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18-May-09 HOPE AND GLORY

In the US the earnings calendar slows dramatically with the winding down of earnings season but a few big names remain, including
Deere (DE), Hewlett-Packard (HPQ), Home Depot (HD) and Target (TGT), while the economic calendar is particularly thin this week, with
only a handful or releases scheduled, highlighted by the April Housing Starts report tomorrow, and the minutes from the Fed on
Wednesday as well as the weekly Thursday's Jobless Claims. Flows on Friday might seem a bit strange as it is closed next Monday on
the US, and this week is full of long weekends starting on Wednesday night in Europe.
Last week left all the suspense on, thanks to some data seen as toppish by bear guys after the latest macro figures improvement. The
Retail Sales, not that bad, did not confirm though the resiliency seen through retailers earnings (Wal Mart in line with higher eps for
instance), JC Penney though provided some cautious guidance, Industrial Production, although at a slower pace continued to decline by
0.5%, while both CPI and PPI still did not show any signs of so awaited deflation. Fact is that since its March 6 low the market has gained
39%. It gained 5.9% in the week of May 8th alone, as participants breathed a collective sigh of relief that the government's stress tests for
the nation's 19 largest financial institutions weren't as bad as feared. The recent price action has been impressive, but everyone gets the
fact now that the economic data, and the earnings results, have confirmed that the bottom for this economic downturn has been seen.
And this is big. The underweight from fund managers on equity position combined to the increasingly positive newsflow should leave the
2608 short term target on the cash Eurostoxx unchanged.
According to Thomson Reuters, the consensus 2010 earnings estimate is $73.37, which is a 29% increase from the current
consensus estimate of $56.94 for calendar year 2009. At its current level of 917.12, the S&P 500 trades at 12.5x estimated 2010
earnings. That isn't extremely rich, but with the continued weakness in the labor market and the understanding that bottom-up estimates
are normally more optimistic than top-down forecasts, this incline bear strategists to think the path of last resistance for the consensus
estimate remains to the downside. Admittedly this would justify the consolidation scenario, but the need to step in from investors at a time
when now most equity indices are playing in the green year to date will take the step and bring us higher instead of cruising around in the
current levels, supported by the improved sentiment toward the economy and the impending fiscal stimulus impact, which should keep the
institutional bid in the market and prevent near-term corrections of serious magnitude.
Already the mood has changed, and the most bearish guys are now talking about when the recession is over, or whether it is over
already. They are no longer talking about the Great Depression or the worst recession from the after WW2 which should last an unlimited
amount of time. Seen from a more bullish view, macro indicators were helpful to better understand the upside rally, and prevent a collapse
to new lows such as most investors were expecting, sitting on their cash. Last Friday’s inflation releases showed headline CPI went
further into negative territory in April. However, there are no signs deflation is developing in core prices : core inflation edged up to 1.9%
y/y, leaving it at the higher end of what the Fed would be happy with. The more modest 0.5% m/m decline in industrial production in April
appears encouraging, not least since it is the smallest monthly fall seen in six months. Manufacturing output fell by only 0.3% last month.
The jump in the Empire State manufacturing activity index to an 8-month high of -4.6 in May, from -14.7, looks very encouraging too. After
all that leaves the index only just shy of the zero mark which separates expansion from contraction. Finally, the modest improvement in
the University of Michigan consumer confidence index to an 8-month high of 67.9 in May, from 65.1, took it comfortably above the low of
55.3 set last November. At the same time, however, it is still well below its long-term average of close to 90. The improvement was driven
by another increase in the forward-looking consumer expectations index to 69.0, from 63.1. That actually puts the expectations index at its
highest level since October 2007. Bears will tell you before the marching bands strike up, it's worth noting that even at this level the
expectations index is only consistent with a very modest growth in real consumption and it is still well below its long-term average of 81.
They need to see a lot more improvement before we can be sure the recession is over, but they are wondering whether the recession is
over, which just a few weeks ago was according to them a pure fantasy, which fully justifies the upside rally and make it a not so bearish
one anymore.
Housing data as soon as today will boost equity indices. Indeed the upcoming housing data should provide more tentative evidence
that activity has bottomed-out. The NAHB index of home-building activity (due today) was the first housing-related indicator to turn the
corner back in February. At 14 in April, it sits modestly above its low point of 8. The rebound has been driven by improvements in current
sales, future sales and the traffic of prospective buyers. Moreover, with mortgage rates still close to record lows, the headline NAHB index
should increase further to around 16 in May. The rebound in the annual growth rate of the NAHB index may be followed by a similar
rebound in housing starts (Tomorrow).
So, up this week, and for a 2608 cash Eurostoxx target, confirmed once 2380 is broken on the future contract. Option expiries on
Friday drove an erratic session lost with specific flows. Participants are beginning to look for signs that economic conditions are actually
tilting toward growth, and this deserves a premium.
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 56,6 1,3448 94,80 3,10 3,37 -0,96 -2,32 -2,41 -1,10 -0,07 -1,09 -0,43 -2,37 -0,86 -1,14 -0,54 -0,75 US
Perf 1d % -3,67 -0,35 0,43 -3,29 bp 6 bp 0,73 -1,32 -1,03 -0,28 0,92 -0,12 0,79 -2,11 0,08 -0,07 0,53 0,35 Europe
ECONOMIC DATA with impact
NAHB (18 UK time) expected to rebound driven by improvements in current sales, future sales and the traffic of prospective buyers.
Moreover, with mortgage rates still close to record lows, we expect the headline NAHB index to increase further to around 16 in May /
interesting and market supportive
POSITIVE IMPACTS
EDF would have appointed Deutsche Bank to auction its electricity distribution network in Britain (valued at around £4bn) as part of its
plan to ease the debt taken on during its purchase of British Energy (The Sunday Times) /
IBERDROLA : ACS is seeking €2 bn in financing to buy an additional 8% Iberdrola in the H2 2009, raising its stake to 20% (ABC)
VODAFONE is set to accelerate its £1 bn cost-cutting program when it announces FY results next week (FT citing bank analysts)
ARCANDOR : The German government will objectively examine any request for state-backed guarantees by Arcandor but "Management
mistakes mustn't be cause for the state to help out with assistance" (Economic Minister)
SIEMENS plans to increase environmental technology sales to €25 bn in 2011 from 19 bn in 2008 (WirtschaftsWoche)
SAP has seen market conditions bottom in Asia and expects business from the region to improve going forward on a strengthening order
pipeline and improved client sentiment (Reuters)
BARCLAYS (not new) is in talks to sell its AM unit for as much as $12bn, with BlackRock among interested bidders (WSJ)
FIAT said that its plan for Opel would be presented on May 20, the deadline set by Germany for offers.
DANONE is cited in Barron’s as they ve got nice dividend yields, steady cash flows, and will fend off the bears…
ITALCEMENTI : France's securities regulator has given the green light for Italcementi to buy out minority holders of Ciments Francais
STORA ENZO and Arauco joined forces to create a leadership position in low-cost pulp through the acquisition of the majority of grupo
Ence's operations in uruguay / Enterprise value of the transaction is $344m
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18-May-09 HOPE AND GLORY

