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18-Mar-09 STIRRING UP
Things start to look better. After the better Retail Sales data released last week, February’s US producer prices figures show that while
food prices have started to fall sharply, deflationary pressures did not spread beyond the energy and food sectors. The 0.1% m/m rise in
producer prices was due to a 1.6% fall in the price of finished foods more or less offsetting an 8.7% increase in gasoline prices. At the
same time, core prices (ex energy and food) rose by a healthy 0.2% m/m and a strong 4.0% y/y. Some of this was due to a 1.3% m/m rise
in the price of light motor trucks. Nevertheless, there was strength in other areas. The price of clothing rose by 1.5% m/m while aircraft
prices were up by 0.5%. The Fed will be pleased to see that deflationary pressures appear to be confined to the energy and food sectors.
Elsewhere, the rebound in the number of housing starts from 477k in January to 583k in February more than reversed the
previous month’s fall and could be a sign that housing activity is nearing a floor. Admittedly, these figures can be volatile from one
month to the next. And they may have been supported by the mild weather in February. Indeed, the rise in building permits, from 531k to
547k, was much less marked. Nonetheless, with housing starts some 75% below their peak and residential investment as a share of GDP
extremely low, housing activity could be stabilising.
In England, the amount of household nominal income available for discretionary spending has rebounded strongly . As you
would expect, this measure was falling outright for much of 2007 and 2008, when energy prices and interest rates were rising. But it has
recently recovered. Economists estimate that in the first quarter of this year, this measure of income available for discretionary spending
rose at an annual rate of some 12%. Savings income has, of course, fallen sharply. But even accounting for lower savings income,
discretionary income has been growing at annual rates of 3%to 6% in the past few months. What’s more, income growth should remain
strong. While interest rate cuts have run their course, the first cuts in utility prices come into effect at the end of this month. Further drops
are likely if the recent falls in oil and wholesale gas prices are sustained. Other things equal, this rise in incomes could boost consumer
spending considerably , albeit with a lag of a few months. The recent boost to incomes could even explain why high street spending
growth held up so well at the start of the year.
In Germany, March’s small rise in the German ZEW economic expectations index is a modestly encouraging sign for the future ,
although it does not change the fact that the economy probably contracted very sharply again in Q1. The pick-up, from -5.8 to a 20-month
high of -3.5, was the fourth increase in a row and better than the consensus forecast of a modest fall to -6.5. It suggests that, after the
extremely rapid deterioration in sentiment throughout last year, investors are finally seeing some signs of light at the end of the tunnel.
Some nice comments from banks (Citi, Bank of America), in addition to the money they got back from AIG (Goldman, Socgen,
Deutsche bank, mostly), should make the current economic stabilization a floor, gradually confirming that Q4 2008 and Q1 2009 is
marking the bottoming of the activity, fitting with the chartist Elliott view that a big rally should take place anytime, especially now that the
outflow should cool down with hedge funds mostly done with their redemptions, and the Fed ready to act aggressively with its Term
Asset-Backed Securities Loan Facility (TALF), which could eventually lend up to $1000bn to kick-start the asset-backed securitisation
market, is due to begin later this month. Similarly, while the Fed has pledged to purchase at least $500bn of mortgage-backed securities,
it currently owns less than $100bn, which the FOMC should remind to investor tonight.
The Fed tonight, but also Geithner comments regarding the details of the plan to take toxic assets off bank balance sheets,
Bernanke speaking once more on Friday, should keep the market steady for a while. Now that the Fed said they would be ready to print
money given the low pace of inflation, toxic assets should be bought to banks at a decent price since there no longer debate about the
moral hazard that tax payers would have to support the cost of this fait price, remembering an economic recovery can not occur without
some steady financial system (Bernanke), and a good price to buy the toxic assets is required to rescue the banks.
Up on a nice US ending, we should remain steady all day long / a break of 2080 on the Eurostoxx is needed to confirm this “bear rally” is
a bull one starting for a while. Big quarterly option expiries though should cap indices on the upside until Friday
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 48,7 1,3054 98,51 2,98 3,19 0,66 3,50 4,11 1,75 3,86 3,98 2,69 1,96 4,12 3,21 4,14 2,48 US
Perf 1d % 3,06 0,29 0,08 -2,4 bp 4,6 bp -0,73 1,73 4,11 0,25 1,81 2,17 1,24 0,77 2,55 1,44 1,91 0,98 Europe
ECONOMIC DATA with impact
Mortgage Applications (11h gmt) / previous was up 11.3% / the higher the better / minor though as weekly data
CPI (12hh30 gmt) expected 0.3% from previous 0.3% / ex food & energy 0.1% from 0.2% / interesting once more as it might show
prices are resisting, making the deflation threat not a subject for the time being, sending the parallel with the Great depression in the bin.
Oil Inventories (14h35 gmt) / minor
FOMC (18h15 gmt) / not much to be expected as Bernanke already spoke through a TV interview on Sunday night, and waiting for
Geithner comments about the detail of the purchase of the toxic assets from banks
POSITIVE IMPACTS
RBS ’s corporate banking activity has been “buoyant” since the start of the year (Chairman in the FT)
JULIUS BAER doesn’t see reasons for “drastic” cost-cutting measures / When its Artio Global U.S. fund unit is sold in an IPO, it would
probably use the proceeds to buy back shares or acquire a private bank… (Chairman)
UNICREDIT : Q408 NII €5.26bn (€4.5bn exp) / Net Profit €505m (€351m exp) / Core Tier1 ratio 6.5% end-2008 (a bit tight…) / Net
Writedowns of loans, Provision for guarantees, commitments €3.7bn in 2008 / Will seek up to €4bn from Italy bank plan / Will distribute
13 new ord shares for every 36 ord shares as 2008 Dividend / Conf call 0930 UKT
DEUTSCHE TELEKOM : T-Mobile continued to win customers in Britain in the 1st months of this year (T-Mobile Head manager)
MEDIASET : FY revenue €4.25bn, in line / Ebit margin 23.2% (22.5% exp) / Net debt €1.21bn from €1.37bn in 2007 / Dividend €0.38
(0.43 last year) / Jan. & Feb. ad revenues saw a marked fall y/y due to a widespread worsening of economic conditions …
DIAGEO expects the U.S. spirits industry to increase sales volumes (in the range of 0-1 %) through the current downturn while it looks to
outperform all its major competitors (Reuters Food and Agriculture Summit in Chicago)
BALOISE : FY08 Premium Income CHF6.96bn (CHF7.1bn exp) / CR 90.9% (93.5% exp) / Dividend CHF4.5 (Unch.) / Excellent
solvency of 196% / Maintains 15% ROE target
AXA : As expected, Axa Pacific completed its A$500m share placement at A$2.85 per share / Stock up 6.8% in Australia
SMITH & NEPHEW : A German Federal Patent Court invalidated the Wake Forest patent for negative pressure licensed to Kinetic
Concepts / S&N and KCI have been engaged in litigation in the US in connection with KCI's NPWT patents…
LANXESS : Q4 Sales €1.46bn (1.52bn exp )/ Adj. EBITA €87m (78m e) / Div. €0.50 (1.00e) / Wants saving 250m over next 2 years
SOLAR : Japan said it aims to lift its global share in solar cell production to over one third from the current 25% by 2020, seeking to
regain market share it has lost to foreign rivals

