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21-May-09 ASCENSION
Bad finish from the US after the European close, not worrying though, which might send Europe to close its downside gap on
2422-2433 cash Eurostoxx. The upbeat tone was supported by continuing gains among commodities and an early advance by financial
stocks. However, stocks began drifting lower midway through the session and ultimately closed with a loss as participants turned against
financials (-2.4%). A weaker dollar has also helped bolster commodity prices, as well as a lower than expected oil inventories level.
The minutes from the US Fed's last policy meeting, which concluded on April 29th, reveal that officials were cautious about the
prospects for a recovery and considered increasing the size of the Fed's plans for long-term asset purchases. Officials saw
"tentative evidence that the pace of contraction in real economic activity was starting to diminish" but that "the acceleration in final
demand and economic activity over the next few quarters would be modest." The Fed also saw signs of improvement in financial markets
but worried that "the global financial system remained vulnerable to further shocks." These observations are just sensible. However most
economists, still very bearish, are skeptical about the Fed's view at the time, that the rebound in consumption in Q1 would be maintained
thanks to the rebound in equity prices and fiscal policy, which we fully agree here. The Fed will not drop it, and things are clearing out,
slowly but surely. Unsurprisingly given the size of the slump in Q1 GDP, Fed officials revised their GDP forecasts to show a bigger decline
this year (between -2.0% and -1.3% now). Nevertheless, the Fed still expects a sizeable recovery next year, with GDP growth between
2.0% and 3.3%. A recovery in sales and production is still expected to begin in the second half of this year.
Fund managers grew increasingly bullish on the global economy in May, finally loosening their hold on cash to buy equities,
cyclical stocks and riskier assets like emerging markets. Seven out of 10 investors are now predicting the world economy will
improve in the next twelve months, according to the Merrill Lynch Survey of Fund Managers for May. Average cash holdings fell to 4.3%
from 4.9% in April, with money moving into cyclical stocks expected to perform best in a recovery. There was also a net underweight
position in bonds for the first time since last August. Investor optimism on China's economy was higher than at any point in the past six
years. A record net 40% of fund managers are looking to overweight the region in the next 12 months. And a net 46% of investors are
overweight emerging market stocks, up from 26% in April. Asset allocators have yet to fully embrace equities, however, the research
report said. A net 6% of asset allocators remain underweight equities globally, with significant underweights in Japan, the euro zone and
Britain. "The recharged optimism of fund managers is not fully matched by asset allocators. One upside risk for markets is more asset
allocation out of cash and bonds into equities" .
What used to be a 2608 first target which we should visit soon has become a temporary one. Indeed, the combination of macro
data improvement and the cash overweight of fundamental investors makes it clear that the market is no longer in a bear market rally.
The bear trend of the economy might not only be slowing but reversing. This is the reason why 2608 target was a premium to be paid for
the end of the deleverage from hedge funds and banks as well as a supposed to be Great Depression which has been avoided. But as
the recession is fading and heading toward a growth period then 2755, 2855 and even 3200 levels might be seen earlier than expected,
which would still be a 45% drop since the 4572 July 2007 highs, and 55% off the 5522 highs reached in March 2000. Should have been it
for a recession which happened to avoid the 29 crisis scenario (obviously thanks to huge worldwide officials leaders stimuli). We may well
be resuming a bull trend which ended 9 years ago. Very promising. Growth might be slow, but might be there soon such as in Japan next
quarter and in H2 in the US, while the Chinese economy remains strong thanks to its heavy weight stimulus which will last until 2011. The
Eurostoxx broke its latest highs 2488 to reach 2499 yesterday, which is not a surprise as long weekends are ideal to break strategic
chartists levels due to a lower trading volume. There is a downside gap to be closed left between 2422/2433 on the cash which might
should be a strong support on the downside.
Boring session ahead with the UK Retail sales as a focus this morning, which should post a relatively strong rise for April. Indeed,
both the CBI and BRC surveys showed a sharp pick-up in sales growth. There also appears an underlying improvement in sales, probably
related to the recent increase in households’ disposable incomes as mortgage payments and energy prices have fallen.
Today will be closed in Switzerland, Finland, Denmark, Sweden, Norway, Austria, on Friday Denmark and forget about Monday
… as both the US and UK will be closed. Option expiries tomorrow will drive a low volume session and increase the intraday volatility.
Opening down we should be swinging. Maximum downside target being the downside gap closure 2422 as fund managers will welcome
this consolidation which is a relief so much they need to catch up in term of equity weight into their portfolio
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 61,7 1,3775 94,51 3,20 3,43 0,74 0,15 -2,12 0,32 -0,77 -0,86 -0,22 -1,37 0,23 -0,41 -0,39 -0,62 US
Perf 1d % 0,02 -0,04 -1,61 1,25 -0,5 bp 3,68 2,30 0,71 1,19 1,04 0,58 1,84 -0,56 2,93 1,21 1,45 0,73 Europe
ECONOMIC DATA with impact
UK Retail Sales (9h30 UK time) expected 05% from previous 0.3% / upside potential / minor though as already known that retail is not
doing that bad in the UK in April
Jobless Claims (12h30 gmt) expected 625k from previous 637k / the lowest the better, very scrutinized lately as any improvement from
the employment sector would prompt an economic recovery / interesting although very volatile data which should minor its impact
Leading indicators (12h30 gmt) expected 0.8% from previous –0.3% / minor
Philadelphia Fed index (14h gmt) expected –18 from previous –24.4 /
POSITIVE IMPACTS
TELEFONICA and PORTUGAL TEL. are looking to sell their stakes in their Moroccan unit Meditel (El Economista) / Each company owns
a 32.2% stake in Meditel, and could each get around €400 m for their holdings.
NOVARTIS released positive phase-III study data for its smoker's cough drug QAB149.
METRO & ARCANDOR are set to start talks Today on how their department stores might cooperate
RIO TINTO : Chinalco will restructure the deal to allay Australian government concerns (Sydney Morning Herald)
C&W : FY revenue £3.65bn (3.73bn exp) but Ebitda £822m (819m exp) / Final dividend 5.67p (FY 8.5p = +13%) / EBITDA guidance
for 2009/10 of approximately £1.02bn (1.01bn exp) / Expects a substantial increase in cash generation
ASTRAZENECA : A U.S. court has granted an injunction that bars Apotex from selling a generic version of Pulmicort asthma medicine
BANCO POPOLARE expects to end 2009 with a net profit of just above €200m, in line with exp. (La Repubblica) / He sees 2009 as a
year of consolidation & expects to resume a dividend payment for its 2009 results
SSE : Adj. FY PTP £1.25bn, in line / Dividend 66p, in line / Economic outlook for 2009/10 remains uncertain / Plans a dividend increase
of at least 4% more than inflation in 2009/10."
HEIDELBERGER DRUCK. : Germany's business rescue fund has approved the first major loan guarantee application (Handelsblatt)
THOMSON, which brings Technicolor to cinemas and set-top boxes to households, called rumours of its bankruptcy groundless