WELLS FARGO : Berkshire Hathaway lifted his stake in WFC during the Q1 / It also increased its holdings of J&J and U.S. Bancorp
CITIGROUP sold $2bn of 8.5% notes in its first benchmark offering without a U.S.govt guarantee since August (Bloomberg) / The 10-year
notes priced at 98.26 cents on the dollar to yield 8.8%, or 562.5 bps more than similar-maturity Treasuries
NEGATIVE IMPACTS
PORSCHE : Volkswagen said it was indefinitely postponing talks over a planned integration with Porsche, but it insisted that only the next
round had been canceled.
LUFTHANSA's top management is having 2nd thoughts about buying UK airline BMI because of concerns that the acquisition + revamp
would cost too much (FT)
METRO plans to buy the 121 Karstadt department stores of Arcandor (Bild am Sonntag) / A deal could force the break-up of Arcandor
HAVAS : Q1 revenue €325m (337m exp) / Organic growth down 8.4% (-6.2% exp) hurt by weak performances in NorthAm (-9.2%) and
the Asia-Pacific region (-25%) / The company didn't provide guidance for the rest of the year
GDF-SUEZ : Areva sold its 0.4% stake in Total, worth about €400 m, about 15 days ago to finance its investment program (Le Figaro) /
Areva still owns a 1.2% stake in GDF Suez …In Feb., Areva said it was planning to sell non-strategic assets to raise the €2.7 bn it needs.
ENEL-ENI : Gazprom and Eni agreed to boost capacity of the South Stream gas pipeline bringing gas to Europe / At the same time,
Gazprom agreed to pay $1.5 bn to Eni and Enel for a 51% stake in gas assets.
ALSTOM (not new) : GDF-SUEZ is still testing potential buyers for its T&D unit, worth between €3.5 bn and €5 bn / Besides Alstom,
others, including Schneider Electric and some investment funds, could also be interested (Le Figaro)
LLOYDS said that it has agreed with HM Treasury to launch the previously announced placing and open offer on May 20 = The
proceeds from the placing and open offer will be used to redeem the £4 billion of preference shares held by HMT = Shareholders who
have acquired their shares prior to 0700 GMT on May 20 & satisfy certain other eligibility requirements will be entitled to participate in the
placing and open offer and will be able to subscribe for 0.6213 new ordinary shares for every ordinary share already held in the
company prior to the ex date at an offer price of 38.43 pence per new ordinary share.
MARKS & SPENCER (Minor) is likely to cut its dividend when it reports results next week (FT citing brokerages' forecasts)
BAYER : Onyx Pharmaceuticals sued Bayer over its rights to an anti-cancer compound that it says it discovered during joint research..
BEIERSDORF does not plan to sell its adhesives unit Tesa (CFO in Euro am Sonntag)
BRITISH LAND could cut dividends (Sunday Telegraph)
BBVA isn't likely to exercise an option to raise its 10% stake in China Citic Bank Corp anytime soon as doing so would cost too much
GERMAN BANKS : HSH Nordbank is rejecting the govt's "bad bank" bill as it considers the plan too expensive = it would result in the
need to write down billions of € because banks would be required to sell toxic assets to a central entity at a 10% discount (Focus)
RESULTS DIVIDENDS EVENTS
Alleanza Assicurazioni (€0.30) / Assicurazioni Generali (€0.15) /
Atlantia (€0.37) / Banca Monte dei Paschi di Siena (€0.013) /
Banca popolare di milano (€0.10) / ENI (€0.65) / Finmeccanica TMT conf at JP Morgan / Healthcare conf at
Today Nordjyske bank
(€0.41) / Fondiaria-Sai (€0.70) / Linde (€1.80) / Mediaset (€0.38) / Deutsche Bank / Schering Plough AGM / Lowe's
OMV (€1.00) / Saipem (€0.55) / SBM Offshore ($0.465) / Unilever
(€0.51)
SAP AGM / Power and Utility conf at Goldman
Air France / Corio / Fortis / TUI Travel / HP
Sachs / Omnicom AGM / StatoilHydro AGM / Credit
Tuesday (AMC) / Vodafone / Home Depot /
Agricole AGM / Biotech and Medical Devices at
Campbell Soup
Merrill Lynch / Casino AGM
Telefonica AGM / Rhodia AGM / EDF AGM / Rexel
Accor (€1.65) / BNP Paribas (€1.00) / Groupo Ferrovial (€1.50) /
AGM / Deutsche Boers AGM / Gas Natural AGM /
Home Retail (€ GBp 11.11111) / LVMH (€1.25) / SAP (€0.50) /
Wednesday London Stock Exchange GlaxoSmithKline AGM / Zurich Financial investor
Statoil Hydro (NOK 4.40) / Swatch (CHF 4.25) / Unilever (GBp
day / Telekom Austria AGM / Intel AGM / Northrop
44.65556)
Grumman AGM
Henkel AG (€0.53) / L'Oreal (€1.44) / Portugal Telecom (€0.575) / Telefonica AGM / Gas Natural AGM / Logitech
Thursday British Land / Cable & Wireless / Dell / Gap
Premier Oil Rights issue 4 for 9 investor day / Boeing investor conf / Xerox AGM
Friday Aegis / Campbell Soup Arcelor Mittal ($0,1875) / Vinci (€1.10) Aegis AGM / China Petroleum AGM / HSBC AGM
TRADING IDEAS
BUY ASML / ERICSSON on double bottom possibility.
BUY NOKIA / SIEMENS / EON / BAYER / SANOFI / GLAXO / DANONE to play eco recovery + looking good
BUY AXA / ST GOBAIN / EDF / FTE / DTE / NESTLE / VIVENDI on reversal Head & Shoulder possibility

