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.

Hmnnnn…interesting to see how this one pans out?

OIL is currently drifting around opening levels at Usd 40.48 despite continuing chatter of OPEC supply cuts at the Mar 15 summit. However, the latest OPEC output survey (from Bloomberg) shows that although Jan output fell 1.05 mn bpd from Dec, prod from the Cartel-11 is still some 1.35 mn above the quotas effective from Jan. This counters recent OPEC comments that have suggested strong compliance with the OPEC curbs. Norway oil prod also fell in Jan by 9K bpd to 2.11 mn bpd. The latest positioning data for NY funds showed net longs on NYMEX cut back substantially, driven by frustrated long liquidation.

Few would argue the UK faces one of its toughest ever economic challenges this year, and the country’s currency has reflected this: hitting a 23-year low against the dollar and a record low against the yen.

But other economies are in poor condition, so why has the pound suffered more? Has its sell off been overdone, or are UK finances in such poor shape sterling’s descent is fully warranted?

Weaker sterling makes life very tough on our retailers, as we import so much, at a time when consumers are demanding ever-bigger discounts and bargains.

However, I think there is little this administration will do with the Pound in the medium-term as Mr Brown himself has quickly moved to rebuff comments from the French finance minister that the government should intervene to stem the fall as it is uncompetitive.

But if sterling starts to collapse on a trade-weighted basis, the political pressure from Europe for action will rise and, with the UK’s lack of reserves, any action may have to be co-ordinated across the continent.

My own opinion is that the government likes a lower pound to attract back the foreign investment from banks and major institutions to prop up the Gilt market and underpin the financial sector.

The most surprising thing about trade this week is just how long the risk aversion trend was sustained. Not that there was not reason for the big downside thrust in Yen and Chf cross trades, but as we have seen repeatedly this year, there is just no will to sit on risk regardless of fundamental or technical backing.

For the fifth time in six days the [RUSSIAN] CB have allowed the [ROUBLE] to weaken against the EUR-USD basket, which was trading ard the 37.30 level this morning compared to yesterday’s close of 36.85. The speed of the devaluations has accelerated this week as the CB acts to move the rouble exchange rate so that it reflects the lower cost of oil and slower economic growth. Up to another 10% of weakening is expected by analysts. 07:21 GMT – Yesterday those running long Yen saw big profits but anyone who chose to sit on their position return today to see these wiped out, and all the risk implying continued stop hunts above in [USD/YEN] and the crosses. The other major factor to contend with is the huge option expiry in Jan 21st at 90.00 (currently 90.40) which is going to take on growing significance over the next week and implies that the range will continue to narrow around this handle. For those short, the upside has found additional supply from commercial Japan around 90.50. News does now suit though with BoJ Gov Shirakawa talking about the worsening economy. Today the main risk should prove to be Tics data (14GMT) after so much interest in CB flows into/out of the US Tsy mkt. The median for long term flows +15bln. Order wise more stops are available above 90.60 and also 20 day m.a 90.76. Offers return 91.00.

Yesterday those running long Yen saw big profits but anyone who chose to sit on their position return today to see these wiped out, and all the risk implying continued stop hunts above in [USD/YEN] and the crosses. The other major factor to contend with is the huge option expiry in Jan 21st at 90.00 (currently 90.40) which is going to take on growing significance over the next week and implies that the range will continue to narrow around this handle. For those short, the upside has found additional supply from commercial Japan around 90.50. News does now suit though with BoJ Gov Shirakawa talking about the worsening economy. Today the main risk should prove to be Tics data (14GMT) after so much interest in CB flows into/out of the US Tsy mkt. The median for long term flows +15bln. Order wise more stops are available above 90.60 and also 20 day m.a 90.76. Offers return 91.00.

The [DLR/YEN] is off the high of 90.55 after filling the offers and stops at 90.50. The pair succumbs to exporters’ sales, and thus the market is unwinding positions as well. The [NIKKEI-225] manages to hold above the [DJIA]’s 8212.49 by ending the day at 8230.15. The pension account that usually gets active on Fri could not lead the index above yesterday’s high. Downside energy is accumulating again.

OIL so far paying little attention to the latest OPEC mthly report that expectes 2009 demand to fall with demand for is crude falling just over 4% this year, and marginally down on total crude (180k bpd).

A FLURRY OF US DATA AHEAD. Terrible US retail sales data yesterday failed to prompt significant Usd losses as yield plays & underlying fundamentals take a back seat. Risk aversion again, remains the key driver of trade, & today’s flurry of US data releases will thus be taken in this vain.

Today’s ECB consensus view is for a 50bp cut – also our f/c – with Eonias pricing in a full -75bp this morning. Till now the Bank’s rhetoric had pointed to a Jan pause, but that has been met by a stream of very poor data, not least the dismal PMI and EC confidence reports – latter reaching the lowest level since the series began in 1985. The tight correlation between this series and growth suggests Q4′08 and Q1′09 GDP will be ugly. At the same time infl is falling rapidly. ECB had intended to evaluate past policy actions (175bp rate cuts, liquidity injections and govt fiscal packages) in January. That, however, no longer seems appropriate. For its part, the shadow ECB voted to cut rates 100bp, which if realised would put the ECB ahead of the curve, at least in terms of mkt expectations