So much for yesterday's range holding.... The culprit? Stocks are sliding into scary territory. The S&P is dangerously close to some epic long term technical levels that lie in the high 1220's. They're currently at 1232.79. Fannie 4.0's are testing a breakout of the 2 day highs, currently at 103-03, almost half a point up on the day. 10yr notes are at an impressive 2.53. If stocks find their footing, we'd also expect bonds to back off this aggression a bit, probably back into the 2 day range! But for now, the heady levels mean one of two things: potential reprices from lenders who were out early (assuming we hold here long enough), and delays on initial rate sheets from lenders who aren't out yet.

Yesterday we noted that today was more likely than not to trade "inside" the highs and lows over the past two days as markets await tomorrow's NFP. This phenomenon is fairly common. You might see it referenced in a number of ways: "coiling," "storing energy," "triangle patterns," "consolidating trends." That is indeed how the morning is panning out so far, and while there are plenty of headlines out of Europe, we'd give more of the nod to the technical picture as far as keeping levels contained within previous extremes so far. To be clear though, the ECB news certainly moving markets around this morning, but the technical framework has set up the walls of the sandbox in which those moves are occurring. To quantify them, MBS touched yesterday's high earlier this morning, quickly fell to yesterday's closing prices and have stabilized just slightly higher, currently 6 ticks up on the day at 102-27. 10yr yields are similarly in the middle of yesterdays range at 2.586, about 3 bps letter than yesterday's close. The slightly narrower trading range combined with higher prices should generally be favorable for rate sheets this morning, but things are active, and depending on the lender, there's still potential for quite a bit of market movement before that happens.

(Reuters) - An economic slowdown and debt market turmoil mean the European Central Bank will probably hit 'pause' on its interest rate raising cycle for several months and may even signal on Thursday a readiness to buy bonds again. The ECB meeting, which began at 0700 GMT, comes against a backdrop of slowing growth in the euro zone core and the spread of the bloc's debt crisis to G7 economy Italy -- a development that has alarmed policymakers and put the bank's dormant government bond-buying plan back in the spotlight. The chief European economist for Standard and Poor's, Jean-Michel Six, said markets expect the ECB will reactivate its bond-buying operation to calm market turmoil. "Markets are still moving so we need someone to intervene," he said. "The only effective fireman capable of getting us out of the building quickly is the ECB which, since the beginning of the crisis, has played an admirable role to calm markets." The outlook for global interest rates has swung away from the sort of steady tightening begun by the ECB earlier this year and the Frankfurt-based bank meets just a day after Switzerland delivered a shock cut in its already very low rates.

(Reuters) - New U.S. claims for unemployment benefits were little changed last week, a government report showed on Thursday, pointing to a marginal improvement in the labor market. Initial claims for state unemployment benefits nudged down 1,000 to a seasonally adjusted 400,000, the Labor Department said. Economists polled by Reuters had forecast claims rising to 405,000. The prior week's figure was revised up to 401,000 from the previously reported 398,000. The claims data falls outside the survey period for the government's closely monitored employment report for July, which is scheduled for release on Friday. Jobless claims are hovering around 400,000 and need to decisively break beneath that level to signal a sustainable improvement in the labor market. A Labor Department official said there was nothing unusual in the data, adding there was no indication that a partial shutdown of the Federal Aviation Administration had affected last week's claims. An impasse in Congress over the funding of the FAA has halted airport construction and inspections programs employing about 74,000 workers. The four-week moving average of claims, considered a better measure of labor market trends, fell 6,750 to 407,750-the lowest since mid-April. The number of people still receiving benefits under regular state programs after an initial week of aid rose 10,000 to 3.73 million in the week ended July 23. The number of Americans on emergency unemployment benefits increased 12,193 to 3.18 million in the week ended July 16, the latest week for which data is available. A total of 7.57 million people were claiming unemployment benefits during that period under all programs, down 75,192 from the prior week. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)