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I Bet You Had to Read This Twice

Todays Market Headline
World Central Banks preparing coordinate action if Greek Elections turn out for the Worst? Egan-Jones Downgraded France from A- to BBB+, Negative Outlook U.K Preparing Program to Increase Flow of Credit ECBs Draghi speaks at ECB Watchers Conference in Frankfurt (6:50GMT) Italys Cabinet to Discuss Growth Measures in its Weekly Meeting Today (7:30GMT) Moodys downgrades long-term debt, deposit ratings for 5 Dutch banking groups Bank of Japan Keeps Its Monetary Policy Unchanged Amid Global Uncertainty Euro Zone, Italian & UK Trade Balance, Euro Zone Employment US Empire Manufacturing Index, Tic Flows Data, Industrial & Manufacturing Production, Capacity Utilization & U. of Michigan Confidence Index
Equity
DOW JONES NASDAQ S&P 500 Euro Stoxx50 FTSE 100 DAX 30 CAC 40 RDXUSD NIKKEI 226

Last
12,651.91 2,836.33 1,329.10 2,148.21 5,467.05 6,138.61 3,032.45 1,466.66 8,558.54

Change
1.24% 0.63% 1.08% 0.22% -0.31% -0.23% 0.08% -0.42% -0.12%

Commodities
Gol d Na tura l Ga s Crude Oi l 1,624.81 2.51 84.54 0.07% 0.64% 0.75%

Currencies
EUR/USD GBP/USD EUR/GBP EUR/CHF USD/JPY 1.2636 1.5545 0.81286 1.20104 78.83 0.02% -0.12% -0.13% 0.00% -0.66%

Market Overview
Good Morning, equities ended yesterdays trading session higher, the USD was weaker all across the board, Commodities were mixed (Natural Gas up nearly 15%) and the so called safe haven assets, German Bonds & US Treasuries were lower (higher yield). The Vix Index was down 10.67% to close at 21.68. The Auto Sector underperformed both in Europe & the US. It has become extremely difficult to trade the news flow and almost impossible to stay on top of it, especially with so many policy leaders making sure their view is well heard and with so many rumors going around. Markets continue to trade in an extremely volatile environment and this time around it was the possibility that world Central Banks are preparing a coordinate action if things go wrong in the upcoming Greek elections on Sunday. On the macro field, Euro Zone CPI met expectations yesterday (+2.4% YoY) & in the US the combination of weaker inflation data combined with weaker economic data continued fuel more speculations surrounding the FOMC meeting next week. This time around it was a weaker CPI (-0.3% vs. -0.2% expected in May and +1.7% vs. +1.8% expected YoY) along with weaker Labor market data (Jobless claims rose to 386K vs. 375K expected last week). As we enter the last day of trading for the week ahead of the Greek elections Asian markets are pretty much mixed after trading higher during most parts of the session,
1

US Rates
US 2Y US 10Y 0.29 1.62 -0.38% -1.43%

Europe Spreads (vs. Germany)

Fra nce 2Y Spa i n 2Y Ita l y 2Y Fra nce 10Y Spa i n 10Y Ita l y 10Y 0.51 43.11 -3.5 -12.8 -7.9 -1.8 -6.3 -2.6 4.85 477.11 4.54 446.63 2.66 117.01 6.85 536.68 6.10 461.82

World Spreads (vs. US)

Germa ny 2Y 0.08 -21.18 UK 2Y 0.26 -2.85 0.1 -0.9 2.0 -0.5

Germa ny 10Y 1.48 -13.65 UK 10Y 1.72 10.22

PROBE: a proprietary index measuring the break-even probability of a given deal. 15 June 2012