SWITZERLAND CORPORATION : Switzerland is off the tax haven list of the OECD (TagesAnzeiger) / The changes came after
Switzerland criticized the OECD for putting in on its tax haven blacklist.
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18-Mar-09 STIRRING UP
NEGATIVE IMPACTS
RIO TINTO : Lawmakers in Australia's upper house agreed to conduct an inquiry into foreign investment… (RIO -8.7% in Australia)
SAINT GOBAIN announced that it will place today & tomorrow 4.7m new shares / Only 96% of warrants allocated to shareholders as part
of a €1.5 bn rights issue have been exercised…
ROCHE : Shares in Chugai Pharma, the Japanese unit of Roche, fell 11% after Chugai reported 15 deaths among people that had used
the Actemra arthritis drug / Separately, Roche said Herceptin significantly prolonged the lives of patients with advanced stomach cancer
WACKER CHEMIE : FY Ebit €648m (704m exp) / Dividend €1.80 (€2.5 exp) / Sees a drop in sales & EBITDA in the current fiscal year
HEIDELBERGERCEMENT confirmed 2008 sales and Operating income target / Dividend €0.12 (€1.3 last year)
BT is concerned over Mahindra & Mahindra's IT unit bidding for troubled Indian software maker Satyam (BT is the 2nd largest investor in
Tech Mahindra, an M&M subsidiary) (Economic Times)
RESULTS DIVIDENDS EVENTS
Baloise / BMW / Unicredit / Inditex / Lanxess / Oracle / Land Securities (GBp 16.50) / HSBC ($ 0.111111) / Standard Life HP AGM / Transportation conf
Today
General Mills / Nike (GBp 8.555556) / Swiss Re (CHF 0.10) at Credit Suisse
Nordea Bank shareholder
Thursday Hermes / Prudential / Aegis / HeidelbergCement / FedEx / Novo Nordisk (DKK 6.00)
meeting
Generali / Intesa San Paolo / Alleanza Assicurazioni / Morgan
Friday HSBC rights issue 5 per 12 Iberdrola AGM
Stanley / Goldman Sachs
Monday Synthes (CHF 1.10) /
Tuesday Banco Popolare / Metro / Swiss Life
TRADING IDEAS
Upside gap to be closed on the Eurostoxx cash 2098/2107 & 2176/2196 for info
BUY MUNICH RE / AXA / AEGON / SANTANDER / BBVA / PHILIPS/ STM / / ACCOR / AIR FRANCE / LAFARGE on reversal Head & Shoulder
BUY BP / TOTAL / ENI to play oil
BUY SAP / SANOFI on double bottom possibility

