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16-Jun-09 STREET FIGHTER

G8 finance ministers aimed at calming down the latest rising long term yields, which triggered a Monday classic over reaction from
equity indices which only listened to the announcement to cool off the unprecedented monetary and fiscal stimulus. That helped the global
economy avoiding a downside spiral similar to the Great Depression, and brought it close to stabilizing. G8 finance ministers said they
have begun talking about how to unwind steps they have taken. But it looks that this is aimed at calming inflation fears, and there appears
to be no concrete measures planned yet regarding when and how to withdraw from the current expansionary policies. The goal here is to
bring bond yields down and to stabilize the U.S. dollar . Indeed, some too fast surging bond yields do not reflect (yet) the economic speed,
but rather the worsening budget deficits. Whatever the reason, if the latest rise was to keep on going at that pace, it might spoil the native
economic recovery in hurting once more households purchasing power and spending. Inflations worries at this stage are premature (see
CPI tomorrow). Just that, as the Great Depression scenario has been avoided, the deflation so much seen as granted by most
economists is not happening thanks (or because) of the latest commodity rally, and above all the pick up of demand in housing and better
confidence indicators including the equity rally. We doubt the yield rise had much further to go for the time being anyway. Same as the
equity indices, bond markets (as well as commodity markets) are just admitting too that an economic recovery in H2 seems now a strong
probability and no longer just a hope. In such a context, the 10 year Note would hardly stay at 2.5% for ever, especially as it was sent to
that level in order to create a demand in housing and to the lower the mortgage rates. The current 3.6% is an historically low and
attractive level. Historically low interest rates and unprecedented stimulus should produce an economic lift in the second half of the year ,
which should makes stock market hold firmly and resume their upside trend anytime before the end of this week.
It is time for the dollar to recover. Indeed, as time passes by, the US economy seems on track to make it and end recession as soon as
in H2. The dollar should now be driven by such a news flow and no longer be supported by equity clashes or commodity prices drop. The
latest new weakness in the dollar made officials react in the G8, where U.S. Treasury Secretary Geithner appears to have won a respite.
The most dramatic signal of support for the dollar came from Russian Finance Minister Alexei Kudrin when saying the dollar's role as the
world's main reserve currency wasn't likely to change any time soon. That marked a change of emphasis for Kudrin and other Russian
officials. Russian and Chinese officials have this year repeatedly called for changes in the global financial system that would downgrade
the dollar's role as the world's primary reserve currency. Officials have said they fear massive U.S. borrowing will erode the value of the
greenback and the value of their reserves. China is the largest holder of dollar reserves. Japan is second and Russia is third. And just
ahead of the G8 meeting, Japanese Finance Minister Kaoru Yosano told Bloomberg that the government's trust in U.S. Treasuries was
"absolutely unshakeable." On Sunday an aide to Russian President Dmitry Medvedev told reporters in Moscow that the meeting of
leaders of Brazil, Russia, India and China -- the BRIC nations -- won't discuss alternative reserve currencies at their summit meeting in
Yekaterinburg, Russia, happening today . The dollar managed to recover as it is good for all the exporting countries to be competitive
back again and to help to end their recession following the US economy. The focus should now be turn on a strong US economy which
should be dollar supportive, good then for everyone, which is what they probably discussed through last weekend G8 meeting.
Yesterday's indicators brought some thrill in a sleeping market activity, showing that if the Great Depression issue has been
avoided, the recovery might not be as prompt as in the past. Indeed, the economic shock was brutal, a real heart attack just after
Lehman's fall, now out of intensive care, the economy needs to be running on its own which officials are carefully thinking on doing, but
