Equities rose in the premarket as buyers stepped in following the previous day's hiatus, but equity indices sagged back to yesterday's closing levels after the open. Before the open, Morgan Stanley Chief US Economist Berner told CNBC the recovery is likely to be moderate and expressed some concern that the US economy could possibly lapse back into recession after stimulus is withdrawn. Yesterday front-month crude probed $73, but this morning oil is just holding above $72, while gold is off overnight highs, trading just above $1,012. Note that the IMF's board is reportedly discussing the sale of up to 13M oz of gold today. Treasury prices are a little lower but yields appear to set to finish the week only marginally higher despite the strong performance in stocks and another $112B in announced supply.

- There were reports overnight that the Fed is in the process of developing proposals to regulate pay for bankers. The Fed is working on guidelines for incentive compensation (rather than hard caps) across all firms it regulates as part of a proposal to curb risk-taking at financial institutions, with final proposals due in a matter of weeks. Financial industry compensation reform is expected to be a major point of debate at the G20 conference next week. FDIC Chief Bair also weighed in proposals to reform the financial sector, noting that excessive application of mark-to-market standards can exacerbate losses in times of stress and reiterating once again that the "too big to fail" issue must be addressed.

- Overnight the WSJ wrote that Treasury-backed entities are guaranteeing about 85% of new mortgages in the US, while the Fed is buying 80% of the securities that are made up of packaged taxpayer-backed mortgages. This news is likely good for banks, which are essentially offloading risk onto the taxpayer, but some institutions on the government side are showing strain. Overnight, the Washington Post reported that the Federal Housing Administration (FHA) reserves are under serious stress, and cash reserves could fall below Congressionally mandated floor of 2%. This morning the FHA rolled out plans to strengthen reserves. FHA Chief Stevens said the organization doesn't need taxpayer assistance or Congressional action.

- In other news, Palm reported a much smaller-than-expected loss in its Q1, while revenues crushed estimates. Shipped smartphone volume grew 134% on a sequential basis, thanks to the launch of the Palm Pre smartphone. On the conference call, executives said Palm would roll out the Pre with other carriers in 2010, and expects to return to profitability before the end of 2009. Investors are having none of it, and PALM is down 5%. Shares of Arena Pharmaceuticals are down more than 10% after the firm's much heralded lorcaserin results failed to impress investors, even after the drug met primary endpoints in a Phase III study. Close competitor Vivus is up more than 10%; note that last week it released details from Phase III studies its own weight loss candidate, Qnexa, that appeared stronger than lorcaserin.

- In currencies, the greenback began the New York session under modest pressure but continued to maintain its consolidation with the ranges seen over the last 24 hours. EUR/USD probed the 1.4730 level, where there was chatter a "quasi official" name was selling euros above the 1.4720 level for smoothing action. Sterling hit fresh session lows against its major pairs as the new "funding" sentiment for the currency continued to grow. GBP/USD is back below 1.6300 while EUR/GBP tested above 0.9030. The Central bank of Mexico left its overnight interest rate unchanged at 4.50%, as expected. The bank dropped any mention of a pause in its easing cycle in their statement and noted that future monetary policy would depend on fiscal package, with future decisions taking growth into account


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