US Futures are flat and European markets are set for a higher open on the day. World Central Banks preparing coordinate action if Greek Elections turn out for the Worst? Monetary policy makers from the UK, Japan & Canada try to deliver a clear message that Europe must control its debt crisis ahead of the Greek elections on Sunday. It seems to be in everyone interest but the Greeks that Greece remains in the Euro Zone. Although there wasnt anything official the fact that several central banks sounded their voices just 2 days ahead of the Greek Elections which come only days before the G20 meeting in Mexico (June 18-19 ) made investors believe world Central banks are preparing some kind of coordinate action if things turn out for the worst. An article on Reuters quoted a G20 official saying that World Central Banks will take steps to stabilize markets and prevent a credit squeeze if necessary although no specifics or suggestions were raised. Egan-Jones Downgraded France from A- to BBB+, Negative Outlook; Egan Jones once again leads the credit ratings agencies pack in issuing a downgrade of Frances credit rating. The firm has issued a BBB+ rating for France warning that the nations banks will continue to put pressure on the country. Egan also put France on Outlet Negative, which is a warning that a further credit rating cut is likely to occur in the near future. U.K Preparing Program to Increase Flow of Credit; Chancellor Osborne and Bank of England Governor King are preparing two programs to increase the flow of credit amid a deteriorating outlook in the euro area. The U.K. central bank will activate an unused plan to inject at least 5 billion pounds a month into the financial system. Another plan will allow lenders to swap assets with the central bank in return for money to be lent to companies and households. The Treasury will indemnify the bank for any losses. The separate funding for lending plan comes on top of a Treasury credit-easing program and will be operated by the central bank for four years. Banks will be allowed to swap assets with the central bank at monthly auctions and use that money to lend to households and companies. The Treasury said a 5 percent increase in lending would inject about 80 billion pounds into the economy. Economic data today offers Euro Zone, Italian & UK Trade Balance, Euro Zone Employment, US Empire Manufacturing Index, Tic Flows Data, Industrial & Manufacturing Production, and Capacity Utilization & U. of Michigan Confidence Index and Good luck!
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Middle East Focus on Israel/Palestinian relations & the Iranian Story

Ynet: The United States expects Egypt's military authorities to fully transfer power to a democratically elected civilian government as planned, Secretary of State Hillary Clinton said. "There can be no going back on the democratic transition called for by the Egyptian people," Clinton told reporters, declining specific comment on an Egyptian court ruling to dissolve the country newly elected Islamist-led parliament. Egypt's Supreme Court ruling plunged a troubled transition to democracy into turmoil just two days before an election to replace ousted leader Hosni Mubarak. Islamist politicians who had gained most from Mubarak's overthrow have decried what they called a "coup" by an army-led establishment still filled with Mubarak-era officials. "Throughout this process, the United States has stood in support of the aspirations of the Egyptian people for a peaceful, credible and permanent democratic transition," Clinton said at a news conference of the US and South Korean foreign and defense ministers.

15 June 2012

Bloomberg: South Koreas crude imports from Iran in May fell 40% from a year earlier, the Customs Service said. The worlds fifth-largest oil importer purchased 550,714 metric tons of oil, or about 17,765 tons a day, from Iran last month, compared with 911,889 tons, or about 29,416 tons a day, a year earlier, according to data on the services website today. Iran supplied 5% of Koreas total crude imports in May, according to the data. Crude imports from Iran fell 20% from a year earlier to 4.06 million tons in the first five months of this year.