only gradually in harmony with the picking up demand. The dip in the US Empire State manufacturing index to -9.4 in June, from -4.6, is a
reminder that this will hardly be a V-shaped recovery. Admittedly, the decline itself is relatively modest. The only good news in the survey
was that the future capital expenditures balance recovered to a 9-month high of 11.5, from -1.1. That suggests we should see a
turnaround in business investment in the second half of the year. As to the NAHB which came out at 15 vs 16 expected, it doesn't change
much as these levels might be much higher than their 8 lows from January, they remain very off the level seen 4 years ago. The index
peaked at 72 four years ago and was at 18 a year ago. At 15, the index shows that about one in six home builders thinks the market is
"good." The number of unsold new-homes on the market remains high in relation to sales at 10.1 months' worth of sales, but the total
number of homes on the market - 297 in April -- is close to the average that prevailed before the housing bubble grew. Builders are
making slow progress in reducing unsold inventories.
This morning, the Bank of Japan raised its assessment of economic conditions for a second time this year, acknowledging that the
economy has "begun to stop worsening." "Domestic private demand has continued to weaken," the central bank's policy board said at the
conclusion of its two-day meeting. But "exports and production have begun to turn upward, and public investment has also increased."
"Financial conditions have generally remained tight, although there have been signs of improvement ". It was the first acknowledgement
of an improvement in almost three years. Highlighting risks that inflation may decline more than expected.
Still the story of the half full and half empty glass driving equity indices which suffered from a heavy lack of activity lately, and were
stuck on their highs of the previous rally. They anticipated a gradual improvement from the economy which is happening, but not in a
straight line. Option gamma players should lock the market within a range for another 3 days before some half full glass data indicators
propel equity indices on higher levels thanks to fund managers who might reduce their underweight equity exposure. Shaky but
rebounding day ahead (see eco data below).
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 70,0 1,3812 96,70 3,67 3,52 -4,21 -2,31 -2,83 -2,77 -1,60 -1,33 -3,00 -2,19 -1,56 -2,38 -2,28 -2,13 US
Perf 1d % -1,68 0,06 1,16 -4,08 bp -11,2 bp -4,17 -2,88 -2,36 -2,28 -2,19 -1,55 -3,44 -2,54 -2,87 -2,44 -2,74 -2,25 Europe
ECONOMIC DATA with impact
Zew index (10h UK time) expected : likely to show a further modest improvement / minor
Housing Starts (13h30 UK time) expected 485k / yesterday's NAHB was disappointing, but even though the report should show a
rebound in multi-family starts, pushing the overall figure back up from 485,000 to around 500,000. The fall in housing starts to a record
low in April was due to a 46% plunge in multi-family starts / some recovery here is necessary for the overall market to stabilize /
interesting if better given yesterday's lower NAHB
PPI (13h30 gmt) expected +0.6% / ex food & energy +0.1% / surging energy prices probably caused a sizeable increase in producer
prices in May. Economists suggest that the energy component increased by about 5% m/m last month, which would be enough to boost
the overall producer price index by 1.0% / bear players will enjoy such a news, which though should not impact much as the most
important inflation indicator for now will be the CPI out tomorrow
Industrial Production (14h15 UK time) expected –1/-1.5% / the troubles at the big three auto manufacturers mean that manufacturing
output probably fell at a faster pace, even though the survey evidence points to a further moderation in the rate of contraction. Chrysler
shut down all its plants at the start of the month when it entered bankruptcy and, starting in May, GM closed a number of plants for up to
nine weeks as part of an extended annual retooling / minor today
Fed Governor Warsh on economic policy (18h15 UK time)
POSITIVE IMPACTS
BBVA repeated it doesn't need to raise new capital unless it makes acquisition / It is generating enough capital internally to fund growth
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16-Jun-09 STREET FIGHTER