BANK OF AMERICA intends to repay $45 bn in TARP funds by the end of the year (FT)
US REAL ESTATE (Minor) : John Paulson's is in the early stages of raising "a couple of hundred million dollars" for a fund focused on a
medium-term property recovery (The Telegraph)
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21-May-09 ASCENSION
NEGATIVE IMPACTS
ARCELORMITTAL : Fitch and Moody's moved their credit ratings one notch closer to junk territory, saying Arcelormittal's profits and
credit quality are vulnerable / Fitch predicts 2009 steel demand will drop 15% to 20%, with a weak recovery afterward
LUFTHANSA : BMI's controlling shareholder BBW Partnership has initiated action against Lufthansa, requesting that the German airline
be forced to complete the acquisition of British Midland.
UBS confirmed a restatement of its 2008 accounts which raised its FY loss by a further CHF405m
BRITISH LAND : FY NAV –64% to 398p / The company also took its most significant valuation reduction of £3.24 bn in the year, resulting
in a loss on ordinary activities before tax of 3.92 bn
FIAT (Minor) : The pursuit of Opel has narrowed to a 3-way race between Fiat, Canadian-Austrian car parts group Magna and investment
firm RHJ International.
RESULTS DIVIDENDS EVENTS
Henkel AG (€0.53) / L'Oreal (€1.44) / Portugal Telecom (€0.575) / Telefonica AGM / Gas Natural AGM / Logitech
Today British Land / Gap / Lenovo
Premier Oil Rights issue 4 for 9 investor day / Boeing investor conf / Xerox AGM
Friday Aegis / British Airways / Campbell Soup Arcelor Mittal ($0,1875) / Vinci (€1.10) / Michelin (€1.00) Aegis AGM / China Petroleum AGM / HSBC AGM
Monday Gazprom
France Telecom AGM / Atos Origin AGM / Suez
Tuesday Aveva Telekom Austria (€0.75)
Env AGM
Salzgitter AGM / Mc Do AGM / EADS AGM /
Adecco ( CHF 1.50) / Credit Agricole (€0.45) / Deutsche Bank
Wednesday Ubisoft / Suedzucker Industrial conf at Credit Suisse / Exxon Mobil /
(€0.50) / Gecina (€3.20) / Soc Gen (€1.20) / Thales (€1.05)
Energy, Utilities and Power conf at Deutsche Bank
TRADING IDEAS
Would look at taking opportunity to jump in ahead of a possible upside escape during the long weekend, while a closure of the downside gap
2422-2433 would make it more clean and sustainable on a technical view

BUY EON / SANOFI / GLAXO / DANONE to play eco recovery + looking good
BUY EDF / FTE / DTE on reversal Head & Shoulder possibility

