It’s Day Two of the war on Iraq and with most investors’s eyes glued to their TV sets, economic fundamentals are not likely to get much attention. Hope for a quick war is the primary driver of overseas and futures markets, so far today.

Statistics Canada is reporting that the Consumer Price Index increased 4.6% from February 2002 to February 2003. Higher energy prices are the main reason for the jump.

The 12-month increase in the CPI, excluding energy, has seen little variation over the past four months. It remained relatively stable at 3.4% in February, after registering 3.5% in the previous three months. Despite the impact of energy on the index, Bank of Canada Governor David Dodge has been given lots of additional fuel for his raise-the-rates fire.

The latest inflation numbers for the U.S. were also reported this morning. The picture there is also worse. American inflation is up 3%. Excluding energy, it’s up 1.7%.

Unfortunately, as the war in Iraq unfolds, investors seeking the safety of American treasury bills are not getting a return that exceeds the U.S. inflation rate.

Meanwhile, the president of Federal Reserve Bank of New York, William McDonough is expressing concern that the war is distracting Washington from crumbling economic fundamentals. In an speech to the New York State Bankers Association, yesterday, he raised the prospect another interest-rate cut may be needed even if the U.S. wins the war quickly.

Moving from economics to business news, Air Canada has announced that it is cutting 3,600 jobs.

Despite the doom and gloom, early morning futures trading is pointing to a postive open among the equity markets Friday.

In Europe, London’s FTSE 100 is up 2.87%. Frankfurt’s DAX has soared 3.52%. Paris’s CAC 40 has risen 3.8%.

In Hong Kong, the Hang Seng Index slid 15.37 points overnight to 9,179.19. Tokyo’s market was closed for a national holiday.

Finally, today is options-expiration day, so that could inject further volatility into an already unsure trading outlook.