BUY LVMH / SELL PPR // BUY PHILIPS / SELL SAP // BUY SANTANDER / SELL DBK / BUY METRO / SELL AHOLD
BROKER METEOROLOGY
LUKOIL.........................................RAISED TO BUY FROM NEUTRAL ............................................................ BY BANK OF AMERICA
NOVARTIS ..................................ADDED TO CONVICTION BUY LIST ..........................................................................BY GOLDMAN
VOLKSWAGEN............................CUT TO UNDERWEIGHT FROM EQUALWEIGHT ..................................... BY MORGAN STANLEY
AEGON ........................................CUT TO SELL FROM NEUTRAL ........................................................................................... BY UBS
ATLAS COPCO ...........................CUT TO UNDERWEIGHT ............................................................................ BY MORGAN STANLEY
SHELL ..........................................CUT TO HOLD FROM BUY ....................................................................................... BY CITIGROUP
REPSOL .......................................CUT TO UNDERPERFORM FROM NEUTRAL ................................................ BY MERRILL LYNCH
GLAXO ........................................ADDED TO CONVICTION SELL LIST .........................................................................BY GOLDMAN
RENEWABLE ENERGY ..............CUT TO SELL FROM NEUTRAL .................................................................................BY GOLDMAN

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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18-Mar-09 STIRRING UP
CHART OF THE DAY
ZEW German investor confidence
Since 2005

90

70

50

30

10

-10

-30

-50

-70
jan v - ju il- jan v - ju il- jan v - ju il- jan v - ju il- jan v -
05 05 06 06 07 07 08 08 09

Source: zentrum fuer Europaeische

German investor confidence rose from a fifth straight month to its highest level for almost two years at -3.5.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
Japan BOJ target rate March 18 th 0,10% 0,10%
9.00 GMT Italy Industrial production January -2,5%,-16,6% YoY -2,5%,-14,3%YoY
9.30 GMT United Kingdom Bank of England minutes
9.30 GMT United Kingdom Claimant count rate February 4,0% +3,8%
9.30 GMT United Kingdom Jobless claims change February 84 800 73 800
9.30 GMT United Kingdom ILO Unemployment rate (3 months) January 6,5% 3M 6,3% 3M
10.00 GMT Italy Current account January -€ 5,7 billion
11.00 GMT United - States MBA mortgage applications March 13 th 11,3%
12.30 GMT United - States Consumer price index February 0,3%,0,0%YoY 0,3%,0,0%YoY 0,3%,0,0%YoY
12.30 GMT United - States Consumer price index core (ex food and energy) February 0,1%,+1,7% YoY 0,1%,+1,7% YoY 0,2%,+1,7% YoY
12.30 GMT United - States Current account balance fourth quarter -$ 137,1 billion -$ 174,1 billion
18.15 GMT United - States FOMC rate decision March 18 th 0,25% 0,25%
18.30 GMT United - States Fed's Cole testifies on risk managment oversight

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

DJIA 7395,7 6,86% - 15,73% EUR/USD 1,3048 1,63% -6,63%
S&P 500 778,1 8,20% - 13,85% EUR/JPY 128,56 -2,86% 1,43%
Nas daq 1462,1 7,67% - 7,29% USD/JPY 98,53 -1,28% 8,01%
CA C 40 2767,3 3,89% - 14,01% Oil Price % 5 Days Ytd
DA X 3987,8 2,59% - 17,10% Brent $/b 46,4 10,82% 11,11%
Eur os tox x 50 2012,3 4,83% - 17,79% Gold Price % 5 Days Ytd
DJ 600 172,1 3,84% - 13,26% Gold $/oz 909,3 -0,03% 3,07%
FTSE 100 3857,1 4,06% - 13,01% Rates USA Euro Japan
Nikkei 7972,2 12,67% - 10,02% Central Banks* 0,25 1,50 0,09
Shanghai Comp 2237,4 2,77% 22,88% Overnight 0,20 0,65 0,09
Sens ex ( India) 9076,9 6,46% - 5,91% 3 Months 0,23 0,71 0,25
MICEX ( Rus s ia) 772,4 2,97% 24,68% 10 Y ears** 3,00 3,19 1,31
Bov es pa ( Bras il) 39510,7 1,85% 5,22% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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18-Mar-09 STIRRING UP

