* Equities had a strong finish to a very bad year. This pulled US bond yields higher in the last session. EUR/USD lower again after rising over Christmas.

* Data flow over Christmas season has shown more weakness in US housing and global industry.

* We start the new year with the ISM index in US which is expected to fall to even lower levels. Much of the weakness is already priced, though.

Markets Overnight

Equity markets had a strong finish to a very bad year with SP500 gaining 5% on the last two days of the year. It doesn't change the fact, though, that 2008 has been the worst year for financial markets since the Depression with US equities ending the year down 40% and credit markets suffering substantially - not least after the bankruptcy of Lehman Brothers in mid-September.

Bond markets in the US ended the year with a slight rise on the back of better equity market sentiment. 10-year yields rose 15bp on the last trading day to 2.21%. Fed announced details of its USD 500bn programme of buying mortgage bonds which was first announced in November. The programme will start in early January and will last until June. In Euroland focus will be on whether ECB signals a rate cut in January. Markets finished the year at the lows with 10-year bond yield at 2.95%. The short end is close to pricing another 50bp cut in January which is also our expectation.

Currency markets have been very volatile over the Christmas season. EUR/USD has traded up to 1.437, but turned around and is now around 1.387. Focus has also been on GBP with EUR/GBP getting close to parity as it rose to 98 on 29 December, but it is now lower at 94.8. USD/JPY has risen to 91.1. In the Scandinavian markets EUR/SEK is back down to 10.88 after reaching 11.40 over Christmas. A similar pattern has been in place for EUR/NOK going to 10.15 over Christmas, but falling now to 9.73. Oil prices have risen to USD 42 due to the conflict in the Middle East and a smaller-than-expected rise in fuel stockpiles in the US.

The data flow over the Christmas holidays has continued to paint the picture of strong weakness with little to cheer about. US housing continues to suffer with a renewed strong decline in home sales and house prices are still falling steeply at a pace of close to -20% for Case Shiller house prices. Indicators for global industry re-main grim - especially in Japan where industrial production fell 8.1% m/m in November.

The US authorities have announced help to GMAC (GM's financing arm) over the last week. GMAC will get USD 5bn from the TARP funds which will be invested as preferred equity. This is yet another effort to improve the credit intermediation to consumers as difficulties in getting car loans have risen substantially and contributed to the lowest car sales in 25 years.

Global Daily

A horrendous 2008 is over and perhaps some fresh or sidelined money is ready to enter the markets. The global economy is in a deep recession and yields in both Euroland and the US are at record-low levels. The Bank of England releases its quarterly credit conditions survey today - a depressing reading is on the cards and the survey is likely to be a stark reminder of why the global economic outlook is so dire.

Trading activity should pick up going forward, but sluggish and thin holiday trading may not be over until Mon-day. However, the first trading day of 2009 posts a bellwether economic number: the ISM. ISM is forecasted to edge lower from a level of 36.2 already pointing to recession. The very low level and a market perception skewed towards more bad news add some upside risk to rates should ISM surprise on the upside. A slightly lower ISM will confirm what people already know: that the economic outlook is terrible. However, it is difficult to see why the ISM should rebound significantly this early. ISM Prices paid should decline further as collapsing commodity prices and dropping demand combine to drive down prices.

The final PMI for Euroland is also released today and is expected to match the preliminary reading of 34.5

There are a number of speeches over the weekend. Fed's Bullard, Evans, Fisher, Kroszner, Dudley and Yellen all speak Saturday or Sunday. ECB's Papademos also speaks on Sunday.