U.S. Market Update

Dow +285 S&P +35 NASDAQ +60

Pre-market equity trading picked up where it left off on Friday, with US indices rallying, energized by the government's lifeline for Citigroup. European indices have surged close to 10% on the day as well. Government yield curves are flatter both here and overseas with yields moving higher. Money is coming out of government bond markets as investors seem a bit more willing to take on risk. The US 10-year yield has moved back above 3.3% while the 2-year approaches 1.15% ahead of this afternoon's auction results. With little economic data or other news to get in the way of the rally, traders scooping a plethora of the beaten down financials, with Citi recouping nearly all of the ground it lost last week before the bell this morning. But in the background are disquieting developments, with the overnight dollar LIBOR fixings rising slightly and the Baltic Dry Bulk index extending its turn to the downside. Front-month crude has spiked out of the forties, trading up more than $2.25 around $52, while gold is higher.

Investors seem encouraged by the government bailout of Citigroup, details of which are coating front pages and news reports this morning, and the rest of the financial sector is benefiting from the government's move. Morgan Stanley is up nearly 20%, Goldman, Wells Fargo, Bank of America and JP Morgan are up 10-15. Not everyone is overjoyed with the recent developments, including Oppenheimer's Meredith Whitney, who called the stock "a speculative investment" and predicted that the shares would be trading under $5/shr. Whitney believes the government's latest plan to stabilize the financials may work "for the near term," but remains cautious on future developments. Citigroup's CFO reiterated on CNBC that the bank remains well capitalized, although he also noted that one can "never say never" regarding the need for further capital injections. According to Whitney "Citigroup is in such a mess, Stephen Hawking could not turn this company around." Overnight the New York Times looked at the potential impacts of the "Big Three" automakers on the financial sector, noting that the automakers owe their bankers and bondholders more than $100B and Wall Street is starting to wonder how much of that will be paid back.

In other equity news, consumer staples giant Campbell Soup offered a rich, chunky bowl of quarterly results, more or less meeting analysts' estimates on the top and bottom lines and reiterating EPS growth of 5-7% for FY09. Xerox offered its first guidance for 2009, guiding FY09 EPS $1.00-1.25 versus consensus estimates of $1.16, reassuring investors that it sees no need to access capital markets in the near future. Xerox's CFO said that the company has not seen any customers canceling contracts. On the M&A front, Alpharma's board has given up the fight and capitulated to King Pharma, accepting King's $37/shr cash acquisition offer after the latter took its offer directly to shareholders in a hostile tender back in September.

In currencies, the typical inverse relationship between the equity markets and the USD- and JPY-related pairs remained in place this morning. EUR/USD is probing the upper end of its one-month consolidation range of 1.24-1.28, with dealers noting that the 30-day moving average currently stands at 1.2831. Dealers are also citing InBev's €6B euro issuance as aiding euro demand in the session. USD/JPY moved higher to test the 96.00 level as the yen weakened from is best level of 94.95 seen during the European morning. Meanwhile the EUR/JPY cross is up over 100 pips at 122.40 area. Commodity-related currency pairs firmer on the back of higher gold and oil prices. USD/CAD is 1.2570 after opening at 1.2674 in Asia and AUD/USD up 50 pips at 0.6390 area.

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