ECONOMIC DATA PREVIEW

Watch in the United-States the release of the consumer price index for February due at 12.30 GMT, expected to rise at the same
pace than the previous month (0.3%) led by the slight rise of the energy prices from the beginning of the year and to reach 0.0% from
a year ago. The core CPI ( ex food and energy) will still rise in February of 0.1% and will increase of 1.7% from a year ago.

Watch in the United-Kingdom the release of the claimant count rate for February due at 09.30 GMT, expected to increase as
companies are laying off to face the sharp drop of domestic and foreign demand./JB

ECONOMY

UNITED-STATES : PRODUCER PRICES SLIGHTLY ROSE IN FEBRUARY

After dropping every month since August 2008 led by the sharp drop of oil prices (plunging of 70% since the peak of the barrel at $147
in July) producer prices increased of 0.8% in January and now increased again of 0.1% in February. This 0.1% rise was due to a 1.6%
fall of finished goods offsetting an 8.7% increase in gasoline prices. This slight rise was led as well by the increase of
cigarettes(+2.7%),light trucks (+1.3%) and household appliances. The price of clothing rose by 1.5% while aircraft prices increased
0.5%. From a year ago producer prices dropped of -1.3% still led down by the drop of energy prices. The core prices (excluding food
and energy) rose 0.2% in February and 4.0% from a year ago showing that for the moment deflationary pressure appear to be
confined to the energy and food sector.

UNITED-STATES : HOUSING STARTS AND BUILDING PERMITS INCREASED IN FEBRUARY

After dropping since July 2008 and reaching their lowest level in January at 477 000, housing starts snapped the longest streak of
declines in 18 years in February by increasing at 583 000 (forecast 450 000) led by a warmer weather and an 82% surge in starts on
condominium, apartments and townhouses. Meanwhile building permits which have been as well dropping every moth since July
2008 and reaching their lowest level in January at 531 000 rebounded as well in February to reach 547 000 (forecast 500 000). Both
housing starts and building permits were led up by the drop of real estate and hypothec price and underlined the fact that the worst of
contraction may have passed.

GERMANY : THE ZEW SURVEY ( ECONOMIC SENTIMENT) FOR A FIFHT STRAIGHT MONTH IN MARCH
German investor confidence rose from a fifth straight month to its highest level for 20 month at -3.5 (forecast -8.0%). This rise was
mainly led by the drop of borrowing cost from the European Central Bank to a record low and by the German revival plan as
Chancellor Angela Merkel’s coalition has agreed to spend about 80 billion euro ($ 104 billion) in order to stimulate economic growth.
Nevertheless the index is still in negative territory meaning that more financial market investors expect German conditions to worsen
in the next six months than think they will improve. Meanwhile the ZEW survey reflecting the current situation dropped from -86.2 in
February to -89.4 in March underlining the deepness of the recession. Indeed Germany is starting 2009 with a “growth lake” of 2.0%
(meaning that if there is 0.0% growth in 2009 the GDP will be 2.0%) and the first six month will be gloomy. On the other hand the drop
of interest rates, the decline of commodities and energy prices and the revival plan will impact positively the economy at the second
half of the year but not enough to have the GDP reaching positive territory. Our forecast for 2009 will be a drop of the German GDP of
.1.5%. This is why the European Central Bank should cut its leading rate to 1.0% and the euro fell to $1.10 as soon as possible and
why a coordinate revival plan must absolutely be put in place among the members state of the euro area./JB
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18-Mar-09 STIRRING UP
VIXindex: impliedvolatility on the S&P 500 $Libor -3-Month(InterbankRate)
6
85
80 5,5
75
5
70
65 4,5
60
55 4
50
3,5
45
40 3
35
30 2,5
25
20 2
15 1,5
10
5 1
19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009 19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009
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
19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009 19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009
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
19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009 19/03/2007 19/09/2007 19/03/2008 19/09/2008 19/03/2009
Source : Bloomberg Source : Bloomberg