SAINT-GOBAIN signed a credit revolving facility for €2.5 bn with banks + said it has completed the refinancing of all LT debt until 2010
TESCO : Q1 UK like-for-like sales ex-fuel, vat +4.3%, in line / FY trading in line with views / FY outlook unchanged
TELECOM IT. sold $2 bn notes in a 2-part sale, including $1bn each in 5 & 10-year notes, both priced to yield 345 bp over US Treasuries
DEUTSCHE TEL. sold $1.5 bn notes in 2 parts, including $750 m in 5-year notes priced to yield 225 bp over comparable Treasuries +
$750 m in 10-year notes yielding 237.5 bp over Treasuries
WHITBREAD : For the 13 weeks to 28 May, says LFL sales fell 2.7% / Oulook is challenging but in line with views
EUROPEAN NEW CAR REGIS. -4.9% for May : VW +3.1% / FIAT +2% / RNO -4.4%

TYCO ELECTRONICS raised its outlook for the Q3, citing increased revenue from its electronic components unit and the undersea
telecommunications segment / Sees Q3 sales $2.45-2.55bn (2.4bn exp) / Sees Q3 EPS $0.10-0.17 (0.03 exp)
NEGATIVE IMPACTS
FRANCE TELECOM - VIVENDI - BOUYGUES : France's shareholding agency has submitted its opinion on a proposal to charge €206 m
for a 4th mobile telecoms licence (Reuters)
BAYER 's CEO said that management is considering acquisitions and the company will hold on to its plastics division (SZ)
FRAPORT said its May passenger traffic dropped by 6.3% and cargo volume fell by 17.3% from the same month a year ago
SONY - VIVENDI : Global music sales will fall at a 2.5% annual rate over the next 5 years as non-physical formats overtake CD’s (PWC)
SANTANDER & BBVA remain under review for possible cut at Moody's
UBS was placed under review for possible downgrade by Moody’s
THOMSON said that its lenders are considering a significant reduction of TMS's debt through a conversion of debt into equity
EUROPEAN NEW CAR REGIS. -4.9% for May : BMW -14% / GM -10.8% / TOYOTA -8.9% / DAIMLER -8.9% / PSA -5.9% / FORD -5%
RESULTS DIVIDENDS EVENTS
Today Tesco / Adobe / Best Buy Thomson AGM / Vallehermoso AGM
Arkema (€0.60) / Imperial Tobacco (GBp 23,33333) / Land Securities
Arcelor Mittal EGM / Nokia Exhibition to launch
Wednesday Zodiac sales / Sainsbury / FedEx (GBp 7.00) / Raiffeisen internat Bk (€0.93) / Rio Tinto 21 per 40 / Severn
new phone
Trent (GBp 45.61111) / United Utilities (GBp 24,47778)
Thursday RIM / Cadbury trading statement conf Gecina (€1.98) Banco Santander AGM / Maurel & Prom AGM
Friday Sony AGM / Sumitomo AGM
Monday Enel (€0.29) / Tenaris ($0.30) / Terna Rete Elettrica Nazionale(€0.0988) Telefonica AGM
TRADING IDEAS
BUY DANONE / NESTLE / PERNOD on reversal Head & Shoulder & BUY CARREFOUR / ALSTOM on double bottom possibility
BUY MUNICH RE / ALLIANZ / GENERALI to play insurance sector higher beta

BUY TOTAL / SELL ROYAL DUTCH // BUY THYSSEN / SELL ARCELORMITTAL // BUY ALLIANZ & MUNICH RE / SELL AXA // BUY BBVA / SELL
SANTANTER // BUY BOUYGUES / SELL ST GOBAIN
BROKER METEOROLOGY
BT .................................. RAISED TO OVERWEIGHT FROM EQUALWEIGHT ............................................... BY MORGAN STANLEY
BRITISH LAND .............. RAISED TO OVERWEIGHT FROM NEUTRAL ...................................................................... BY JPMORGAN
SANTANDER ................ RAISED TO BUY FROM NEUTRAL ............................................................................ BY GOLDMAN SACHS
LUKOIL .......................... RAISED TO BUY FROM NEUTRAL ............................................................................................ BY MERRILL
HAMMERSON ............... RAISED TO OVERWEIGHT FROM NEUTRAL ...................................................................... BY JPMORGAN
HOME RETAIL ............... RAISED TO NEUTRAL UNDERWEIGHT ........................................................................................ BY HSBC

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

NORDEA ....................... CUT TO SELL FROM NEUTRAL ................................................................................ BY GOLDMAN SACHS
CEMEX .......................... CUT TO UNDERPERFORM ........................................................................................................ BY MERRILL
MERCK KGAA .....................................................CUT TO NEUTRAL FROM BUY ............................................................ BY MERRILL

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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16-Jun-09 STREET FIGHTER

CHART OF THE DAY

France industrial production and Gross Domestic Product % YoY
Since 1990
a/a, % a/a, %
5
9
0
7 4
5
3 3

1
2
-1
-3 1
-5
0
-7
-9 -1
-11
-13 -2

-15
v -17
T1 09 -3

Avril
-19 -4
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Production industrielle française- G - PIB français- D -

Source : Bloomberg

After dropping for four consecutive quarters, France industrial production dropped by 18.6 % in April the lowest level since March
1994. Industrial production in France will more likely dropped for a fifth consecutive quarter dragging down the French GDP as
showed by the above correlation.

Time Country Indicator Period GE forecasts Consensus Previous

Japan BoJ Target rate June 16th 0,10% 0,10% 0,10%
9.00 GMT Italy Consumer price index including tobacco ( final) May + 0,2%,+ 0,9% YoY + 0,2%,+ 0,9% YoY
9.30 GMT United Kingdom Consumer price index May +0,3%,+2,0% YoY + 0,2%,+2,3% YoY
9.30 GMT United Kingdom Consumer price index core (ex food and energy) May +1,5% YoY +1,5% YoY
10.00 GMT Germany ZEW economic sentiment June 33 35,0 31,1
10.00 GMT Germany ZEW current situation June -92,6 -92,8
10.00 GMT Euro zone Consumer price index May 0 %, 0 % YoY 0 %, 0 % YoY + 0,4%, 0,0% YoY
10.00 GMT Euro zone Consumer price index core (ex food and energy) May +1,6% YoY +1,8% YoY
10.00 GMT Euro zone ZEW economic sentiment June 34,0 28,5
13.30 GMT United States Producer price index May 0,6%,-4,4% YoY 0,6%,-4,4% YoY +0,3%,-3,7% YoY
13.30 GMT United States Producer price index core May 0,1%, +3,2% YoY 0,1%, +3,2% YoY + 0,1%,+ 3,4% YoY
13.30 GMT United States Housing starts May 490 000 485 000 458 000
13.30 GMT United States Building permits May 510 000 509 000 498 000
14.15 GMT United States Industrial production May - 0,2 % -1,0% -0,5%
14.15 GMT United States Capacity utilization May 68,7 % 68,4% 69,1%
22.00 GMT United States ABC consumer confidence June 14 th -47