BUY BOUYGUES / SELL VINCI // BUY DTE / SELL FTE // BUY ST GOBAIN / SELL LAFARGE // BUY REPSOL / SELL ENI // BUY RDSA / SELL
TOTAL // BUY AHOLD / SELL UNILEVER
BROKER METEOROLOGY
STMICRO .................................. RAISED TO BUY FROM NEUTRAL ............................................................... BY GOLDMAN SACHS
INFINEON .................................. RAISED TO BUY FROM NEUTRAL ............................................................... BY GOLDMAN SACHS
RIO TINTO ................................. RAISED TO HOLD .................................................................................................................. BY RBS
DAIMLER ................................... RAISED TO BUY FROM SELL ............................................................................................... BY UBS
MONTE PASCHI ....................... RAISED TO NEUTRAL .........................................................................................BY CREDIT SUISSE
OIL & GAS SECTOR ................. RAISED TO OVERWEIGHT FROM NEUTRAL ........................................................................BY ING
BT .............................................. RAISED TO EQUALWEIGHT FROM UNDERWEIGHT ................................ BY MORGAN STANLEY
BMW ........................................... RAISED TO OVERWEIGHT FROM UNDERWEIHT ............................................................. BY HSBC
PERNOD RICARD ..................... ADDED TO THE EUROPE 1 BUY LIST.......................................................................... BY MERRILL

