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10-Jun-09 SOME LIKE IT HOT

In term of earnings, some big broker is pointing out that the ratio of upgrades to total estimate changes continues to rise and is
showing no signs at present of fading. Remarkably the US ratio of 59% is normally associated with ISM readings averaging 55, well
above the last reading of 42.8 and on only one occasion (back in June 1995) has such a level of eps momentum seen an ISM reading of
sub 50. Which means something may have to give : either we are in line for an unprecedented surge in the ISM or eps momentum has to
fall back markedly. We shall see … However, the worst of the slump in US corporate profits appears to be behind us. S&P 500 EPS were
$7.59 in the first quarter of 2009. Meanwhile, current consensus estimates for EPS in Q209 and Q309 are $6.17 and $6.42, respectively.
Yet even if these positive forecasts materialise, 12 month trailing earnings come the end of September will be minus $3.07, owing to the
negative figure of $23.25 for EPS witnessed in the final quarter of last year. Never before in the index’s history has reported 12 month
trailing earnings been negative. In such a case, we fully understand that investors are completely lost about the stock market fair value.
One thing for sure though, things are improving at a fast pace, and growth in the US should be here anytime before the end of 2009
(whatever the speed), while most investors are still praying for the trend to reverse in order to do (or not) some equity shopping.
The collapse in commodity prices has been an important factor mitigating the severity of the global recession. As inflation rates,
on the back of falling commodity prices, in Western economies have posted 4% to 5% drops from their peaks in the summer of 2008,
consumers have benefited from an unexpected increase in purchasing power against the negative backdrop of strong recessionary
forces. At this stage, the rebound in consumer purchasing power everywhere in the western world appears to have offset the exceptional
losses registered in labour markets. The evidence of this is the gradual improvement in consumer confidence despite rising
unemployment rates. The pick up in confidence should lead to a gradual pick up in consumer spending, a lifeline for the beleaguered
global economy. As to the latest commodities prices rise, it should be as limited as the pace of economic growth we should attend.
Structural changes in the oil market will likely spare the world economy from a repeat of the oil bull market that culminated nearly a year
ago. We are seeing major investments in alternative energies, and also face big inventory overhangs. The recovery will come from a
confidence increase which had completely vanished on the Lehmnan bankruptcy. Unlike the 29 crisis, there is money, a lot of cash has
been generated during the huge expansion period, and this cash did not disappear but was just not keen on paying much risk premium, it
was king ... This is, in addition to the mortgage yields drop and oil prices collapse the reason why consumer spending did hold reasonably
well in the deepest part of the crisis, making it far different looking than the Great Depression.
Anytime one should hear that some of the 10 following banks repaid the TARP, which is an encouraging sign of financial repair.
Indeed JP Morgan, Goldman Sachs, Morgan Stanley, American Express, Bank of NY Mellon, State Street, US Bancorp, BB&T Corp,
Capital One Financial and Northern Trust can repay as soon as today. Some other 10 lenders have a longer road to repayment. The Fed
approved capital-raising plans of these firms last Monday. They have to complete those efforts by Nov 9 to get approval to repay
government’s money : Citigroup, Wells Fargo, GMAC, PNC Financial, KeyCorp, Fifth Third, Regions Financial and Sun Trust.
