All three major indices registered a modest gain for this Wednesday. It was the third day in a row that the market closed within 0.5% from the previous day’s although the intra-day action remained quite choppy. The news on the economic front was mixed. The ADP Employment, which is often used as a proxy to the closely watched Non-farm payroll report due on Friday, dropped 23K compared with a 15K increase expected. However, any deviation that is within 50K from the consensus is quite normal considering the overall size of the economy. The Factory Orders for January dropped 2.5%, in line with expectation. The most important report of the day, of course, was the ISM Services survey. It used to attract little attention compared to the ISM Manufacturing report. But last month’s report dramatically changed its importance as investors suddenly remembered that 80% of the US economy is actually from the service sector, not the often volatile manufacturing sector. Luckily, this month’s survey showed better results than expected. The headline number came at 49.3, a number that was still indicating a contraction but was better than the consensus of 47.5. More important, the Business Activity Index, which is the most important sub-component of the survey, came at 50.8 compared to 41.9 last month. That greatly relieved fears of an imminent recession in the service sector.

It was really a great day for commodity buyers. Gold hit new historical high. Oil hit new historical high. Heating oil hit new historical high. Corn hit new historical high. Even copper hit new historical high. Not surprisingly, commodity stocks were doing well across the board. Financials, on the other hand, were lagging as Ambac’s bailout plan was not as rosy as previously expected. The US dollar was mixed against major currencies and it was below $1.53 against the Euro for the first time during the early trading. Treasuries were sold off as inflation worries re-emerged after today’s rally in commodity price. The credit market remained quite tight. The LIBOR OIS spread, which is often used as a gauge of banking liquidity, jumped to more than 50 bps today compared to just 30 bps a week ago. It seems the Fed is going to have more tough works ahead.