US Market Update

Dow -17 S&P -1.4 NASDAQ -7

- Equity markets opened lower and are attempting to stabilize in the =ake of more discouraging jobs data. Before the open the initial =st1:country-region w:st="on">US =obless claims reading hit its highest level since 1982, also registering its =argest weekly increase in three years. The four- week moving average for =nitial claims came in at 540.5K, its highest level in seven years. And in =ashington Congress is struggling toward compromise over an automaker bailout bill. =he House passed its version of the bill last night after Republican representatives floated their own alternative version and Republican =enators vowed to filibuster the bill out of existence. This morning Senate =ajority Leader Reid said the bill meets the demands of the White House, noting =hat he hopes to prevail over a filibuster on Friday and asserting that he is =pen to Republican alternatives - shares in GM and Ford remain down 4-7%. =reasury prices are bid up once again as the flight to safety notion continues to =old prevalence. The 2-year yield drifted back toward 0.8% while the 10-year =tands at 2.64% ahead of this afternoons auction results.

- The upward momentum in a variety of commodities has found some =raction. Feb gold has been trading higher by another $20 throughout much of the =ession back to $825, helped by weakness in the US Dollar. Oil has been rallying for =he second straight session as well, this after the OPEC president called =or “severe” production cuts at their upcoming meeting. =rices also received a boost in the overnight session after output data from =st1:country-region w:st="on">Saudi =rabia indicated they were aggressively complying with the November output =eduction announcement. Jan crude has gained more than $3, working back above $47 =hile reformulated gasoline has gained close to 10%.

- The clock ran out on the biggest leveraged buyout in history today, =eaving the $27.8B takeout of Canadian telecom BCE by a group of private =nvestors officially dead on arrival. This development was more or less a foregone conclusion, as two weeks ago auditor KPMG stated that the deal would not =ikely meet solvency requirements by the scheduled closing date. BCE plans to =ile a lawsuit seeking the $1.2B breakup fee it is owed in the wake of the deal meltdown.

- At its analyst meeting this morning, Dow component Proctor & =amble warned that organic sales would be below expectations for the quarter, =ut reaffirmed its Q2 and 2009 guidance, noting that the company is =quot;recession resistant" but not "recession proof." PG also noted that =t is halting all investments in pharmaceuticals and may divest its healthcare brands. Eli Lilly offered its outlook for 2009, guiding earnings of =.35-4.55, ex charges for the ImClone acquisition, a figure a bit above consensus =stimates. LLY's CFO noted that it expects to launch one new drug annually from =009 onwards. Boeing has pushed back the first flight and delivery of the 787 Dreamliner once again. Now first flight is scheduled for Q2 of 2009 (Q4 =f 2008 prior) and first delivery for Q1 of 2010 (Q3 of 2009 prior), reflecting =he impact of the recent machinists' strike and a parts replacement =lipup.

- More small- and mid-cap firms are cutting guidance and announcing job =uts. Tool manufacturer Stanley Works reduced its outlook for the year and cut =, 000 jobs (11% of workforce), noting that decline in its construction and =ndustrial segments has been worse than in previous recessions. Engine maker =ummins cut its full-year revenue guidance by 25% and said it would eliminate 500 =obs. Semiconductor firms PMC-Sierra, Diodes and Volterra all cut guidance for =he quarter due to falling sales.

- In currencies the greenback continues to face pressure against the =ajor pairs following the ugly US claims data. Both technical and fundamental factors are stoking the more =han 250 pip EUR/USD surge toward 1.33. The fun began late on Wednesday, =fter the ECB's Stark noted that the bank did not have a lot of room left for =aneuver after last week's rate cut, helping EUR/USD clear the rumored stops =bove 1.3050/70 level. Comments from the Saudi Oil Minister that =st1:country-region w:st="on">Saudi =rabia was near compliance helped oil bounce out of negative territory to probe =oward the neighborhood of $46, refocusing the inverse USD/commodity price relationship. Some dealers noted that there are doubts whether the =outed pent-up demand for the dollar would materialize around the end of the =ear. The US October trade data showed that imports and exports both fell for the =hird consecutive month, further deepening global recession fears. Dealers are =lso highlighting the fact that EUR/USD is back above the 55 EMA, a technical =evel the pair failed to break in September. USD/JPY is approaching the key =0.00 level where option barriers are said to lurk. Dealers noting that a =ustain breach of that level could prompt either a single central bank to =ntervene or even a coordinated G7 effort.

- The EUR/GBP cross is also generating a lot of attention, after =st1:country-region w:st="on">Germany criticized Britain ahead of an EU =ummit for rushing into debt to bail out industries and pump up growth. Dealer =hatter is centering on an interview with Newsweek magazine, in which German =inance Minister Steinbrueck urged governments to pause before pledging to spend billions of dollars to try to push their economies out of trouble. The =BP is softer against other crosses such as GBP/JPY, GBP/CHF and GBP/CAD =airs.

- Commodity-related currencies are broadly firmer on the back of higher =nergy and metal prices. USD/CAD testing below the 1.23 level while AUD/USD =robes the 0.67 neighborhood. The Bank of Canada stated that a strong USD could =revent a proper solution to imbalances. The bank also commented that the downside =isks to global economy increased significantly.

- In emerging market currencies, South African Central Bank cut its =nterest rate by 50bps to 11. 50%, as expected. USD/ZAR is trading around 10.03, =hich had the ZAR 9 handle firmer from its opening level of 10.11 in =st1:place w:st="on">Asia.

- The session saw a steepening in European curve. The spread between the =erman 2- year and 10-year widened to 103 bps from 92 earlier; The UK =-year/10-year spread at 183bps. The Mar Bund futures contract at 122.16, down 16 ticks =hile the mar Gikt futures lower by 28 tick at 118.15.

- European equity bourseswere mixed but generally in the upper quarter =ortion of today's trading range. Euro Stoxx 50 -0.15 at 2,492; FTSE 100 Index =0.9% at 4,403; Cac 30 Index -0.35 at 3,312 and DAX Index -0.6% at 4, =77.