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11-May-09 THE PRICE OF FEAR

Nice rally once more last week, which is just the price of fear being re calibrated. In the end no Great Depression in sight, a strong
and prompt reaction from US officials after the January sharp bank prices fall in order to avoid a remake of their Lehmnan mistake, with
now some improving macro indicators which already corporate news were telling us the last few weeks. Equity indices are just back to
where they should have been earlier in the year, if the heavy deleverage from hedge funds and the very bearish consensus from
strategists did not push them somehow artificially to the abyss, being driven by flows disconnected from fundamental view since no one
had a view but just a guess that we were in a 29 crisis revival. Indeed, we did face a heavy economic adjustment period of 4 months (mid
October-February), which increasing purchasing power from households thanks to lower mortgage rates and energy prices, combined to
heavy stimuli wordlwide made it just temporary.
Interesting now will be the April indicators which will tell whether the bear camp still playing that the economic pick up will not last is
right or wrong. Already most fundamental players are getting extremely nervous as equity indices are now playing in the green year to
date. Not only index trackers had a hard time since they lost between 2 to 6% due to their underweight in banking sector after the poor
start of the year and the bearish recommendations on the sector, and overweight in defensive names on top of it, but now that overall
equity indices are in a positive year things get very complicated. Retail Sales on Wednesday as such will be a focus, but needless to say
that we should as plan head toward the 2608 target on the cash Eurostoxx rather quickly so much long only funds are underweight
equities.
A big reason for the bull trend to be now resuming since early March being that the vicious circle has switched into a virtuous
one with its positive impact on the wealth effect from households already getting richer since a few months, and on the all economy. It is
the bear market that started March 2000 we are talking about and which should be over. While some will tell you that barely more than a
quarter of the overall 58% slide in the S&P 500 since its peak in October 2007 has been erased, or that the latest rebound in financial
stocks may soon fizzle out, and that bank stress tests now out of the way, the “adverse” macroeconomic assumptions contained within
them could yet prove too optimistic, we would turn it positively in saying that the upside move so far is nothing compared to the drop we
faced and somewhat for unjustified and too bearish expectations, leaving some big upside once things get better, or less worse. Yes
macro indicators are not pointing out growth yet, but it has to start somewhere. We are not talking about a classic recovery, as there are
no comparison you can fund from the past. The US officials keep on monitoring the financial and housing sector recovery very closely,
and are still far from the full amount of mortgage purchases they said they would do. If the jury remains out on the effectiveness of the
policy response, the adoption of quantitative easing has certainly coincided with an improvement in risk appetite, and this will lead to
some successful recovery sooner or later.
Already the Employment report, lagging indicator, is showing signs of improvement. Of course the data remain poor, but here
again a recovery has to start somewhere, and it makes no doubt that most strategists did not expect it to happen now (some were
expecting a 750k job losses). Yes, the headline figure was flattered by a 66,000 jump in Federal government payrolls, which were boosted
by an influx of temporary workers hired to prepare for the 2010 census. So what, there are no rules anymore, everything counts, and this
is what US officials are working on and the reason why things are improving so quickly. Then will remain the question of the speed of the
coming period of growth, but growth means higher equity indices. Both ISMs are getting better, with improvement in new orders and
employment components, Fed senior loan survey was encouraging, Pending home sales better, stress test not as bad as feared, deflation
only in energy prices which is rather good, Wal Mart 's April sales up 5% while consensus expected 2.6% meaning spendings might not
be that short lived etc... These data might not tell you we are in a hot and growing economy, but they might keep on turning things
positively, and bring you higher while long only fund managers will keep on waiting for a consolidation.
This week focus might well be Chinese indicators such as the trade data tomorrow to show another improvement in exports, while the
data on fixed investment, also out the same day, will be worth a look for evidence of how fast loan growth is feeding through to the real
economy. While in the US the Retail Sales on Wednesday will give a read on how well consumers are holding up, the PPI on Thursday
and the CPI as well as the Industrial production on Friday will keep us moving. The rush of earnings reports begins to slow, but some of
the bigger retailers are on this week's earnings calendar including the world's No. 1 retailer, Wal-Mart (WMT), as well as Macy's (M),
Kohl's (KSS), Nordstrom (JWN), and JCPenney (JCP).
Up in the morning, we should be retracing tomorrow as usual lately on a classic Tuesday counter day. Target 2608 on the cash
Eurostoxx anytime
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 58,4 1,3632 98,48 3,26 3,45 3,35 4,30 7,72 0,92 -0,21 0,06 3,14 1,88 -1,93 2,41 1,33 1,96 US
Perf 1d % 1,92 -0,02 -0,01 -2,23 bp 6,7 bp 1,31 2,83 2,86 0,64 -1,14 -0,16 1,71 2,82 -2,59 1,03 0,09 0,95 Europe
ECONOMIC DATA with impact
AMBAC earnings
Bernanke speaking (23h30 UK time) at a "Financial Innovation and Crises" conference
POSITIVE IMPACTS
ERICSSON and HUAWEI have been shortlisted for Bharat Sanchar Nigam's 93m lines mobile phone project (Business Line) / The
project is estimated at $6 bn / Bids of ZTE, Nokia Siemens and ALCATEL were disqualified on technical grounds…
TELECOM ITALIA denied a Corriere della Sera report that its management had discussed with 2 key investors the possibility of merging
with Telefonica
REPSOL has made a new natural gas and condensate discovery in shallow waters of Brazil's Santos Basin / However, new offshore
developments could pose financing challenges since the output from the new fields is still years away (WSJ)
ATLANTIA : Abertis's 6.7% stake in Atlantia is a financial investment and will be sold when the conditions are right (ABE’s CEO)
BARCLAYS would have received additional offers for iShares, in excess of the £3bn (British press)
ICAP : A consortium of banking groups and ICAP has bid about €830m or €11 per share for clearing house LCH.Clearnet (FT)
SOCIETE GENERALE will launch a strategic review of its business before the end of the year (CEO in Les Echos)
NEGATIVE IMPACTS
BMW has called off plans to cooperate more with DAIMLER (Handelsblatt)
EDF : Centrica will pay EDF the equivalent of £2.3 bn for a 20% stake in British Energy instead of £3.05 bn for 25% / EDF also will buy
Centrica's 51% stake in Belgian power generation and supply group SPE / Conf Call 0830 UKT
CREDIT AGRICOLE, INTESA SANPAOLO & GENERALI are discussing possible changes to their consultation pact for their combined
10.9% stake in Intesa (Il Sole 24 Ore) / CREDIT AGRICOLE is expected to post a Q1 net profit when it publishes results on Thursday
(+439m expected) (La Tribune) but only because it would not book in its accounts a writedown on its 5.5% stake in bank Intesa…
ENI's EBIT is expected to be more than €12 bn in 2009 (13.2bn exp) and adjusted net profit to be €5 bn (5.8bn exp) (Il Sole 24 Ore)
BT will axe a further 10K jobs as its pension gap hits £8bn / BT could be forced to pay up to £600m /y to make up the shortfall (Mail on S)
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11-May-09 THE PRICE OF FEAR

