President Obama and Treasury Secretary Geithner are announcing what was already widely know, a $500k pay cap for executives of firms that accept government bailout money in the future. The President says Secretary Geithner will release a new “credit strategy” (a financial rescue plan) next week. (This is not new.) Banks’ compensation committees will be asked to say how executive pay will be aligned with risk management and long-term company growth. Obama says broader pay reforms will be forthcoming. A great deal of focus is on the populist (and moral hazard) issue of compensation, but the rescue package due next week is likely to be more consequential in the short and medium term.

DoE said crude stocks rose by 7.2 mln to 346.1 mln in latest week vs mkt f/cast for 2.5 mln build. Stock at Cushung OK rose to a record 34.3 mln bbls. Gasoline stocks rose +300K to 220.2 mln vs mkt call for +600K rise. Distillates fell -1.4 mln to 142.6 mln vs f/cast for -1.6 mln draw. Heating oil alone rose by 1.4 mln. DoE said crude imports rose +329K to 10 mln. Gasoline output up +19K to 8.68 mln as refinery cap use rose 1% to 83.5. DoE pegged overall US oil demand (bbls shipped) at -2.8% Y/Y (4-wk avg) while gasoline dipped -0.5% Y/Y while distillate demand fell -3.7% Y/Y, jet fuel use was off -13.1% Y/Y. Y/Y declines intotal and gas eased while jet fuel remains very weak as recession hits cargo flights, biz/tourist travel and truck diesel. Mar crude at $41.50 pre-DoE.

ISM Non-Factory Data for January are stronger than expected, just like the factory version, with the headline composite index at 42.9 vs a prior 40.1. The orders index stands at 41.6 vs 38.9, while employment came in at 34.4 vs 34.5. The price paid index is now at 42.5 vs 36.1.

Chancellor of the Exchequer, Alastair Darling let slip yesterday that with the benefit of hindsight ‘lots of things’ could have been been done differently and that lessons could be learnt, for instance in the need to tighten up the supervisory and regulatory regime and encouraging a change in culture in financial institutions. As well as highlighting past mistakes, Darling is foreshadowing these areas as topics to be examined in an important document out at the time of the budget which will look precisely at measures to combat the above. Darling’s ‘mea culpa’ follows NIESR f/c of a 2.7% contraction in 2009 with only a feeble 2010 recovery, with unemployment rising to 8.4% (or 3 million) next year. Indeed, that grim outlook is shared by the record low Nationwide consumer confidence survey that finds 2/3 of respondents expecting jobs market to worsen.

Don’t ya just love it?

ADP reports private firms shed -522k jobs in January following a -659k loss in December (revised from -693k). Of those losses, 160k were in the factory sector, with 243k in the goods sector, with a 83k loss in construction. ADP counts 923k construction jobs lost since the peak two years ago. Service firms shed 279k jobs, so what we have is factory sector job losses accelerating while service sector job losses slowed. This is not a surprise, given the extended shutdown in the auto sector in January and reduced seasonal layoffs in retail (and wholesale and shipping) due to slack seasonal hiring late last year. Odds are the service sector will show a deteriorating trend in employment after the seasonal wobbles are worked out. Small and medium sized firms slowed job losses. Large firms did not.

Pending home sales data for December are due 15gmt, with expectations centered on little change after three straight months of declines of -4% or more. That 3-month drop more than reversed an earlier 5-month rebound from the prior low. A good bit of the steadiness in existing and pending home sales over the past year or so has depended on sales of foreclosed homes and falling prices.

Better results from drugmaker Merck helping healthcare stocks lift the Dow and broad market by over 1%, offsetting ills how to deal with troubled bank assets. All the major S&P 500 sector are advancing except for financials. Consumer staples and broad industrials along the leaders in the afternoon upswing. Gains also coincided with press on Senate GOP proposals on revamping the stimulus bill - one being cut in corp tax rate to 25% from 35% for 1-yr as well as lower some income tax rates for a year.

As noted earlier, the Irish government took 100% control of [ANGLO IRISH BANK] late yest due to a deterioration in the funding position of the bank. The government said that the bank would continue to trade normally and will continue to service creditors, however. It added that there was no immediate need to recapitalise the bank and that there were no implications about the health of its peers, Allied Irish Banks and Bank of Ireland, which are solvent and are trading well. Nevertheless, the move to nationalise AIB comes at a time where the country’s own credit standing is under threat.

EU BOURSES look all set to at least start Fri on the up, and with a much better chance of sustaining a recovery rally after yest’s modest early rebound quickly failed. The catalyst for the latest change in sentiment was a late turnaround on Wall St, which saw the Dow, Nasdaq and S&P overturn intraday losses to end in positive territory. However, the real positive news has come from the financial sector where recent speculation about another BoA bail out was confirmed o/n with the bank boosted by an additional $20 bn cash injection and asset guarantees worth a further $118 bn. Meanwhile, the Senate voted in favour of releasing the 2nd $350 bn TARP tranche and closer to home Anglo Irish Bank has been nationalised, while the UK press reports that the Govt, Treasury and BoE are working on another bank rescue plan. Main EU indices should gap up around 2% off the bell, and if confirmed wipe out Thur’s losses.

EUROPEAN FX OPEN The US votes to release the 2nd half of the TARP. BoA is granted more funds and there is talk about a 2nd UK bank rescue package. Short covering rules the roost in Fx where risk version plays are pared aggressively and the whole move as ever exacerbated by poor liquidity.