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

DJIA 8612,1 - 1,69% - 1,87% EUR/USD 1,3825 -1,71% -1,05%
S&P 500 923,7 - 1,60% 2,27% EUR/JPY 133,32 2,71% 5,00%
Nas daq 1816,4 - 1,40% 15,18% USD/JPY 96,44 0,92% 6,07%
CA C 40 3219,6 - 2,02% 0,05% Oil Price % 5 Days Ytd
DA X 4889,9 - 2,29% 1,66% Brent $/b 68,8 -1,12% 65,04%
Eur os tox x 50 2431,4 - 1,47% - 0,66% Gold Price % 5 Days Ytd
DJ 600 209,0 - 0,10% 5,38% Gold $/oz 932,9 -2,30% 5,75%
FTSE 100 4326,0 - 1,79% - 2,44% Rates USA Euro Japan
Nikkei 9756,2 1,76% 10,12% Central Banks* 0,25 1,00 0,11
Shanghai Comp 2770,5 0,96% 52,16% Overnight 0,20 0,78 0,11
Sens ex ( India) 14833,2 1,66% 53,75% 3 Months 0,16 0,72 0,20
MICEX ( Rus s ia) 1078,1 - 5,78% 74,02% 10 Y ears** 3,67 3,52 1,48
Bov es pa ( Bras il) 52033,8 - 2,45% 38,57% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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16-Jun-09 STREET FIGHTER

ECONOMIC DATA PREVIEW

Watch in The United-States the release of the housing starts and the building permits for May, due at 13.30 GMT both expected to
increase after reaching an historical low in April. This rise will be mainly led by the rise of 1.3% of construction materials and by the
drop of house prices. Watch as well the release of the industrial production and capacity utilization for May, due at 14.15 GMT
respectively expected to contract at a slower pace and to stabilize.

Watch in Germany the release of the ZEW (economic sentiment) for June, due at 10.00 GMT expected to increase as German
economy after the sharp drop of the GDP at the first quarter (-3.8%) should have reach a ground floor. Watch in the Euro area the
consumer price index for May, due at 10.00 GMT expected to reach a new historical low at 0.0% YoY. The euro area should face a
deflation situation in June as consumer price index might drop below zero from a year ago.

ECONOMY
UNITED-STATES : THE EMPIRE MANUFACTURING INDEX SHRINKED MORE THAN FORECAST IN JUNE
After reaching its lowest level on record at -38.23 in March the Empire Manufacturing index , New York Fed’s factory gauge of the
outlook for the next six month declined at a slowest pace in April (-14.65) and in May(-4.55). Unfortunately this improvement did not last
and the Empire Manufacturing dropped at -9.41 in June. The details of the survey were mixed. Indeed the new orders dropped from -8.2
to -9 and the unemployment index climbed to -21.8 to -23.9. Meanwhile the shipment index dropped back to -4.8 from 1.3. Nevertheless
there is a good news as future capital expenditures balance recovered to a nine month high of 11.5 from -1.1 which is very encouraging
regarding investment recovery in the coming months.

UNITED-STATES : HOMEBUILDER CONFIDENCE UNEXPECTEDLY DROPPED IN JUNE

After reaching an historical low in January at a level of 8 the NAHB homebuilder confidence did not decrease since then to reach 14 in
April and 16 in May. Unexpectedly this trend did not last and the homebuilder confidence expected by the economist consensus to rise
to 17, dropped to reach 15. Looking at the breakdown the main drop is seen in the single family sales: future. A reading below 50 means
most respondents view conditions as poor. More generally this unexpected decline of the NAHB survey is showing that despite the
recent encouraging economic indicators the housing slump will take time to recover./JB
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16-Jun-09 STREET FIGHTER

VIX index : impliedvolatility on the S&P 500 $Libor -3-Month(InterbankRate)

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
18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009 18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009
Source : Bloomberg Source : Bloomberg

UnitedStates : 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 18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009
18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009
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
80
1,4

70 1,35
60
1,3
50
40
1,25

30 1,2
18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009 18/06/2007 18/12/2007 18/06/2008 18/12/2008 18/06/2009
Source : Bloomberg Source : Bloomberg