China’s industrial production which would have rose 8.9% in May, well ahead of forecast and at a faster growth since September
according to Chinese press today provided a boost to Asian indices today, ahead of additional data coming on Friday
The equity indices are doing a pause, and further upside should need additional macro or micro improvement which the coming
figures but mostly the coming summer should be providing, putting an end to this suspense of whether the current recovery
showing is sustainable or not. We thing yes, but yes growth will not be the same as in the previous years for a while. However, a
sustainable growth is worth much more on equity indices than the current levels, especially as most fund managers are not believing in
that happy end issue. Summer might be hotter than one is forecasting. Upside rally should resume anytime. Focus Retail Sales tomorrow
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 70,8 1,4085 97,55 3,87 3,64 2,95 0,88 0,36 -0,14 1,18 -0,02 0,27 -0,46 4,45 0,35 0,96 -0,02 US
Perf 1d % 3,25 0,14 -0,16 1,4 bp -4 bp 1,31 0,25 -0,12 -0,22 0,65 -0,14 -0,50 -0,46 3,41 -0,14 0,49 -0,37 Europe
ECONOMIC DATA with impact
Mortgage Applications (12h UK time) / the higher the better / latest was down 16.4% / minor as weekly report
US Trade Balance (13h30 UK time) expected 29bn deficit from previous –27.6 / minor
Richmond Fed President Lacker on the economic outlook (15h UK time)
Oil inventories (15h35 UK time)
Fed Governor Duke on community development in Cleveland (17h15 UK time)
Fed’s Beige Book (19h UK time)
POSITIVE IMPACTS
FIAT : The U.S. Supreme Court lifted a temporary hold on Chrysler's sale to Fiat, allowing the alliance to take place.
LLOYDS is in talks to sell a portion of its fund management arm, Insight Investment Management for as much as £300m
ROCHE : New data reinforces long-term efficacy of ACTEMRA in rheumatoid arthritis across all patient population types
INDITEX : Q1 sales €2.34bn, in line / Ebitda €395m (391m exp) / Sales from May 1 to June 7 up 9% in cc.
METRO may sell the unit it might form by merging its Kaufhof department store chain with Arcandor’s Karstadt (Handelsblatt)
THOMAS COOK : Rewe, Germany's 3rd-largest tour operator, said it would consider a takeover of Thomas Cook, should Arcandor's
stake come up for sale (FT)
AVIVA : AMP and National Australia Bank are strong contenders to buy Aviva's Australian operation (The Australian Financial Review)
NORTHERN ROCK : The U.K. Treasury has told its investment banking advisers to examine the feasibility of selling Northern Rock, back
to the City in the autumn (The Times)
NEGATIVE IMPACTS
FRANCE TELECOM & Telstra are in talks with Malaysia's Maxis Communications to buy a minority stake in the Indian operator Aircel /
The talks center around FTE buying a 20%-25% stake in Aircel for about $1.4 bn-$2 bn for the stake (Economic Times) / Separately,
Orascom Tel’s CEO said he is ready to fight FTE about ECMS (FT)
BHP-RIO : Japanese, Chinese & European steelmakers joined forces to fight a plan by Rio and BHP to link up iron ore ops / Separately,
BHP has agreed to take a 58% price cut for the coal it sells to major steel-makers, in line with market expectations
IBERIA's May passenger traffic fell 11.4% year on year with its long-distance business to Latin America suffering most
HSBC Insurance said 10% of all people have stopped paying into pensions as a result of the financial crisis / The study, polling 15K
people in 15 countries, reveals that 18% of respondents have started using savings to pay off debts, whilst 1 in 6 people have reduced
pension contributions / More worryingly for global insurers, 14% are considering stopping their insurance products.
DEUTSCHE BOERSE (Minor) : NYSE Euronext said it was not in merger talks with Boerse, nor does it plan to be
DEUTSCHE TEL :T-Mobile USA is investigating a claim that somebody hacked into its computers, stealing reams of confidential data

