S&P futures had a roller coaster day but finished positive with one final rally at the end of the day. It challenged support at the 21-day moving average of 1275, but ended up closing just under it.

The S&P500 was led by the 3.6% jump in Energy stocks. Financial stocks were marginally lower despite Freddie plunging 22% and Fannie plunging 27%.

At 8:30am, Initial Jobless Claims are released, with a reading of 440k expected. July Leading Economic Indicators follows at 10am, and is expected to be down 0.2%. Also at 10, the Philly Fed Index comes out, with a consensus estimate of -12.6. At 10:35am, Natural Gas Storage data is released.

Meanwhile, the 2yr added 5 ticks to 106-18. The 2yr-10yr spread has widened to 155bps, from about 146bps last week.

On the short end, the 3-month bill was very well bid, its yield dropping 10bps to 1.69%. The 4wk bill yield was down 7bps to 1.74% and the 6-month and 1yr yields fell 6bps each, to 1.90% and 2.04%, respectively.

Core CPI is expected to accelerate to a 0.2% increase from 0.1% previous. Y-o-Y core prices are expected up 1.6% from 1.5% in June.

Lower energy prices over the July period should give the BOC some breathing room on inflation, though persistently elevated prices could trickle through to core CPI, as they did in Canada’s southern neighbor that month.

“The program we are announcing today will provide affordable mortgages for eligible borrowers primarily in the so-called ‘Alt-A’ market. It provides a systematic approach for modifying troubled loans with payment resets due to negative amortization and other resets — a market where we are seeing growing defaults and foreclosures,” Bair said.

The former IndyMac Bank…was closed on July 11th by the Office of Thrift Supervision and the FDIC was appointed as receiver. On the same day, the FDIC was named as conservator for a new institution, IndyMac Federal Bank, FSB.

Under the IndyMac Federal program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages.

IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal or for investors in securitized or whole loans. Modification offers will be provided consistent with agreements governing servicing for loans serviced by IndyMac Federal for others.

Continuing Claims are expected at 3.405mln, lower than the 3.417mln last week (which was the highest since Nov-03).

The 4-week moving average for claims was 441k last week, compared to 421k the prior week. The 4-week moving average for continuing claims was 3.274mln for the week ended August 2, from 3.167mln the prior week.

Engle is leaving Ford for New Holland Agricultural Equipment, a unit of CNH Global, he said today.

In his statement, Engle said he was leaving “with mixed emotions” and that leading the Canadian auto-unit had been “one of the best experiences of his career.”

A Ford spokesperson said a replacement for Engle will be named in a future announcement.

• The Fed faces a “challenging environment” on rates
• Inflation remains uncomfortably elevated, but is likely to fall in the next few month
• Stern sees “sluggish growth” over the next several quarters
• Stern sees most financial firms as “reasonably healthy,” but sees a risk of exaggerated negativity as a result of the credit crunch
• The Fed must “contain spillovers” in the market place, and that the to-big-to-fail issue must be addressed during calmer market conditions
• Stern says Freddie and Fannie, like Bear Stearns, cannot be allowed to fail
• The Fed is looking at banks exposure to GSEs
• Fed’s GSE backstops “fully appropriate”