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2-Jun-09 TREASURY ISLAND

U.S. equity markets began the week sharply higher (with indexes at new year-to-date highs), as investors welcomed surprises in
income, construction and manufacturing, higher energy prices and news that General Motors (+10.29%) plans to reorganize under a
government-sponsored plan. Personal income jumped 0.5% in April when economists had been expecting a decline. At the same time,
personal spending fell by less than consensus estimates. Separately, the Commerce Department said construction spending perked up
last month. The ISM released new data suggesting the manufacturing sector was in better shape than expected. The data appeared to
support an endorsement from Treasury Secretary Timothy Geithner. "We are seeing more durable stability in the economy and the
financial system is substantially in better shape," he told reporters Saturday. Energy stocks continued their bullish run, as oil prices
jumped again on Monday. Oil hit its highest point of the year. Crude finished $2 higher to $68.31 /bbl.
th
U.S. Treasury yields rose 21 basis points yesterday to 3.68 %, the most since Sept. 30 , as stocks and commodities advanced on
optimism the recession is receding, damping demand for the safety of government debt. U.S. government securities fell as yields on
mortgage- backed bonds climbed, spurring investors to sell Treasuries as a hedge against rising interest rates. 10-year Treasury rate was
as high as 3.75 % on May 28th, a level not seen since November. The Fed plans to buy notes due from May 2016 to May 2019 tomorrow
and is scheduled to purchase Treasuries maturing from May 2011 to April 2012 on June 4. Policy makers announced in March plans to
scoop up $300 billion of Treasuries by October, trying to battle the steepest U.S. recession in 50 years by capping consumer borrowing
costs. China is the biggest foreign holder of U.S. Treasuries with $768 billion at the end of the first quarter. Premier Wen Jiabao in March
called for the U.S. “to guarantee the safety of China’s assets” and central bank has proposed a new global currency to reduce reliance on
the dollar. “I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and
bonds,’” the central bank said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.”
th
On June 8 , General Motors and Citigroup will be replaced in the Dow Jones Industrial Average by Cisco and Travelers. GM filed for
bankruptcy on Monday as part of a government-aided restructuring effort. Bankruptcy is an automatic disqualifier for membership in the
benchmark stock index. Citigroup is being removed as "the bank is in the midst of a substantial restructuring which will see the
government with a large and ongoing stake," said Dow Jones. After completion of another round of government aid, the government will
hold slightly more than one-third of Citi. Travelers' replacement of Citi in the DJIA comes seven years after the company was spun off
from Citi. The swap comes nine months after Kraft Foods replaced the ailing American International Group as the latter company
agreed to take an $85 billion aid package that has since doubled in size. There had been speculation of who would replace GM, a DJIA
member since 1925, as the company's bankruptcy likelihood mounted in recent months. Because of the stock's plunge to below $1, GM
makes up just 0.1% of the overall DJIA weighting. Citi's figure is 0.35%. Among the talked-about possible replacements for GM was now
larger rival Toyota, which would have been the index's first non-U.S.-based company.
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 68,4 1,4165 96,48 3,66 3,67 4,03 3,99 0,88 0,58 3,38 -0,16 4,62 3,48 5,31 2,58 3,06 2,60 US
Perf 1d % 4,72 0,04 0,12 -1,73 bp 8 bp 4,36 3,66 2,22 0,49 2,67 0,16 4,35 2,58 4,63 2,52 2,69 2,38 Europe
ECONOMIC DATA with impact
US Pending home sales (14.00 GMT) expected at +0.3 % in April vs. +3.2 % in March.
POSITIVE IMPACTS
GDF-SZE will be granted an environmental license to start construction on its Amazon hydroelectric power station this week (Estado)
PEUGEOT : The main shareholder family of Peugeot is willing to entertain ideas for alliances but insists their company remain
independent (Les Echos) / The family, which controls a 30% stake, also wants to remain the shareholder of reference
FIAT : New car registrations in Italy fell 8.59% in May / Fiat's 3 brands fell 3.5%
ROCHE : Herceptine reduces the risk of death for certain stomach cancer patients by 26% compared with chemo alone
NOVARTIS : European regulators have recommended Novartis' Afinitor for use against advanced kidney cancer, paving the way for
approval of an important drug + U.S. regulators have approved Reclast to prevent osteoporosis in postmenopausal women
EADS (Yest.) : Airbus's CEO is optimistic Airbus and its customers can reach agreement to continue the A400M program (Handelsblatt)
but adds that 2010 visibility is still lacking… (Les Echos) / 2010 deliveries may be less than 2009 / Is in line with targets
CARREFOUR : India's Pantaloon Retail is close to selling a stake in an unit to Carrefour (Business Standard)
HEDGE FUNDS INDUSTRY : Hedge funds may increase assets by more than 8% this year and their assets may rise to $1.3trillion at the
end of 2009 / Investors have about 14% of their assets in cash… (Barclays Capital study)
HEIDELBERGCEMENT’s lenders have been given an extra week to approve the company's loan restructuring plans / The phase 2
deadline for banks to respond to the plans has been stretched to June 5 from May 29, ahead of a hard deadline of June 17-18
IBERIA : A merger between the Spanish airline and Air France or Lufthansa within 2 years cannot be ruled out (Ryanair chairman)
PENNON : FY PTP £259m (253m exp) / Final dividend +5.1% to 14.25p / “Well positionned in the current economic slowdown”…
KINGFISHER : Q1 retail profit £128 m (94m exp) / Q1 LFL sales -1.7% (UK +0.9% but France -2.8% (small readacross PPR)
SNAM RETE GAS said that it completed the sale of stock in a rights offer to raise €3.47bn

