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8-Jun-09 DREAMLAND
The economic calendar features a couple of important reports, including the Trade Balance report for April and Retail Sales for
May. The recent trend in the Trade Balance report hasn't been good. U.S. exports and imports have declined at nearly a 35% annual rate
since last July, so it is imperative that trade picks up for a global economic recovery to occur. Thursday's retail sales data for May will be
closely watched, especially coming on the heels of some unimpressive same-store sales data from several retailers. Retail sales showed
gains in January and February but turned negative in March and April. The current consensus estimate for May calls for a modest gain of
0.3%. With no specific earnings out, participants will look for action in Treasuries, the dollar and the commodities markets to provide the
main trading catalysts .
The Employment report on Friday provided additional and unexpected hope that recovery is coming. The sharper than expected
moderation in the rate of job losses suggests that the US economy is closer to an actual recovery than previously thought. Non-farm
payrolls fell by an eight-month low of 345,000 in May, down from 504,000 in April. That decline was well below the consensus forecast of
a 520,000 fall. Moreover, for the first time in quite a while, the declines in previous months were actually revised down rather than up, by a
total of 82,000. The improvement in May had nothing to do with the hiring of more government workers for the 2010 census either. Public
sector employment actually fell by 7,000, after a 92,000 surge in April. Instead, the improvement was all in the private sector , which shed
338,000 net jobs last month, not far from half the 596,000 lost in April. There was also a big moderation in the number of temporary jobs
being lost to 7,000 in May, from 55,000. This is arguably the most encouraging part of the whole report because temporary employment
has historically been a leading indicator of permanent employment. The decline in temporary employment last month was the smallest
since the recession began in late 2007 and suggests that a rebound in overall payrolls may not be that far off . Nevertheless, not all the
news was good. The unemployment rate jumped to a 25-year high of 9.4% , from 8.9%. However, that surge was as much due to people
returning to the active labour force as it was to job losses. Overall, this report adds to the evidence that the economy is getting back to
where it was before the financial crisis intensified last September. Jobs are still being lost at an unusually high rate, suggesting that the
economy remains in recession . Nevertheless, if the rate of improvement in the recent data continues, output (and possibly employment
too) could begin to expand again in the second half of the year , such as we and the Fed very much believe in.
Conditions are just currently a dream. Equity markets did rebound 40% mirroring the improvement in sentiment towards the wider
economy, but remain 40% off their highs from 2 years ago. The fear that stalked the equity markets at the start of the year now appears to
have largely dissipated. The deleverage from hedge funds is over, and even more, fund managers missed the move and are enormously
underweight equity. As macro is improving, their choice proves to be a huge costy one which can not remain much longer as the equity
indices are on track for much higher levels by the end of the quarter year to date, which even the Employment report is supporting.
Employment report was not expected to show any signs of improvement for another couple months, it is the very last data to react to the
recovery. Firms at first are losing money, or becoming much less profitable, then they lay off workers, then they do profit again, and only
then they hire again. The huge reactivity and creativity from US officials has proved to be efficient at last.
Meanwhile, the rebound in Treasury yields suggests that bond prices are moving back towards normal. At the end of last year
when the flight to safety and deflation fears were at their greatest, 10 year Treasury yields fell to just above 2.0%. Since then, they have
surged by a little over 160 basis points (bps) to 3.7%. Admittedly, as Fed Chairman Ben Bernanke said during his testimony last week to
Congress, some of the increase in Treasury yields “appears to reflect concerns about larger Federal deficits”. But Bernanke went on to
add that it also reflects other causes, such as “greater optimism about the economic outlook and a reversal of flight-to quality flows”.
Inflationary expectations have also risen, although for now at least break-even inflation rates have simply returned to the levels of around
2% that are consistent with the Fed’s long-term inflation aim. It is a little worrying that this surge in Treasury yields has started to push up
mortgage rates. By the end of last week, 30 year fixed mortgage rates had risen to 5.25%, 60bps higher than March’s record low. But so
far at least, this rebound in mortgage rates is small compared with the jump in Treasury yields. What’s more, mortgage rates remain well
below the levels of around 6.5% that were the norm before the financial crisis began. Accordingly, by historical standards households can
still obtain secured borrowing at very low rates. At the same time, corporate bond spreads have continued to narrow and are back to
levels seen last October. Moreover, this is partly due to a fall in corporate bond yields, meaning that the cost of borrowing for businesses
is now lower than it was a few months ago.
Equity still 55% under their highs from March 2000, yields and mortgage rate still close to lowest levels seen in the Century, oil prices half
the price seen two years ago and a switch to substitute and green energies are easily justifying the current run, which should be seen as
the start of a long lasting bull market ending the 9 years bearish one. End of the quarter in 3 weeks, fund managers out of it. Your choice,
your book, you 're the boss ...
