U.S. Market Update

- Dow +50 S&P +4.25 NASDAQ +13.5

U.S. indices have experienced another wild ride thus far as early weakness was attributed to selling in the European financials overnight, softer than expected Jan durable goods data, and FNM's Q4 loss of more than $3/share. Jan new homes sales did little to provide any positive momentum with a headline reading at another 13-year low and continued steep price declines. Equity market surged into positive territory after OFHEO announced a decision to remove the portfolio caps on FNM and FRE at the end of this month along with loosening some capital requirements. The early drag what was the financials has reversed with mortgage related stocks driving gains for the overall market. FNM +8% FRE +5% XLF +1% Shares of NFLX are higher by close to 10% after raising guidance. Markets continue to focus on the weakness in the Greenback with as the Euro continues to make new all-time highs above 1.51. Subsequently crude is trying to hold the $100 mark after trading above $102 overnight. Energy futures remain near session lows after weekly inventory data showed larger than expected builds in crude and gasoline stockpiles. Gold, silver and copper futures are trading up another 1 to 2% after April gold made a new all-time high overnight at $967. Treasury yields opened noticeably lower on the weaker durable goods data and some safe haven buying but sellers have entered the market as equities reversed course. The 10-year is hovering around 3.87% while the 2-year pushes back towards 2%.

In currencies, two themes emerged during the session on Wednesday. The first issue centered on the Credit market and the jitters that remain prevalent for carry related currency pairs. UK HBOS and Fannie Mae released its Q4 results, which were below consensus expectations. The second theme was the weaker USD and higher commodity prices. The USD remained broadly weaker against the major currency as dealers cite technical factors following the price action from Tuesday's session. The strong German IFO data, weak US confidence data from Tuesday's session and soft Durable goods and New Home sales figures continue to provide downside momentum for the USD. EUR/USD has tested above the 1.51 handle during the NY morning and hit lift-time lows against the CHF at 1.0632. Dealers are attributing the USD soft tone to the possibility of further cuts in Fed Funds at the March FOMC meeting, if not sooner. In addition the ECB maintained its hawkish tone on inflation. ECB's Weber reiterated that the market view on interest rates "underestimated inflation risks". ECB's Wellink noted that Euro Zone can function with strong Euro, but cautioned the difficulty of predicting the effect of FX rates on real economy. Carry-related currency pairs moved higher in the late NY morning as equity market rallied into positive territory. EUR/JPY trades at 160.70 after testing below during the morning. USD/JPY trades at 106.50 after a brief test below 106. Thus higher commodity prices were feeding upon the USD's soft tone. USD/CAD revisited its 2008 lows at the 0.9750 level, which was lasted breeched back on Dec 31st. AUD/USD hit fresh 24 year highs above the 0.94 level. European equities rebounded from session lows following the OFHEO announcement to remove the portfolio caps on Fannie and Freddie on March 1. Euro Stoxx 50 -0.1% at 3851, FTSE 100 -0.255 at 6,072, CAC 40 -0.2% at 4,962 and DAX +0.05% at 6,986

March Bunds -17 ticks at 115.24; March Gilts +5 ticks at 108.66

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