JPM & AMEX will raise $5.5bn (JPM $5bn & AXP $0.5bn) after the Fed said any firm seeking to repay the U.S. rescue funds must first
tap equity markets / JPM expects a Tier 1 Capital of 9.3% and Tier 1 Common of 7.3% at the end of the Q2, after the capital raise
NEGATIVE IMPACTS
GAMESA : Iberdrola hired Morgan Stanley to sell a 10% stake it owns in Gamesa, worth €408 m (Iberdrola has a total stake of 24%)
RYANAIR : FY revenue €2.94bn, in line / PT loss €180.5m (+2m exp) / FY net loss of €169m after writedowns, amongst others, for Air
Lingus / Expects after-tax earnings of €200-300m for this year (400m exp)
BARCLAYS : Abu Dhabi's IPIC said it will sell a portion of the stake it took in Barclays last year / Will sell 1.3bn shares it received last
year when the bank was raising capital
STANDARD CHARTERED : Temasek's new CEO may cut the fund's large holdings in banks and reallocate money to energy and
consumer sectors. Temasek still holds 19% in STAN (Nomura’s report)
HSBC - BNP : Saad Group (confirmation after Yesterday’s moves) is planning an “orderly restructuring” of its debt after it was affected by
a “short-term liquidity squeeze.”
FINMECCANICA : The Navy said it is formally terminating Lockheed Martin's & its partner Finmeccanica’s Agustawestland’s contract to
produce the White House's next-generation presidential helicopters
MINERS : Profit margins will be eroded by operating costs, while those with cash will gain acquisition opportunities (PWCoopers)
PEARSON : Prisa would have held preliminary talks with Pearson over the possible sale of a stake in Santillana / Prisa could be looking
to sell up to 30% of the business in a deal that could fetch up to €360m (FT)
CENTRICA acquire 45% stake in GAS Development block in Trinidad for $142.5m in cash
RED ELECTRICA may have to raise debt to buy the 18% of the network it doesn’t own (Europa Press)
 WWW.GLOBAL-EQUITIES.COM / DEL SARTE / + 33 (0) 1 44 43 33 24

2-Jun-09 TREASURY ISLAND

PHARMA : Astrazeneca forecasts zero or slightly negative drug-industry growth in the coming years (Dagens Industri)
HRX plans to hold an EGM at 9:00 UKT / Co is seeking approval for a capital increase of as much as €5.64bn
RESULTS DIVIDENDS EVENTS
ABB AGM / Hermes AGM / WPP AGM / Bayer investor day / Hypo
Today Bouygues / Ciba / Kingfisher / Car sales France Telecom (€0.80) / Grifols (€0.232096)
Real Estate AGM
Cable & Wireless (6.30 GBp) / EADS (€0.20) / Electronic Arts analyst meeting / Tenaris AGM / Acciona AGM /
Wednesday Bombardier / Vodafone (GBp 5,777778) / WPPP (GBp 11.42222) Bombardier AGM / Peugeot AGM / ASML at Merrill Lynch TMT conf /
/ British Food (GBp 7,666667) European Gaming Companies conf at Credit Suisse
Vallourec AGM / Acciona AGM / Home Depot analyst meeting /
Thursday Johnson Matthey / Voestalpine Hermes (€1.03) /
Power, Gas & Utilities conf at Citigroup
Friday Carephone Wharehouse Lloyds AGM / Wal Mart AGM / Wendel AGM
Cisco and Travelers replace GM and Citi in the Dow Jones Industrial
Monday Texas Instruments mid-quarter ADP (€1.38)
Average Index
TRADING IDEAS
BUY PHILIPS / VIVENDI / NOKIA / KPN / FTE / DTE / TOTAL / GSZ / EDF / ACCOR looking good
BUY ALLIANZ / MUNICH RE / EON / BAYER / DANONE / SANOFI to play eco recovery

