On a day many Americans headed to the malls to return ill fitting or ill conceived presents, the latest housing numbers showed extended weakness in the housing sector. Perhaps those shoppers who charged gifts in the hopes a housing rebound would allow them once again to lean on home equity headed back to return high priced gifts as the S&P Case-Shiller Home Price Index for October showed declining returns for the 23rd consecutive month and showed a year on year decline for the 10th consecutive month. The 10-city Composite declined 6.7%, a record low. The previous largest decline, 6.3%, occurred in April 1991.

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In our annual Top 50 Brokers feature, Futures talked to many future commission merchants (FCMs) regarding what the merger of the Chicago Mercantile Exchange and Chicago Board of Trade would mean to their businesses. The reaction to it was split between small to mid-sized future-only FCMs, that saw it as positive with numerous efficiencies and greater potential to tap into over-the-counter (OTC) markets and the largest FCMs, most of which are also investment banks with large OTC books that could be challenged by the CME’s aggressive approach to tapping into the OTC space — that opposed it.

They viewed CME Group as a potential competitor and feared the pricing power of the new behemoth. But both sides agreed that if the CME Group tried to push its advantage by raising transaction and clearing fees a new competitor would emerge.

CME Group has not attempted to press its advantage—at least not by raising clearing and transaction costs though many FCMs claim the exchange is actively trying to disintermediate them — but a new competitor has emerged as a consortium of firms, mainly investment banks have announced plans to launch a new electronic futures exchange in 2008. The consortium includes: Bank of America, Barclays Capital, Citadel, Citigroup, Credit Suisse, Deutsche Bank Securities, eSpeed, GETCO, JPMorgan, Merrill Lynch, PEAK6, and The Royal Bank of Scotland.

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German derivatives exchange Eurex and the International Securities Exchange (ISE) received final approval from the Securities and Exchange Commission Wednesday to complete their cross-Atlantic merger.

With last month’s announcement of Nasdaq’s planned purchase of the Philadelphia Stock Exchange, that leaves only a few independent U.S. based options exchanges looking for a partner.

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The U.S. Census Bureau and the Department of Housing and Urban Development on Tuesday announced that building permits for November dropped 1.5% from October’s adjusted numbers. The seasonally adjusted annual rate of 1.15 million permits was 24.6% below last November’s number and reportedly at its lowest level in 14 years.

Housing starts also slumped in November, coming out just below 1.19 million, a 3.7% drop from October and a 24.2% drop from last November. Those numbers date back to the 1991 recession. Housing completions dropped 4.1% for the month and 28.7% year on year according to the Census Bureau..

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The Financial Times reported this morning that the European Central Bank announced on Monday that they would offer “unlimited funds at below market interest rates in a special operation” to avert a yearend liquidity crisis.

What a wonderful message of giving in this holiday season. Wouldn’t it be a much nicer world if we were all offered unlimited funds. I am sure it woudl be a welcome message to holiday shoppers.

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Lost in the din following the Federal Reserve’s quarter point rate cut on Dec. 11 is a change in the Fed’s outlook from the Oct. 31 meeting when they also cut rates by a quarter percent. In October the Fed included the following statement, “The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.”

This caused a negative reaction by the market that read it as a warning that the Fed would keep the funds rate at 4.5%. It didn’t take long for the market to rebound and count on the Fed to come through with another cut in December. Given what happened this week, it is hard to imagine that less than six weeks earlier the Fed indicated it may keep rate steady. Bernanke signaled the December cut before the meeting and some analysts expected or at least were lobbying for a larger cut.

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Tuesday the market figuratively flung itself on the floor and had a temper tantrum at the news that the Federal Reserve Bank would only cut the Fed Funds rate 25 basis point at the December Federal Open Markets Committee (FOMC) meeting. We have commented here how the Fed in recent months has appeared to encourage this type of behavior by appeasing that sort of reaction with rate cuts and promises of rate cuts. Wednesday morning the Fed announced the creation of a Term Auction Facility (TAF) and other initiatives in conjunction with the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank to address elevated pressures in short-term funding markets.

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