- An acceleration of the pullback in commodity prices, coupled with better than expected manufacturing data has helped equities push higher once again. Overnight front-month crude fell below $114/bbl while gold slipped below the $800 level in the cash market for the first time this year; other major commodities have behaved similarly with front month silver trading down as much as 12%. Just before the open, the Fed reported that industrial production edged up 0.2% in July, below the 0.4% gain in June but above expectations a 0.0% reading. Meanwhile the New York Fed's August Empire Manufacturing index rose to 2.8 from -4.9 in July, well above expectations of -4.2. Major oil names XOM-1.5% and CVX-2.5%, and materials names ABX-5%, AU-3%, NUE-2% and X-4.8% are falling on the pull-back in commodities. Retail is having a big morning, with several major players out with positive reports yesterday afternoon and before the open tempered by cautious comments on near-term performance. KSS+6% came in above estimates and guided slightly higher for the year, although its outlook for the coming quarter is more tepid. JCP+5% beat earnings and revenue estimates while guiding lower for the next quarter, warning that the firm sees a "challenging" consumer environment. NWY opened +7% after thrashing the Street and guided above estimates for the year, but was well into negative territory in mid-morning trading. JWN+3% reported in-line and guided below estimates for the coming quarter and full year, cautioning that its outlook is shaped by "continuous pressure" on margins. Price targets for JWN were cut at Weisel and Merrill overnight. In addition, RICK+8% is hot despite misfiring on both EPS and revenue targets and guiding lower. The monoline insurers ABK+18% and MBI+8% are rising after S&P affirmed their AA ratings. COF+3% is up a notch after reporting July credit metrics, noting that its US charge-off rate fell to 6.08% from 6.42% in June, while the delinquency rate rose to 3.96% from 3.85%. PMI-10% has come off yesterday's strength in the wake of the firm saying it would sell units in Australia. The WSJ's Heard on the Street section reported its concern over WFC-1% overnight, questioning the valuation of the bank due to quality issues about its earnings and assets, while Landenberg Thalmann's Bove cut his outlook on WFC's earnings. Other major financials were on the upside. In other news, SPWR+17% announced major contract wins for nearly 800MW of PV solar panels after the close yesterday, earning an upgrade to buy at Merrill, who called the deals a "game changer" for the company. Selected solar names were feeling the updraft, with STP, LDK and JASO rising 4-6% on the news. Investors are responding well to semi name CY+13%'s tender offer for $600M worth of outstanding notes.

- Treasury prices have moved modestly higher along with stocks this morning. There has been some talk that further skittishness in the mortgage market as well as concerns about Russia's reaction to yesterday's news regarding Poland and the US missile shield, has led to increased safe heaven demand. Further the U of Michigan consumer confidence data showed the biggest drop in one-year inflation expectations since the fall of 2006. The benchmark curve has steepened with demand for the two-year driving its yield down to 2.36%, while the January fed fund future now prices in just a 40% chance the Fed hikes rates in 2008.

- During Friday's New York session the USD extended its gains against the euro while consolidating against the other majors. The firm USD tone continues to be aided by the depressed metals and energy related commodities. Analysts are noting that the USD's recovery is reducing the appeal of commodities, while the USD's recent wave of upside momentum spurred by comments by Goldman that the dollar may have bottomed. The EUR/USD's break through the 1.4850 level (where sovereign bids were said to be lurking) has apparently unleashed a domino effect leading to lower commodity prices. A Goldman analyst said that the revision of the USD forecast stems from weakening global growth, declining oil prices and an improved US trade balance. The EUR/USD tested below the 1.4680 level and GBP approached the 1.85 handle before rebounding back above1.86.

- Elsewhere Mexico's Central Bank raised its overnight rate by 25 bps to 8.25%, as expected.

- Sept Bunds +17 ticks at 114.13; Sept Gilts +34 ticks at 109.06. European equities drifted into negative territory as slower Asian and European growth outlook eroded its open level gains. Both the Chinese and Mexican central banks commented on the effect of slowing export demand on their economies.