BUY NESTLE / SELL UNILEVER // BUY CARREFOUR / SELL METRO // BUY DAIMLER / SELL PEUGEOT // BUY ENI / SELL REPSOL // BUY
GLAXO / SELL ASTRAZENCA // BUY LINDE / SELL BASF
BROKER METEOROLOGY
DEXIA ........................................ RAISED TO BUY FROM HOLD ....................................................................... BY DEUTSCHE BANK
TNT ............................................ RAISED TO BUY FROM HOLD ....................................................................... BY DEUTSCHE BANK

TELECOM ITALIA ..................... CUT TO UNDERPERFORM ....................................................................................... BY BERNSTEIN

TOTAL ....................................... CUT TO HOLD FROM BUY ........................................................................................ BY CITIGROUP
SEVEN TRENT .......................... CUT TO HOLD FROM BUY .....................................................................................................BY S&P

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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2-Jun-09 TREASURY ISLAND

CHART OF THE DAY
ISM Manufacturing
Since 2004

65

60

55

50

45

40

35

30
2004 2005 2006 2007 2008 2009

Source : Institute of Supply Management

May revealed another increase from 40.1 to 42.8 showing that the manufacturing sector is slowly but surely recovering as the
recession is now slowing down. This rise was mainly lead by the effects of the the drop of interest rates and by the beginning of the
budgetary revival plan.

Time Country Indicator Period GE forecasts Consensus Previous

1-5 June Japan Official reserve assets May $ 1011,5 bn
7.45 GMT France Producer prices April -0,2%,-6,4% YoY -0,4%,-5,5% YoY
10.00 GMT Euro area Unemployment rate April 9,1% 8,9%
15.00 GMT United -States Pending home sales April 0,3% 3,2%
22.00 GMT United -States ABC consumer confidence 31 May -47
United -States Total vehicle sales May 9,5 million 9,3 million
United -States Domestic vehicle sales May 7 million 7 million

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

DJIA 8721,4 5,37% - 0,63% EUR/USD 1,4164 1,27% 1,36%
S&P 500 942,9 6,34% 4,39% EUR/JPY 136,54 -2,66% 7,19%
Nas daq 1828,7 8,10% 15,96% USD/JPY 96,41 -1,43% 5,98%
CA C 40 3379,5 4,71% 5,02% Oil Price % 5 Days Ytd
DA X 5142,6 4,56% 6,91% Brent $/b 67,5 11,84% 61,69%
Eur os tox x 50 2537,4 4,10% 3,67% Gold Price % 5 Days Ytd
DJ 600 214,3 3,44% 8,04% Gold $/oz 975,6 2,48% 10,61%
FTSE 100 4506,2 3,26% 1,62% Rates USA Euro Japan
Nikkei 9745,1 3,54% 10,00% Central Banks* 0,25 1,00 0,11
Shanghai Comp 2745,8 4,46% 50,80% Overnight 0,15 0,70 0,11
Sens ex ( India) 14767,9 6,67% 53,08% 3 Months 0,11 0,69 0,20
MICEX ( Rus s ia) 1206,2 14,77% 94,70% 10 Y ears** 3,65 3,67 1,52
Bov es pa ( Bras il) 54486,3 7,22% 45,10% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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2-Jun-09 TREASURY ISLAND

ECONOMIC DATA PREVIEW
Watch in the United-States the pending home sales for april due at 15.00 GMT, expected to drop from 3.2% to 0.3%.

Watch in France the producer price index for May due at 07.45 GMT, expected to drop since April but to slightly increase from a year
ago./JB

ECONOMY

UNITED-STATES : THE ISM MANUFACTURING REVEALED A SMALL IMPROVEMENT IN MAY AND CONSTRUCTION SPENDINGS ROSE IN APRIL.
After dropping sharply from September to December 2008 and after reaching 32.9 the ISM manufacturing rose constantly since January
2009. May revealed another increase from 40.1 to 42.8 showing that the manufacturing sector is slowly but surely recovering as the
recession is now slowing down. This rise was mainly lead by the drop of interest rates and by the beginning of the budgetary revival
plan. Meanwhile construction spending rose 0.8% in April showing that the real estate sector is slowly recovering a well.

EURO ZONE : THE PMI FACTURING SLIGHTLY ROSE IN MAY

The final release of the Euro area PMI manufacturing revealed a slight increase from 40.5 in April to 40.7 in May. If we look to the
breakdown by country we can see an increase of the PMI manufacturing in the major euro area countries as France from 43.1 to 43.3 or
Germany from 39.1 to 39.6. These are small improvements but its important to notice that the PMI manufacturing in the Euro area are
not decreasing showing that the activity is slowly recovering even if the data remained under the level of 50 showing that there is still a
contraction of the activity./JB
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2-Jun-09 TREASURY ISLAND

VIXindex: 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
04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009 04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009
Source : Bloomberg Source : Bloomberg

UnitedStates : 10-year Treasury yield 10-year Treasury spreadUSA-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
04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009 04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009
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
04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009 04/06/2007 04/12/2007 04/06/2008 04/12/2008 04/06/2009
Source : Bloomberg Source : Bloomberg