Overnight, Asian markets are down in anticipation of the US unemployment report. Taking into consideration a drop in China’s PMI to 52.9 from 53.4, the once again declining housing market in the US, and the impending end of QE2, the market could potentially be in a period of decline for the next 4-6 weeks leading into a July low for the year.

Many, however, do predict an end to the inflationary concerns in China that would enable consumption to resume at elevated levels.

Market reaction tomorrow could be sharp, given the unexpected rise in the weekly claims report, and the growing pessimism among market participants.

Oddly enough, US treasury rates were up across the board; could this be leading into one of two scenarios: 1) Winding down of QE2, and 2) a lack of appetite for US debt?

Following the results of tomorrow’s report, next week will bring three key treasury auctions.

A rise in unemployment coupled with the S&P downgrade of our debt rating would further diminish perceptions of the US economic recovery.  Rates could quickly spike over the near term.  We’re watching the next series of events closely.

VIX, VIX, and more VIX for now.  Should we get a bad number tomorrow, TBT may be a good one too.