RENAULT .................................. CUT TO NEUTRAL FROM BUY ............................................................................................. BY UBS

ASML ......................................... CUT TO NEUTRAL FROM BUY ..................................................................... BY GOLDMAN SACHS

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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18-May-09 HOPE AND GLORY

CHART OF THE DAY
GDP in the Euro area, Italy and Germany (%,YoY)
Since 1995
6

-2

-4

-6

-8
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
PIB Zone euro (%, YoY) PIB Ialie (%, YoY) PIB Allemagne (%, YoY)

Source : Bloomberg

As expected the euro area GDP reached an historical low at the first quarter 2009 at -2.5% meaning 9.5% annualised the year on year
GDP reaching now -4.6% a low record. Looking at the detail by countries we see that all the main euro area nation’s GDP fell sharply.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
0.01 GMT United Kingdom Rightmove house prices May 1,8%,-7,3%YoY
6.00 GMT Japan Consumer confidence April 31,0 29,6
10.00 GMT Euro zone Trade balance (sa) March -€ 3,8 bn -€ 4,0 bn
18.00 GMT United - States NAHB housing market May 16 14

Inde x e s P rice % 5 D a ys Ytd Forex Price % 5 Days Ytd

DJIA 8268,6 - 3,37% - 5,79% EUR/USD 1,3465 -0,92% -3,68%
S&P 500 882,9 - 4,88% - 2,26% EUR/JPY 127,95 3,58% 0,87%
Nas daq 1680,1 - 3,36% 6,54% USD/JPY 95,03 2,63% 4,58%
CA C 40 3169,1 - 3,85% - 1,52% Oil Price % 5 Days Ytd
DA X 4737,5 - 3,59% - 1,51% Brent $/b 55,5 -1,96% 32,83%
Eur os tox x 50 2364,1 - 3,58% - 3,41% Gold Price % 5 Days Ytd
DJ 600 202,9 - 2,88% 2,30% Gold $/oz 932,5 2,12% 5,74%
FTSE 100 4348,1 - 2,36% - 1,94% Rates USA Euro Japan
Nikkei 9052,3 - 1,78% 2,18% Central Banks* 0,25 1,00 0,10
Shanghai Comp 2628,1 0,76% 44,34% Overnight 0,20 0,55 0,10
Sens ex ( India) 13479,4 2,50% 39,72% 3 Months 0,16 0,59 0,20
MICEX ( Rus s ia) 1002,2 0,36% 61,77% 10 Y ears** 3,10 3,37 1,42
Bov es pa ( Bras il) 49007,2 - 4,65% 30,51% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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18-May-09 HOPE AND GLORY

