohesive plan on place soon; unless there is a plan acceptable to all within the next three or four months the outlook for the EU isn't good. Greece will vote on the 17th while the G-20 meeting is scheduled to begin on 18th. At 9:30 the DJIA opened +86, NASDAQ +28; the 10 yr after trading slightly better early down 5/32 at 1.68% +2 bp and 30 yr MBSs -4/32 (.12 bp) after being up 4/32 at 9:00 am. Bernanke's prepared opening remarks and answers to questions at his testimony will set the tone the rest of the day. At 3:00 April consumer credit will be reported, credit is expected to have expanded by $12.7B.