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 68,0 1,3987 98,39 3,90 3,72 -0,93 -0,62 -1,29 -0,25 0,40 0,04 0,61 0,10 -1,90 -0,25 -0,03 0,15 US
Perf 1d % -2,10 0,13 0,26 6,95 bp 8,4 bp -0,56 -0,38 -0,01 -0,59 0,37 0,36 1,07 -0,05 -1,34 0,07 -0,04 0,44 Europe
ECONOMIC DATA with impact
PALL earnings (41 cts expected)
Texas Instrument mid quarter update
Fed Governor Tarullo on financial regulation (17h30 UK time)
POSITIVE IMPACTS
BARCLAYS would be close to the sale of its fund management arm BGI to BlackRock for $11bn to $13bn (Daily Telegraph + FT)
LLOYDS is expected to repay about £2.3 bn to the U.K. Government this week, becoming the first lender in Europe to return bailout
money to the taxpayer (The Times)
POSTBANK : DBK is stepping up the preparations for a possible acquisition of Deutsche Postbank (Handelsblatt) / DBK would have
bought Deutsche Postbank shares in the market over the past few months, nearing the 30% mark
PORSCHE : The Emir of Qatar plans to help Porsche with an investment via the Qatar Investment Authority (Focus) / According to the
magazine, Porsche CEO has traveled to the Gulf state several times to negotiate over a deal worth several billions…
CONTINENTAL : Lower Saxony's premier told Focus that Berlin could be open to providing aid to Schaeffler and Continental if they had a
viable plan for a merged company.
ITV : A report into the future of U.K. broadcasting by the U.K. government's communications minister, will recommend that some of the
BBC's annual revenue go to ITV to fund its regional news (The Mail On Sunday)
CARPHONE WAREHOUSE would be set to end a 3-year dispute with Vodafone by resurrecting a sales agreement with Vodafone
(Sunday Times) / The deal would see Vodafone mobile contracts being sold in Carphone's 800 U.K. stores for the first time since 2006
ENDESA - IBERDROLA : Spain's Nuclear Security Board has recommended the Garona nuclear power station, the oldest in Spain and
jointly owned by Endesa and Iberdrola, should remain functional for another 10 years
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8-Jun-09 DREAMLAND
EADS : Angela Merkel plans to campaign for a continuation of the delayed A400M military transport aircraft program when she meets
Sarkozy Thursday in Paris (Der Spiegel) / Separately, the Airbus A330 plane is a safe plane and a deadly crash in the Atlantic Ocean last
week should be seen as an isolated accident, the chiefs of several major airlines told Reuters on Sunday.
NOVARTIS' Afinitor medicine significantly cut tumour size by 50% or more in a 3rd of patients with lymphoma in a mid-stage clinical trial
NOVO NORDISK's diabetes treatment cut weight & controlled blood-sugar levels in patients over a 2-year period better than competitor
THOMAS COOK, in which Arcandor has a 52.8% stake, is planning a new savings round in its German operation (Manager-Magazin)
SANTANDER would remain profitable even if provisions for bad loans were to double again (CFO)
SPANISH BANKS : Spain's government will propose a €9 bn fund to be used to bail out the country's banks if they fail (Finance Minister)
TELECOM : European telecoms might be undervalued = they look cheap compared to their earnings power + high div yield… (Barron’s)
NEGATIVE IMPACTS
ARCANDOR : A government committee is due to meet Today to discuss Arcandor's request for a €437 m loan from KfW / Arcandor will
have to file for insolvency if the German government turns down its request for state aid, a spokesman for the company said
FIAT : Indiana pension funds & consumer groups asked the U.S. Supreme Court to stop the sale of Chrysler = 3 state pension funds,
which hold $42 m of Chrysler's secured loans, argued the sale unlawfully rewarded unsecured creditors ahead of secured lenders…
FINMECCANICA : CEO sees 2010 revenue above €18 bn in 2010 (il Sole 24 Ore) (18.47bn exp) and Ebitda margin of 9.5% (12.8% exp)
ARCELORMITTAL-THYSSEN… China is offering a 9% value-added tax rebate on exports of several high-end steel products
UBS is “not out of the woods yet,” and clients are still withdrawing funds (SonntagsZeitung citing a board member)
RIO TINTO-BHP : The World Steel Association called on competition authorities to seriously examine the deal between BHP & RIO which
would leave just 2 suppliers (the Australians' JV and Vale) controlling 70% of global iron ore trade.
FRENCH BANKS : The govt may sell its 34% stake in Societe de Financement de L’Economie Francaise, which provided state-backed
loans, to the lenders that it has financed (Les Echos) / The banks would also have to inject several hundred million € into the body
LUXURY SECTOR : Sales of luxury goods, which are exp. to drop 10% this year, will not recover fully until 2012 (report by Bain & Co)
AIRLINES : Global airlines are likely to lose $9 bn this year, the International Air Transport Association said, nearly double its estimate of
just 3 months ago, as rising fuel prices and weak demand create an unprecedented crisis for the industry.
NATURAL GAS COMPANIES : Natural gas bills are seen to drop 9.5% and power rates 2.1% starting in July (Nomisma research group)
UK REAL ESTATE : Declines in U.K. house prices are far from over, a former member of the BoE's Monetary Policy Committee said
Sunday / David Blanchflower, also wrote in The Guardian that U.K. consumer price inflation will drop below 1% later this year.
RESULTS DIVIDENDS EVENTS
Cisco and Travelers replace GM and Citi in the Dow Jones Industrial Average Index / Apple expected to
Today Texas Instruments mid-quarter ADP (€1.38)
reveal new iPhone at Worldwide Developers Conf / Healthcare conf at Goldman Sachs
Tuesday Tesco trading statement Dassault Systemes AGM / Aegon investor conf / Publicis AGM / Mastercard AGM / Valeo AGM
Aegon investor conf / Home Depot investor conf / Antofagasta AGM / Global Transportation conf at
Wednesday Inditex Saint Gobain (€1.00)
Merrill Lynch / SAP at UBS technologies and services conf
Bureau Veritas (€0.72) /
Thursday Theolia AGM / OZ Minerals AGM
Vallourec (€6.00)
Friday Club Med /
TRADING IDEAS
BUY FRANCE TEL / L OREAL / PERNOD / AHOLD / ENEL / SUEZ ENV / GSZ / PHILIPS / VIVENDI looking good
BUY MUNICH RE / DANONE / GLAXO / NOVARTIS / EON to play eco recovery