COMMERZBANK is considering the issue of another state-guaranteed bond, possibly in U.S. dollars (Handelsblatt) / If there is a second
issue, it could have a volume of around $2 bn or $3 bn (Reuther)
LONMIN : H1 sales $436m, in line / Underlying loss per share 50.2c / No dividend / As expd, announced 2-for-9 rights issue to raise
$457m / UK rights issue price of £9 per new share ( 44.5% discount to Friday’s close) / Rights issue fully underwritten by Citi and JPM
AREVA has been accused of a "lack of professionalism" by authorities overseeing a prototype under construction in Finland (Observer)
ROCHE : New warnings have been added to Genentech and OSI Pharma's cancer drug Tarceva about reports of skin reactions, eye
problems and holes in the digestive tract (U.S. health regulators)
FIAT : Brazil's auto sales fell 13.7% in April, from March, after 4 months of gains / Fiat tallied the most sales in April
UBIBANCA : Q1 operating income €996m (1.02bn exp) / Net €24.3m (63m exp) due to write-downs and a fall in net commissions
ITALIAN BANKS : Italy's top 6 banks don't need capital injections but would require up to €10 bn in additional capital if the economic
situation deteriorates (il Sole 24 Ore) / The banks are UniCredit, ISP, BMPS, UBI, Banco Popolare and Banca Popolare di Milano