SONY-PANASONIC… : Price cuts of TVs and other products are expected to depress operating profits at Sony and Panasonic by a total
of about Y1 trn in the year through next March (the Nikkei)
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10-Jun-09 SOME LIKE IT HOT

RESULTS DIVIDENDS EVENTS
Aegon investor conf / Home Depot investor conf / Antofagasta AGM / Global Transportation
Today Inditex Saint Gobain (€1.00)
conf at Merrill Lynch / SAP at UBS technologies and services conf / Iberdrola Renovables
Thursday Bureau Veritas (€0.72) / Vallourec (€6.00) Theolia AGM / OZ Minerals AGM / Iberdrola Renovables
Friday Club Med /
Monday Vtech Holdings
Tuesday Adobe / Tesco Thomson AGM
TRADING IDEAS
BUY EADS ahead of International Paris Air Show next week
BUY ALSTOM / BOUYGUES / FRANCE TEL / DEUTSCHE TEL / L OREAL / PERNOD / AHOLD / ENEL / SUEZ ENV / GSZ looking good
BUY NOKIA / NESTLE / DANONE / MUNICH RE / GLAXO / ROCHE / NOVARTIS / EON to play eco recovery

BUY MUNICH RE / SELL AXA // BUY BOUYGUES / SELL ST GOBAIN // BUY FTE / SELL DTE // BUY CAP / SELL SAP // BUY DAIMLER / SELL
PEUGEOT
BROKER METEOROLOGY
BP................................... RAISED TO BUY FROM HOLD .............................................................................................................BY ING
HENKEL ......................... RAISED TO BUY FROM HOLD .............................................................................................................BY ING
LUKOIL........................... RAISED TO BUY FROM HOLD ................................................... BY BANK OF AMERICA MERRILL LYNCH
DEUTSCHE BANK ......... RAISED TO NEUTRAL FROM UNDERWEIGHT ................................................................... BY JP MORGAN
3i..................................... RAISED TO OVERWEIGHT FROM EQUALWEIGHT ................................................ BY MORGAN STANLEY

BG GROUP .................... CUT TO SELL FROM HOLD ..................................................................................................................BY ING

SAP ................................ CUT O NEUTRAL FROM BUY ................................................................................... BY BANK OF AMERICA

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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10-Jun-09 SOME LIKE IT HOT

CHART OF THE DAY

U.S ISM orders index and investment %
Since 1991
a /a , %
74 20

68 15

62
10

56
Mai 5
50
0
44
-5
38
v -1 0
32

26 -1 5
T1 0 9
20 -2 0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Indi c e ISM re la tif aux c om m andes - G - Investi ss em ent des e ntrepri se s - D -

Source : Bloomberg

In May the order index of the ISM survey reached 51% (the level of 50% showing the limit between expansion and contraction of the
activity). This leading indicator of the American investment shows that after over cutting investments American companies are now
putting them selves together and investment is on the way back in the United-States.

Time Country Indicator Period GE forecasts Consensus Previous

0.50 GMT Japan Machine orders April -0,6%,-29,5% YoY -1,3%,-22,2% YoY
3.00 GMT China Producer price May -6,6% YoY -6,9% YoY
3.00 GMT China Consumer price index May -1,3% YoY -1,5% YoY
7.00 GMT Germany Consumer price index (final) May -0,1%,0,0% YoY -0,1%,0,0% YoY
7.45 GMT France Industrial production May +0,5%,-16,0% YoY -0,2%,-16,9% YoY -1,4%,-16,1% YoY
9.30 GMT United Kingdom Trade balance April -£ 2,5 bn
9.30 GMT United Kingdom Industrial production April -0,1%,-12,4% YoY -0,6%,-12,4% YoY
10.00 GMT Italy Gross Domestic Product (final) First quarter -2,4%,-5,9% YoY -2,4%,-5,9% YoY
12.00 GMT United-States MBA mortgage applications June 5 th -16,2%
13.30 GMT United-States Trade balance April -$28 bn -$29,0 bn - $ 27,6 bn
19.00 GMT United-States Fed's Beige book

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

DJIA 8763,1 0,39% - 0,15% EUR/USD 1,4087 -0,53% 0,83%
S&P 500 942,4 - 0,17% 4,34% EUR/JPY 137,59 -1,20% 7,91%
Nas daq 1860,1 1,28% 17,95% USD/JPY 97,67 -1,72% 7,19%
CA C 40 3296,7 - 2,40% 2,45% Oil Price % 5 Days Ytd
DA X 4997,9 - 2,84% 3,90% Brent $/b 70,0 6,60% 67,55%
Eur os tox x 50 2479,4 - 2,16% 1,30% Gold Price % 5 Days Ytd
DJ 600 210,3 - 1,71% 6,02% Gold $/oz 958,9 -0,43% 8,72%
FTSE 100 4404,8 - 1,23% - 0,66% Rates USA Euro Japan
Nikkei 9958,2 0,85% 12,40% Central Banks* 0,25 1,00 0,10
Shanghai Comp 2815,3 2,67% 54,62% Overnight 0,10 0,78 0,10
Sens ex ( India) 15523,2 1,76% 60,91% 3 Months 0,17 0,83 0,20
MICEX ( Rus s ia) 1113,8 - 7,07% 79,79% 10 Y ears** 3,88 3,64 1,55
Bov es pa ( Bras il) 53157,1 - 1,56% 41,56% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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10-Jun-09 SOME LIKE IT HOT

ECONOMIC DATA PREVIEW

Watch in the United-States the release of the Trade balance for April due at 13.30 GMT. U.S. trade deficit is expected to slightly
widened lead by the rise of around 3% of the barrel increasing the energetic bill.