BUY FTE / SELL DTE // BUY CAP / SELL SAP // BUY DANONE / SELL UNILEVER // BUY DAIMLER / SELL PEUGEOT
BROKER METEOROLOGY
DANSKE BANK ............ RAISED TO HOLD FROM SELL ............................................................................................. BY CITIGROUP
LLOYDS ........................ RAISED TO BUY FROM SELL .................................................................................... BY DEUTSCHE BANK
THOMAS COOK ............ RAISED TO NEUTRAL FROM SELL .......................................................................... BY GOLDMAN SACHS
MEDIOBANCA .............. RAISED TO BUY FROM NEUTRAL .................................................................................................... BY UBS
CREDIT AGRICOLE....... RAISED TO OUTPERFORM ...................................................................................................... BY MERRILL
UNICREDIT .................... RAISED TO OUTPERFORM ........................................................................................................ BY MERRILL

REC ............................... CUT TO SELL FROM HOLD ....................................................................................... BY DEUTSCHE BANK

VIVENDI ......................... CUT TO SELL FROM NEUTRAL ........................................................................................................ BY UBS
STATOILHYDRO............ CUT TO SELL FROM NEUTRAL ........................................................................................................ BY UBS
BAE SYSTEMS ............. CUT TO SELL FROM NEUTRAL ................................................................................ BY GOLDMAN SACHS

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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8-Jun-09 DREAMLAND
CHART OF THE DAY
Employment evolution and unemployment rate in the United-States
Since 1980
a/a, % %
6 11,0
10,5
5
10,0
4 Mai 9,5
9,0
3
8,5
2 8,0
7,5
1
7,0
0 6,5
6,0
-1
5,5
v -2 5,0
4,5
-3
4,0
-4 3,5
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Evolution de l'emploi - G - Taux de chômage - D -

Source : Bloomberg

May confirmed another rise of the unemployment rate which reached 9.4% its highest level since August 1983. If the American job
machine already reached a highest unemployment level in the past like in November December 1982 at 10.8% it never recorded a
year on year employment rate as strongly negative as in May at -3.9%.

