HIGHLIGHTS

US ISM Survey falls to 32.4 – much worse than expected
US Treasury Continuing Actions to Strengthen Economy
Turkey Consumer Prices for December down -0.4% m/m, +10.1% y/y – worse than expected
Euroland PMI Manufacturing for December falls to 33.9 – worse than expected

COMMENTS
While the fat lady slept it off, equity bulls came out in force, picking up where they left off on Wednesday. Europe rallied anywhere from 3-4% with the US following suit, closing up 3% across the board. The DOW closed above the psychologically important 9000 level as stocks had their best opening day of the year since 2003. In most other markets, the all-too-familiar volatility continued — crude traded in a 14% range (down early this morning but bounced back due to the continued activity in the Middle East), front end US rate futures got hammered (eurodollar futures down 15-25 after trading up first thing this morning), and the USD rallied smartly against most of the majors. To what do we attribute today’s moves? While certainly difficult to pinpoint given that correlations continue to break-down, the one thing we can say with great certainty is that equity markets are in a world of their own at the moment, ignoring another ugly ISM print which included the worst new orders sub-index since 1948. Perhaps they are rallying on light volumes due to technicals, perhaps due to rally in oil, perhaps due to the more liberal TARP distributions, or perhaps due to relative valuation (stocks and bonds traded as mirror images of one another today). It is also worth keeping in mind the extent to which equities lagged credit on the way down. Perhaps it is just payback time as credit continues to trade well. For those out of the office today, it is worth having a look at USDJPY which appears to be rallying in-part due to the risk asset rally and in-part due to the pull-back in US treasuries. There were a few other interesting developments overnight. First, KRW rallied 5%, as the spot market played catch-up with the NDF move Tuesday (spot was already closed when the KIKO news broke on Tuesday). Second, there was a shocking Singapore GDP print — the annualized quarterly number was down 12.5% versus expectations of -3.4%. Finally, India cut 100 bps overnight to 5.5%. Get your rest this weekend as the new “normal” kicks off next week. Highlights will include the Fed minutes Tuesday and the employment report Friday.

CURRENCIES
Cross Low High
EUR/USD 1.3840 1.3988 Close: 1.3856
USD/JPY 90.79 92.41 Close: 92.22
EUR/JPY 126.55 127.95 Close: 127.78
GBP/USD 1.4376 1.4555 Close: 1.4473
EUR/GBP 0.9554 0.9646 Close: 0.9574
USD/CHF 1.0627 1.0845 Close: 1.0789
EUR/CHF 1.4824 1.5026 Close: 1.4949
AUD/USD 0.6946 0.7105 Close: 0.7108
USD/CAD 1.2067 1.2239 Close: 1.2136
NZD/USD 0.5780 0.5870 Close: 0.5859

Today was major rebalancing day. All the poor areas were bought into like consumer and industrials, and the strong areas like healthcare were sold off. Classic fund rebalancing and we shouldn’t read much into it. Next week will be more telling.

Although I trust the charts, with a fair market value based on 2009 estimated S&P earnings of just $42, and a Bear market PE of 8, means we need to seek a price of $332, not $932!