US BANKS : The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly
before concluding its stress tests, following two weeks of intense bargaining (WSJ) / In addition, the Fed used a different measurement of
bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits / Citigroup's capital shortfall
was initially pegged at $35 bn (Final = $5.5 bn) / BAC’s capital shortfall was initially $50bn (Final = $34bn)…
RESULTS DIVIDENDS EVENTS
Havas sales / Lonmin / NEC / TUI / Maroc Tel / Microsoft / PPR (€3.30) / Fresenius SE (€0.71) / Fugro
Today Centrica AGM / Tele2 AGM / Telenor AGM
Maroc Telecom / Petrobras (€1.50) / Score (€0.80)
Vinci sales / EADS / Baloise / Abertis / Enel AMC / EDF / Arcelor-Mittal AGM / Intel analyst meeting / Bayer
Vivendi (€1.40) / Holcim (€1.05) / M6 (€0.85) /
Tuesday Intercontiental Hotels / Bulgari / Mediaset / Havas / AGM / Altana AGM / Prudential AGM / 3M AGM /
Tele2 (SEK 3.5 +1.5) / Telefonica (€0.50)
Mediobanca / Deutsche Boerse / Nissan / NEC Aerospace & Defense conference at Credit Suisse
Allianz / Generali / Dexia / E.On / ING / Telefonica /
Air Liquide (€2.25) / Bayer (€1.40) / BP (GBp ConocoPhillips AGM / Dexia AGM / JCDecaux
Telekom Austria / Acciona / ThyssenKrupp / Vallourec /
Wednesday 10,64889) / Veolia Environnement (€1.21) / AGM / Safeway AGM / Unilever AGM / TUI AGM /
Lagardere sales / Theolia sales / Bouygues sales / TF1 /
Informa (GBp V) Accor AGM / Puma AGM
Allied Irish Banks interim
Credit Agricole / Prudential (BMO) / Aegon / Aeroport de
Vinci AGM / Cadbury AGM / Ford AGM / BMW
Paris / Salzgitter / Vivendi / Banca Italease / Banca Monte
Thursday Metro (€1.18) / Solvay (€1,7333) AGM / SBM Offshore AGM / ASM International
dei Paschi di Sien / Banco Popolare / Natixis / Theolia /
AGM
Portugal Telecom / Rexel / Hochtief / BT Group / Wal Mart
STM analyst meeting / Commerzbank AGM /
Friday Terna / Thales / Belgacom / Gazprom BMW (€0.30) Ingenico AGM / Michelin AGM / Total AGM / Linde
AGM
TRADING IDEAS
BUY CAP / SAP / EON / BAYER / ADIDAS / SANOFI / GLAXO / DANONE looking good & BUY GSZ on double bottom
BUY NESTLE / L OREAL / VIVENDI on reversal Head & Shoulder possibility

BUY MUNICH RE / SELL SWISS RE // BUY DANONE / SELL UNILEVER // BUY GSZ / SELL EDF // BUY CHEVRON / SELL CONOCOPHILIPS // BUY
DAIMLER / SELL RENAULT // BUY BAYER / SELL BASF

BROKER METEOROLOGY

PORSCHE ................................. RAISED TO NEUTRAL FROM SELL ...................................................................................... BY UBS

SWEDBANK............................... RAISED TO NEUTRAL ................................................................................................... BY MERRILL
HSBC ......................................... RAISED TO BUY FROM NEUTRAL ADDED TO CONVICTION BUY LIST .. BY GOLDMAN SACHS
XTRATA .................................... RAISED TO HOLD FROM SELL ................................................................................ BY CITIGROUP
BEIERSDORF ............................ RAISED TO NEUTRAL FROM UNDERWEIGHT ....................................................... BY JPMORGAN
SOCIETE GENERALE .............. RAISED TO BUY FROM HOLD ................................................................................................BY ING

REPSOL .................................... CUT TO NEUTRAL FROM BUY ................................................................................................ Y UBS

SEADRILL ................................. CUT TO SELL FROM NEUTRAL ............................................................................................ BY UBS
STMICROELECTRONICS ......... CUT TO SELL FROM NEUTRAL ............................................................................................ BY UBS
UMICORE .................................. CUT TO SELL FROM NEUTRAL ............................................................................................ BY UBS
INFINEON .................................. CUT TO NEUTRAL FROM BUY ............................................................................................. BY UBS
K+S ............................................ CUT TO NEUTRAL FROM BUY ............................................................................................. BY UBS
LANXESS .................................. CUT TO NEUTRAL FROM BUY ............................................................................................. BY UBS
AKZO NOBEL ........................... CUT TO NEUTRAL FROM BUY ............................................................................................. BY UBS