Risk Arbitrage
Reuters: Quest Software Inc said a strategic bidder proposed to buy the maker of enterprise management software for about $2.15 billion in cash, trumping an earlier offer of nearly $2 billion from private investment firm Insight Venture Partners. The new offer of $25.50 per share from the unidentified bidder is a 7 percent premium to Quest's Wednesday close of $23.86. Quest shares were up 9 percent at $26.01 on Thursday, signaling that investors are expecting a higher bid. Reuters: Telekom Austria AG shareholder Ronny Pecik is in advanced talks to sell his 21 percent stake to Mexican tycoon Carlos Slim, who is seeking to expand his telecom empire into Europe, according to people familiar with the matter. If the talks are fruitful, it would be a big step in Slim's effort to expand the footprint of his company America Movil in Europe. Slim already owns 4.1 percent of Telekom Austria. Reuters: Royal Dutch Shell has given itself more time to decide the next move in its battle to buyCove Energy, extending the acceptance deadline on its $1.8 billion bid as it vies with Thailand's PTT Exploration and Production for an entry into East Africa's big new offshore gas play. Shell said on Thursday it was extending the deadline for Cove shareholders to accept its 220 pence per share cash offer by another two weeks until June 27 after receiving valid acceptances for just 4.8 percent of the shares by the time of the last offer period closing at 0800 EDT on Wednesday. Reuters: Heightened emotions over executive pay are likely to hang over Glencore and Xstrata bosses' last ditch meetings with key investors, raising tensions in the last weeks before a July vote on the trader's $30 billion takeover bid. Top executives from both sides are trying to convince recalcitrant Xstrata shareholders to back not just the deal, but also an unpopular retention package worth more than 170 million pounds ($265 million) for the miner's top 73 managers - a team whose operational expertise they say is key to future profit. Bloomberg: US Airways Group Inc. is making great progress toward a merger with AMR Corp.s American Airlines that would cure network failings at its larger rival, Chief Executive Officer Doug Parker said. Americans push to restructure in bankruptcy as a stand- alone carrier wont be enough to fix weaknesses at the third-largest U.S. airline, including a loss of market share, Parker said today at US Airways annual meeting in New York. Bloomberg: Brisa-Auto Estradas de Portugal SAs financing needs are pratically all covered until 2016, Investor Relations Director Luis dEca Pinheiro told reporters in Lisbon yesterday. The company has sufficient needs to meet a September 2013 bond redemption of 500 million euros, he said. It also faces a bond redemption Oct. 2016, he said. Brisa will continue to look at opportunities to return to markets, he added. Brisa announced today that its BCR unit plans to sell up to 150 million euros in bonds due in 2014 to individual investors. Bloomberg: Nokia Oyjs steepest stock drop in more than a decade is turning the mobile-device maker into a potential takeover target for buyers willing to bet that it still has a future in smartphones. Nokia plunged 18 percent yesterday after 15 June 2012

forecasting a wider second-quarter operating loss from handsets and saying it will cut as many as 10,000 jobs as it cedes market share to Apple Inc.s iPhone and Samsung Electronics Co. devices. After wiping out about $100 billion in market value, Espoo, Finland- based Nokia trades at a 38 percent discount to its net assets, the least expensive on record, according to data compiled by Bloomberg dating back to 1995.

Corporate News & Equity Highlights

Bloomberg: Morgan Stanley Sees Risk to Italy Banks. Asset quality, high NPLs growing problems for Italian banks, Morgan Stanley says. Highlights capital levels, internal capital generation dont provide sufficient buffers. Says restoring capital levels may require EU5-12b of fresh resources for shrs under coverage; over time, calculates capital needs of 30-50% of mkt cap, or EU12-21b (EU24-42b for the whole sector). Says funding remains a challenge and that Italian bank will be unable to cover CoE for a long time. Italian names optically cheap, still exposed to beta rally; structurally unattractive unless issues tackled more forcefully. Intesa downgraded to equal weight from overweight; PT lowered to EU1.55 vs EU1.9. Mediobanca cut to underweight from equal weight; PT lowered to EU3.2 vs EU5.8. UniCredit kept at equal weight; PT lowered to EU3.85 vs EU4.55. Monte Paschi kept at underweight; PT lowered to EU0.2 vs EU0.35. UBI kept at underweight; PT lowered to EU2.4 vs EU3.5. Banco Popolare kept at underweight; PT lowered to EU0.9 vs EU1.25 and Pop. Milano kept at underweight; PT lowered to EU0.25 vs EU0.4 Financial Times: The family of Mexican tycoon Carlos Slim has bought an 8.4 per cent stake in newly nationalised Argentine oil company YPF, which last week said it was hunting for strategic partners. The purchase of the class D shares was announced via a US stock market filing. NY Times: Credit Suisse needs to increase its capital this year to prepare for a potential worsening of the European debt crisis, Switzerlands central bank said on Thursday. The Swiss National Bank singled out Credit Suisse in its annual financial stability report as a bank that needs to significantly expand its loss-absorbing capital during the current year. Credit Suisses local rival, UBS, should just continue with its efforts to strengthen its capital, the central bank said. Shares of Credit Suisse fell 10 percent in trading in Zurich on Thursday. UBS shares were down only slightly. Financial Times: Nokia, the Finnish phonemaker, sank to its lowest market level for 16 years after revealing a second profit warning in three months and plans to cut a further 10,000 jobs globally. Shares in the lossmaking group dived more than 16 per cent after admitting that losses from its mobile phone business would be larger than expected in the second quarter, taking its share price below 2 for the first time since 1996. Financial Times: Mulberry, the English luxury-goods maker, lost more than a fifth of its value on Thursday after its annual results came in short of analysts stellar expectations, while recent sales showed a slowdown in growth. Quoted on the Aim junior market, the shares fell 22 per cent to 15.65 on Thursday, after sales from stores open at least a year rose 3 per cent in the 10 weeks to June 1, compared with the year-earlier period. Reuters: The top executive of US Airways Group Inc sought to bolster shareholder support on Thursday for a proposed merger with bankrupt American Airlines, saying the financial community already likes the idea and that the two airlines would make a strong combination. Speaking at the No. 5 U.S. airline's annual shareholder meeting in New York, Chairman and CEO Doug Parker said a tie-up with American would create "an airline that can compete with anyone, that can be the 15 June 2012

