By Rudi Filapek-Vandyck

DJIA up 4.39 to 11,989, the S&P500 up 2.91 to 1,299.54 and the Nasdaq up 15.78 to 2,755.

There was plenty to get excited about for both bulls and bears last night and as a result financial markets moved rather erraticly, torn between good news and bad news. First signal with a bearish undertone came from Standard and Poor’s as the rating agency announced it cut Japan’s credit rating for the first time in nine years to AA- from AA. By doing so, S&P once again highlighted concerns about Japan’s fiscal sustainability in the longer run. The downgrade suggests Japan needs to make moves to rein in its debt, or at the very least put a plan in place to do so.

In addition, economic data in the US further added to the day's disappointments. Durable goods orders fell 2.5% in December, below market expectations of a 1.5% gain, after aircraft orders declined by USD5bn. Initial jobless claims spiked 51K to 454K last week, but it goes without saying adverse weather provided an unquantifiable impact. For once, better news came from the US housing market with pending home sales printing above market expectations, rising 2.0%. Economists point out the index has rebounded sharply following the expiration of the homebuyer tax credit, and is back to levels that were occurring before its introduction.

Corporate results in the US were once again mixed. Investors seemed to like the releases by Caterpillar and Qualcomm, but they showed disappointment post releases from AT&T and Procter & Gamble. After the closing bell shares in online retailer Amazon are under selling pressure post the release of Q4 results. The Dow Industrials traded above 12,000 for the second session in a row but in the end it had to retreat -again- below the magical psychological target. The S&P500 similarly missed the opportunity to (finally) close above 1300.

Later today, all eyes will be firmly focused on the initial estimate of Q4 GDP data. The market is expecting the US economy finished calendar 2010 with an annualised growth rate of 3.5%.

In Europe, mixed corporate results kept a lid on overall investor optimism. The German DAX closed 0.4% higher at 7156, the FTSE 100 fell 0.1% to 5965 and the Euro Stoxx 50 rose 0.7% to 2990. Keeping momentum positive on the old continent was the release of the Euro-zone Business climate index (Jan) which revealed a jump to 1.58 from an upwardly revised 1.38, pointing to outright European economic acceleration.

FX markets experienced some genuine turmoil as the Japanese Yen turned south on news of the Japanese rating downgrade. The Aussie dollar was knocked around a few times, but ultimately saw buying support kicking in. AUD/USD opens in Asian trade on Friday morning at .9923, AUD/EUR opens at .7225, AUD/GBP opens at .6229, AUD/NZD opens at 1.2833 and AUD/JPY opens at 82.18.

The Euro lifted to US$1.3755 from US$1.3640 over European and US trade and was near US$1.3725 in late US trade.

Crude oil took its cue from weaker than anticipated economic data. The WTI futures contract for March fell 2.0% to USD85.61 per barrel. Spot gold equally had another challenging session. Spot gold dropped 2.5% to USD1312 per ounce overnight, its lowest level in over three months.

Base metals, however, ticked higher following the previous day's rebound, with copper adding 2.1% to USD9523 per tonne on the LME, despite the mixed US data and despite expected seasonal slowdown in Chinese demand ahead of next week's Lunar New Year holiday. Recent outperformer tin added 1.2% to a new record high on continued tightening in supplies, while lead (+2.2%), aluminium (+2%), nickel (+0.8%) and zinc (+0.3%) were also all stronger.

Agricultural commodities were mixed. Corn declined 1.1% after US exports of the grain disappointed expectations last week, and rain in Argentina boosted crop prospects, while wheat fell 1.2% but remained near its 2-year high. But sugar rose 3.2% on signs of rising demand in the EU and Russia. Soybeans increased 1%, and palm oil rose 0.4%.

US treasury prices rose on Thursday (yields lower) after a successful sale of US$29 billion of seven-year notes. The Federal Reserve bought US$5.79bn of Treasuries maturing in the next 2-3 years. US 2yr yields fell by 4pts to 0.59% and US 10yr yields fell by 2pts to 3.39%.

Today in Australia investors will zoom in on the Treasurer’s speech (around 1pm Brisbane time; 2pm Melb/ Sydney time) when he will flesh out the economic and fiscal impacts of the floods. Some commentators believe the floods, combined with the Gillard government's responses to it, are partially responsible for AUD weakness this month.

SPI futures are indicating another subdued opening should be expected for the Australian share market today. SPI futures are currently indicating a gain of 12 points at the opening bell. However, the SPI has been far too optimistic whole week and why would it be any different today?

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