U.S. Market Update

- Dow +81 S&P +5.6 NASDAQ +13.4

Indices pared early losses after IBM announced a $15B repurchase program and reaffirmed guidance. The NASDAQ was under some pressure early in the session after ComScore data spooked holders of Google. GOOG -7% BIDU -3% Earnings from some of the largest U.S. retailers continue to show a weakening economy, but in a sign that some of that weakness is already priced in shares of M +4.5%, TGT +3.3% HD +0.5% AZO +5% and JWN +3% are all trading higher. April crude has made a run above $100 with the firming equity markets following the IBM news. The oil complex is one of today's best performers with the OIH up 1.7%. Metals futures remain near session highs led by March silver +2% and copper +1% which are in the process of rolling the front month contract to May. Treasury yields were initially seen higher with the release of hotter than expected PPI data which was highlighted by the largest y/y rise in more than 15 years. Buyers came back in after the equity open when soft consumer confidence and Q4 house price index readings reaffirmed the somber tone for the U.S. economy. Treasury futures are currently hovering in the middle of today's range with the 10-year yield near 3.88%. The April fed fund futures has seen the odds of a 50 basis point cut slip below 90%.

The USD remained on the defensive throughout the US morning despite the higher-than-expected PPI data, which saw the largest yearly rise since October 1981. Dealers noted that despite the high inflation data from the US the USD maintained a soft tone as the realization that US real interest rates are negative and will remain so given the current Fed Funds expectations. None-the-less the USD is adhering to its trading range established back in Jan. Soft US consumer confidence data is also weighting upon the dollar sentiment. European currencies aided by firm German IFO data released prior to the US open, reinforcing sentiment that it is premature for the ECB to cut rates at this time. EUR/USD is trading at 1.4885. Dealer chatter contemplated that if the 1.5000 option barriers remain in effect the USD seemed poised to retest all-time lows in this pair. USD/CHF trades at 1.0845 and GBP/USD at 1.9725. Comments from BOE's Lomax noted that the MPC can do little about the rise in near-term inflation, may need to constrain demand; thus he sees inflation seems poised to rise sharply over next month. European fixed-income showed a bit of divergence in the session. Dealers noted that the strong IFO data is provided a rotation in favor of UK bonds from German instruments. March Gilts +14 ticks at 108.63 while March Bund futures were off 15 ticks at 115.47. Commodity currencies maintain a positive tone as USD/CAD tested 4 week lows of 0.9870 area as the pair broke below its 100 day moving average. Dealers are noting that M&A chatter could be supporting CAD as well. AUD/USD probing the 0.93 level.

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