Time Country Indicator Period GE forecasts Consensus Previous

0.50 GMT Japan Money stock M3 May 1,7% YoY 1,7% YoY
0.50 GMT Japan Money stock M2 May 2,6% YoY 2,6% YoY
0.50 GMT Japan Trade balance (balance of payment basis) April Yen 184,6 bn Yen 132,9 bn
5.30 GMT Japan Bankrupties May 9,4% YoY
11.00 GMT Germany Factory orders April 0,0%, -33,0% YoY 3,3%,-26,7% YoY

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

DJIA 8763,1 3,18% - 0,15% EUR/USD 1,3990 -1,20% 0,13%
S&P 500 940,1 2,33% 4,08% EUR/JPY 137,53 -0,56% 7,88%
Nas daq 1849,4 4,24% 17,27% USD/JPY 98,32 -1,76% 7,81%
CA C 40 3339,1 2,14% 3,76% Oil Price % 5 Days Ytd
DA X 5077,0 2,76% 5,55% Brent $/b 67,3 0,30% 61,23%
Eur os tox x 50 2503,2 2,24% 2,27% Gold Price % 5 Days Ytd
DJ 600 210,8 1,41% 6,25% Gold $/oz 959,1 -1,64% 8,75%
FTSE 100 4438,6 0,86% 0,10% Rates USA Euro Japan
Nikkei 9863,5 2,58% 11,33% Central Banks* 0,25 1,00 0,10
Shanghai Comp 2764,9 5,10% 51,85% Overnight 0,20 0,38 0,10
Sens ex ( India) 15126,8 3,33% 56,80% 3 Months 0,17 0,81 0,20
MICEX ( Rus s ia) 1144,3 1,86% 84,70% 10 Y ears** 3,89 3,72 1,53
Bov es pa ( Bras il) 53341,0 0,27% 42,05% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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8-Jun-09 DREAMLAND
ECONOMIC DATA PREVIEW
No major economic data are due the United-States .

Watch in Germany the release of the factory orders for April due at 11.00 GMT, expected to decline and reached negative territory as
the global economic downturn is cutting demand for German goods abroad and as domestic demand is not taking over.

Watch in Japan the release of the trade balance for April due at 0.50 GMT. The trade surplus is expected to increase despite the drop
of exportations as importations should sharply decline./JB

ECONOMY
UNITED-STATES : JOB DESTRUCTIONS IN NONFARM PAYROLLS SHARPLY DECREASED BUT UNEMPLOYMENT ROSE THE MOST SINCE AUGUST 1983 IN
MAY
The floor seems to have been reached on the labour market as showed by the sharp decline of the job destruction in May. Indeed since
their highest level of 741 000 in January changes in nonfarm payrolls are in a constant decline since then and dropped from -504 000
(revised from -539 000) in April to - 345 000 in May. This is the lowest level of job destruction since the Lehman Brother fall. Its
important to notice that the improvement was all in the private sector which shed 338 000 net jobs last months. All sectors have
contributed to this improvement started by services which destroyed only 120 000 jobs in May their best score since August 2008. Better
in retail trade jobs destructions dropped to 18 000 their lowest level since June 2008. Finally the construction sector destroyed only 59
000 jobs a floor since September 2008. Even if ground floor has been reached there will not be any net job creation before fall 2009.
Beside this good news the unemployment rate remained gloomy. Indeed May confirmed another rise of the unemployment rate which
reached 9.4% its highest level since August 1983. If the American job machine already reached a highest unemployment level in the
past like in November December 1982 at 10.8% it never record a year on year employment rate as strongly negative as in May at -3.9%.
Meanwhile average hourly earnings rose 0.1% from a month ago and 3.1% YoY. If we had to this data the rise of 0.5% of American
revenues in April boosted by the check distribution, this is very encouraging for the upcoming retail sales next week. It is important to
bear in mind that household consumption account for 70% of the U.S. GDP./JB
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8-Jun-09 DREAMLAND

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
08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009 08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009
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
08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009 08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009
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
08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009 08/06/2007 08/12/2007 08/06/2008 08/12/2008 08/06/2009

Source : Bloomberg Source : Bloomberg