BUY AHOLD / SELL METRO // BUY CARREFOUR / SELL L OREAL // BUY IBERDROLA / SELL VEOLIA // BUY EON / SELL RWE // BUY
BOUYGUES / SELL VINCI
BROKER METEOROLOGY

GLAXOSMITHKLINE ................ RAISED TO HOLD FROM SELL ..............................................................................................BY ING

VODAFONE ............................... CUT TO REDUCE FROM BUY ....................................................................................... BY NOMURA

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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21-May-09 ASCENSION

CHART OF THE DAY

Japan GDP and exports (YoY)
Since 1995

6
20
4
10
2
0
0
-1 0
-2

-2 0 -4

-3 0 -6

-4 0 -8
T1 09
-5 0 -1 0
1995 1997 1999 2001 2003 2005 2007 2009

Expo rta tion s e n g lis s em e nt a nn ue l - G - PIB

Source : Bloomberg

After dropping of 4.6% during the three last quarter, and dropping of 3.8% at the fourth quarter 2008, Japan’s GDP declined of 4% at the
first quarter 2009 reaching and historical low. Exports slumped by 26% which is more than the drop of imports of 15% and explained the
negative contribution of the trade balance.

Time Country Indicator Period GE forecasts Consensus Previous

5.00 GMT Japan Bank of Japan Monetary Policy Meeting
8.00 GMT France PMI manufacturing (preliminary) May 41,0 40,1
8.00 GMT France PMI services (preliminary) May 46,8 46,5
8.30 GMT Germany PMI manufacturing (advanced) May 37,0 35,4
8.30 GMT Germany PMI services (advanced) May 44,2 43,8
9.00 GMT Euro area PMI manufacturing (advanced) May 39 38,3 36,7
9.00 GMT Euro area PMI services (advanced) May 44,7 44,5 43,8
9.00 GMT Euro area PMI composite (advanced) May 43 42,0 41,1
13.30 GMT United-States Initial jobless claims May 16 625 000 637 000
13.30 GMT United-States Continuing claims May 9 6 650 000 6 560 000
15.00 GMT United-States Conference Board US leading index April 0,6 % 0,8% -0,3%
15.00 GMT United-States Philadelphia Fed May -18,0 -24,4
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21-May-09 ASCENSION

ECONOMIC DATA PREVIEW

Watch in the United-States the release of the Conference Board US leading index due at 15.00 GMT, expected to rebound to reach
0.6% led by the recent improvement of US economic indicators ( good resistance of the household consumption, rise of the ISM
manufacturing and reduction of the job destruction).

Watch in the Euro area the release of the PMI manufacturing and services for May due at 9.00 GMT, both PMI manufacturing and
services are expected to increase as after the gloomy GDP of the first quarter the euro area which might have reached a bottom
should slowly recover./JB

ECONOMY
UNITED-STATES : MBA MORTGAGE APPLICATIONS ROSE LAST WEEK
After declining by 8.6% two weeks ago MBA mortgage applications rose by 2.3% last week helped by lower rates that enticed
homeowners to seek refinancing. Nevertheless recent trend is showing us that this index is very cyclical as since April its is moving from
negative to positive territory from one week to another.

GERMANY : PRODUCER PRICES DROPPED THE MOST IN ALMOST 22 YEARS IN APRIL FROM A YEAR EARLIER
German’s producer price index dropped at the fastest rate in almost 22 years from -0.5% in March to -2.7% (forecast -1.3%) in April from
a year earlier. This decline was mainly led by the drop of energy cost. Indeed crude oil has dropped around 59% since its peak in July
2008 at a time when the barrel reached $147. Meanwhile the global economic downturn is contracting the demand putting some
pressure on prices. Producer prices will remained on a down trend in 2009 as the GDP should shrink by 2.5% but should progressively
recover in 2010 as well a the German GDP which should reach 0.9%. This situation is as well putting more pressure on the European
Central Bank to cut its leading rate more accordingly to the gloomy economic situation.

JAPAN : HISTORICAL DROP OF THE JAPAN’S GDP

After dropping of 4.6% during the three last quarter, and dropping of 3.8% at the fourth quarter 2008, Japan’s GDP declined of 4% at the
first quarter 2009 reaching and historical low. Except public investment increasing from -0.1% to 0.0% all components of the GDP are
declining. Starting with exports slumping by 26% which is more than the drop of imports of 15% and explained the negative contribution
of the trade balance. Meanwhile capital investment dropped by 10.4% and residential investment dropped by 5.4%. Finally its important
to notice that private consumption dropped by 1.1% and stocks dropped as well contributing negatively by 0.3% of the GDP after
contributing positively of 0.5% at the fourth quarter 2008. Hit by the deflation for fifteen years Japan which is stock in terms of monetary
and budgetary policy must move forward and use the change policy as the yen is way too strong (1 yen for 95 dollar is the average
2009). Hopefully as the United-States will slowly recover the yen should decrease and reached 115 yens for one dollar at the end of
2009./JB
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21-May-09 ASCENSION