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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11-May-09 THE PRICE OF FEAR

CHART OF THE DAY
US Unemployment Rate Total in labour force seasonally adjusted in %
Since 2001

10

4
2001 2002 2003 2004 2005 2006 2007 2008 2009

Source : Bureau of labour Statistic

Unemployment rate rose to 8.9% its highest level since 1983 and should not start retreating since the economic recovery is secure.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
3.00 GMT China Producer prices April -6,3% YoY -6,0% YoY
3.00 GMT China Consumer prices April -1,4% YoY -1,2% YoY
7.00 GMT Japan Machine tool orders (preliminary) April 85,2%
7.45 GMT France Industrial production March +0,9%,-13,0% YoY -0,4%,-14,5% YoY -0,5%,-15,5% YoY
7.45 GMT France Manufacturing production March -0,5%,-16,1% YoY -0,1%,-17,8% YoY

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

DJIA 8574,7 4,54% - 2,30% EUR/USD 1,3636 1,69% -2,42%
S&P 500 929,2 5,95% 2,88% EUR/JPY 134,22 -1,35% 5,62%
Nas daq 1739,0 1,21% 10,27% USD/JPY 98,44 0,32% 7,96%
CA C 40 3312,6 5,58% 2,94% Oil Price % 5 Days Ytd
DA X 4913,9 3,03% 2,16% Brent $/b 57,4 10,11% 37,45%
Eur os tox x 50 2462,4 4,66% 0,60% Gold Price % 5 Days Ytd
DJ 600 209,5 5,11% 5,62% Gold $/oz 917,4 1,57% 3,88%
FTSE 100 4462,1 5,37% 0,63% Rates USA Euro Japan
Nikkei 9425,3 8,10% 6,39% Central Banks* 0,25 1,00 0,11
Shanghai Comp 2641,7 5,98% 45,08% Overnight 0,10 0,35 0,11
Sens ex ( India) 11938,7 4,15% 23,75% 3 Months 0,17 0,65 0,20
MICEX ( Rus s ia) 1028,9 11,90% 66,08% 10 Y ears** 3,27 3,45 1,46
Bov es pa ( Bras il) 51396,0 8,68% 36,87% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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11-May-09 THE PRICE OF FEAR

ECONOMIC DATA PREVIEW
No major economic data due in the United-States

Watch in France the release of the industrial production due at 7.45 GM, expected to get back to positive territory since last month but
will remained very weak from a year ago./JB

ECONOMY
UNITED-STATES : JOB CUTS SLOW ED IN APRIL
Payrolls in the U.S. shrank by the least in six month . Indeed change in Nonfarm payroll dropped from -699 000 in March to - 539 000 in
April showing that after over laying off in comparison to the real economic downturn companies have now a more realistic behaviour.
Indeed around 50 % of the lay off were due to the contraction of the activity but the 50 % balance was due to a fear state of mind leading
companies to lay off more than needed. Meanwhile unemployment rate rose to 8.9% its highest level since 1983 and should not start
retreating since the economic recovery is secure. In the mean time average hourly earnings are slightly retreating from (0.2%,+3.4%
YoY) in March to (0.1%,+3.2% YoY) in April but remained at encouraging levels. Employment data are proving us that recession is now
slowing down and the economy should start to significantly rebound this summer.

GERMANY : THE TRADE SURPLUS UNEXPECTEDLY WIDENED IN MARCH

Germany’s trade surplus widened from €8.6 billion in February to € 11.3 billion in march lead by an unexpected increase of exports.
Indeed German’s exports surprisingly increased for the first time in six months of 0.7% (prior -1.3%) and imports rose of 0.8% (prior -
4.8%). Meanwhile German manufacturing orders gained in March for the first time in seven months and business confidence rebounded
from a 26 year low last month and investors also grew more optimistic. These encouraging data form Germany are underlining that the
worst is over and the economy is slowly recovering from its worst recession since world war two./JB
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11-May-09 THE PRICE OF FEAR

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
11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009 11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009
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
0,6
4,5
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
11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009 11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009
Source : Bloomberg Source : Bloomberg

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

150 1,65
140
1,6
130
120
1,55

110 1,5
100
1,45
90
80
1,4

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

30 1,2
11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009 11/05/2007 11/11/2007 11/05/2008 11/11/2008 11/05/2009
Source : Bloomberg Source : Bloomberg