best airline in the world." The meeting was broadcast over the Internet. US Airways disclosed its interest in merging with American in January. American's parent, AMR Corp, filed for bankruptcy protection in November of last year.

Broker Recommendations
Positive US: Negative Bodycote Cut to Underperform vs Neutral at BofA Nokia Cut to Neutral vs Outperform at Credit Suisse NOKIA CUT TO HOLD FROM BUY AT NORDEA ENI CUT TO NEUTRAL FROM OUTPERFORM AT INTERMONTE Aviva Cut to 'Sell' at Societe Generale Cairn Energy Cut to 'Hold' at Societe Generale Morgan Stanley Sees Risk to Italy Banks; Intesa, Mediobanca Cut Rentokil Initial Cut to Underperform from Neutral at Exane Essilor Cut to Neutral from Buy at BofA After Outperformance U.S. Packaging Raised to Overweight at Wells Fargo SAIC Inc Raised to 'Overweight' at JPMorgan Arkansas Best Raised to 'Sector Perform' at RBC Capital Standard Life Raised to 'Hold' at Societe Generale Lonmin Removed From Conviction Sell List at Goldman Nokia Raised to Neutral vs Sell at Citi Nokia Raised to Perform at Oppenheimer Weir Group Raised to Neutral vs Sell at Citi Randgold Resources Raised to Neutral vs Sell at Goldman Tele2 Raised to 'Buy' at Nordea

15 June 2012

Economic Calendar Key Events

Time (GMT) 08:00 08:00 08:30 08:30 08:30 09:00 09:00 09:00 09:00 12:30 13:00 13:00 13:15 13:15 13:15 13:55
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Country IT IT UK UK UK EC EC EC EC US US US US US US US

Event Trade Balance (Total) (Euros) Trade Balance Eu (Euros) Visible Trade Balance GBP/Mn Trade Balance Non EU GBP/Mn Total Trade Balance (GBP/Mln) Eurozone Employment (QoQ) Eurozone Employment (YoY) Euro-Zone Trade Balance sa Euro-Zone Trade Balance Empire Manufacturing Total Net TIC Flows Net Long-term TIC Flows Industrial Production Capacity Utilization Manufacturing (SIC) Production U. of Michigan Confidence

Period APR APR APR APR APR 1Q 1Q APR APR JUN APR APR MAY MAY MAY JUN P

Survey ---8500 -4175 -2700 --4.2B 4.0B 13 -$45.0B 0.10% 79.20% -0.10% 77.5

Actual -----------------

Prior 2064M 1554M -8564 -4109 -2739 -0.20% -0.20% 4.3B 8.6B 17.09 $49.9B $36.2B 1.10% 79.20% 0.60% 79.3

Revised 2065M 1555M ---------------

15 June 2012