ECONOMIC DATA PREVIEW
Watch in the United-States the release of the NAHB housing market index for May due at 18.00 GMT, expected to increase as the
ground floor is more likely hit for the housing market. Indeed more affordable prices and the drop of interest rates should increase the
numbers of buyers.

Watch in the euro area the release of the Trade balance for March due at 10.00 GMT The trade deficit is expected to narrow as the
global economic downturn is slowing down and as importations should drop sharply ./JB

ECONOMY
UNITED-STATES : CONSUMER PRICE INDEX ARE STILL DECREASING FROM A YEAR AGO AND INDUSTRIAL PRODUCTION FELL LESS THAN EXPECTED
After dropping of 0.4% YoY in March consumer price index dropped of 0.7% in April. The drop of headline inflation is mainly due to a
base effects linked to last year ‘s peak in energy prices. If we look to the monthly data consumer prices index remained almost
unchanged in April due to the 2.8% drop in gasoline prices and to the 0.2% drop in food prices. On the other hand core prices remained
unchanged from a year ago and slightly rise since last month. As the food and energy prices should rise in the coming months and as
the labour market should slowly recover like the global economic outlook we do no consider a deflation situation as a major risk in the
United-States at the opposite of the Euro area. Meanwhile industrial production fell “only” of 0.5% (forecast -0.6%) underlining that the
bottom might have been hit in the United States as showed by the encouraging data of the ISM manufacturing and by the stabilization of
the capacity utilization.

EURO AREA : HISTORICAL DROP OF THE GDP AT THE FIRST QUARTER

As expected the euro area GDP reached an historical low at the first quarter 2009 at -2.5% meaning 9.5% annualised the year on year
GDP reaching now -4.6% a low record. Looking at the detail by countries we see that all the main euro area nations fell sharply. The
“number one “ being Germany which have seen its GDP felling by 3.8% at the first quarter 2009 and by 6.9% on a year on year basis.
For once Italy is not the worst as its GDP fell by 2.4% at the first quarter meaning -5.9% from a year ago. Spain faced a drop of the GDP
of 1.8% at the first quarter and of 2.9% from a year ago far from its GDP from a year ago by 2.7%. France did better than its European
partners as its GDP dropped only by 1.2% at the first quarter and by 3.2% from a year ago mainly lead by the good resistance of the
household consumption. The European recession should last till the second quarter and the Euro area’s GDP should slightly rebound at
the third quarter but unemployment should rise until next winter./JB
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18-May-09 HOPE AND GLORY

VIX index : implied volatility on the S&P 500 $Libor -3-Month(Interbank Rate)
6
85
80
5,5
75 5
70
65 4,5
60 4
55
50 3,5
45 3
40
35 2,5
30 2
25
20 1,5
15
1
10
5 0,5
18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009 18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009
Source : Bloomberg Source : Bloomberg

United States : 10-year Treasury yield 10-year Treasury spread USA-Euro zone
5,5 1,2
5,25 1
5
0,8
4,75
4,5 0,6

4,25 0,4
4 0,2
3,75
0
3,5
3,25 -0,2
3 -0,4
2,75
-0,6
2,5
2,25 -0,8

2 -1
18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009 18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009
Source : Bloomberg Source : Bloomberg

Oil : Brent ($/b) Forex : Euro vs Dollar (EUR/USD)

150 1,65
140
1,6
130
1,55
120
110 1,5
100
1,45
90
1,4
80
70 1,35
60
1,3
50
40
1,25

30 1,2
18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009 18/05/2007 18/11/2007 18/05/2008 18/11/2008 18/05/2009
Source : Bloomberg Source : Bloomberg
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18-May-09 HOPE AND GLORY