Watch in Germany the release of the Consumer price index for May due at 7.00 GMT. German’s inflation is expected to remained
very low, precisely at a similar level than the April release (-0.1%,0.0%YoY). Nevertheless Germany should very shortly face a
deflation situation meaning a negative year on year price consumer index.

Watch in France the release of the Industrial production for April due at 7.45 GM. France’s industrial production is expected to rise led
by the rise of the indicator “past production “in April in the INSEE survey./JB

ECONOMY
GERMANY : THE TRADE SURPLUS WIDENED MORE THAN FORECAST IN APRIL
After dropping at €7.0 bn in January German’s trade surplus rose for two consecutive months led by the good resistance of exportations.
Unfortunately this trend did not last and the trade surplus decreased from €11.3 bn in March to €9.4 bn in April (forecast €9.3 bn). This
decline was mainly due to the drop of exports (-4.8%) as the global economic downturn is cutting the demand for German’s goods
abroad widely penalized by the high level of the euro currency. On the other hand as the sharp recession is cutting imports by 5.8% in
April. However it seems that the recession have reached a ground floor in Germany and the economy still penalized by the high level of
the euro currency should progressively recover. Nevertheless German economy which starts the year with a “growth deficit” of 2.0%
(meaning than if the growth reached 0% in 2009 the GDP will rise by 2.0%) should finish 2009 with the worst economic contraction since
the reunification meaning a drop of 2.5% of the GDP. 2010 should reflect a small recovery with a growth of the GDP at 0.8%.

GERMANY : INDUSTRIAL PRODUCTION FELL MORE THAN FORECAST IN APRIL

After increasing of 0.3% in March German’s industrial production fell by 1.9% in April (forecast 0.3%), leaving the annual growth rate at a
new record low of -21.6%YoY. This drop was mainly led by investments goods as capital goods dropped by 6.4%, durable goods
dropped by 1.4% and manufacturing and mining dropped by 2.9%. Indeed the weakness of the global demand as showed by the sharp
drop of exports is strongly hitting the sector. Nevertheless this drop is nowhere close as sharp as those recoding the two first months of
2009 . Consequently the industrial sector will not affect the GDP at the second quarter as hard as it did at the first quarter. Its important
to notice that the industrial sector account for 24% of the GDP in Germany versus 20% in the euro zone,17% in France and 13% in the
United-States.

FRANCE : THE TRADE DEFICIT NARROWED IN APRIL

France trade deficit narrowed from €4.3 bn in March to €3.8 bn in April. Nevertheless this figure is not as good as it looks. Indeed the
reduction of the trade deficit was mainly led by a 3.1% drop of importation confirming the sharp contraction of the French economy.
Meanwhile exportations fell by 1.7% reflecting the high level of the euro currency and the weak international demand. France trade
balance and economic recovery is indeed strongly penalized by the high level of the European Central Bank refi rate (compare to the
Fed or the BoE leading rates) as well as by structural issues ( weak competitiveness and weak research and development). As a matter
of fact the French GDP should drop by 2.0% in 2009./JB
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10-Jun-09 SOME LIKE IT HOT

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
11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009 11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009
Source : Bloomberg Source : Bloomberg

United States : 10-year Treasury yield 1,2 10-year Treasury spread USA-Euro zone
5,5 1
5,25
0,8
5
4,75 0,6
4,5 0,4
4,25
0,2
4
3,75 0
3,5 -0,2
3,25
-0,4
3
-0,6
2,75
2,5 -0,8
2,25 -1
2 11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009
11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009
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
11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009 11/06/2007 11/12/2007 11/06/2008 11/12/2008 11/06/2009
Source : Bloomberg Source : Bloomberg