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Todays Market Headline
EU, ECB Working on Master Plan Towards Fiscal Union Spain Seeks United Effort to Protect European Banks France to sell up to 8bln Euro in 84, 175 & 357 day bills (13:00GMT) Euro Zone Producer Price Index, Spanish Unemployment Rate US ISM New York & Factory Orders UK market closed due to Bank Holiday Day

Market Overview
Good Morning, equities ended Fridays trading session aggressively lower and were also lower on the week, the USD & JPY continued to outperform other currencies, commodities continues to struggle with Gold & Silver being an exception and the safe haven assets, German bonds & US Treasuries were higher (lower yield). The Vix closed the week at 26.66. It has now become pretty clear that no news is interpreted by investors as bad news as it signals more than anything that European leaders just dont have a solution for the current situation as they continue to combat between austerity & Growth. Fridays numbers highlighting two main issues 1) the poor economic situation in Europe (European PMI Manufacturing indices were weak with the German PMI Index at 45.2) and 2) the weakening economic activity and Labor market in the US with personal income weaker than expected, Unemployment rate higher than expected (8.2% vs. 8.1% expected) and nonfarm payrolls which were not only weaker in May (+69K vs. +150K expected) but were also revised a lot lower in previous month (April payrolls were revised 43K lower). Very little developments over the weekend besides the usual talks that EU leaders will come up with a solution in their next summit (which in most cases end up being a disappointment), Asian markets are lower today followed by the poor US close on Friday, US Futures are also lower (nearly -0.5%) and European markets are set for a lower open on the day. EU, ECB Working on Master Plan Towards Fiscal Union; the plan is supposed to be presented at the next EU Summit scheduled for late June. The main goal is to hand the European Commission & Parliament more power over national budgets and the power to force Euro Zone members to stand up to their fiscal goals. The plan includes a coordinated European approach for reforming Labor markets, Social Security system and Tax policies.

PROBE: a proprietary index measuring the break-even probability of a given deal. 04 June 2012

Spain Seeks United Effort to Protect European Banks; Spanish Prime Minister has called for a more robust banking union in Europe, lending his support for a centralized system to re-capitalize lenders. The main opponent for this Idea is German with Merkel making it clear that under no circumstances would she agree to such measures. Economic data today offers Euro Zone Producer Price Index & US ISM New York & Factory Orders, and Good Luck!

Middle East Focus on Israel/Palestinian relations & the Iranian Story

Bloomberg: Russias President Vladimir Putin will meet with Mahmoud Ahmadinejad in Beijing on June 6 or June 7 before world powers gather in Moscow to discuss Irans nuclear program. The meeting with Ahmadinejad will allow Putin to feel the heat surrounding the Iranian problem and how this issue is perceived in Tehran. The Ahmadinejad meeting foreshadows an international round of talks about Irans atomic program in Moscow on June 18-19, the third attempt in three months to address global concerns that Iran is developing atomic weapons. Iran has said its nuclear program is for peaceful purposes, and is seeking relief from the economic sanctions the

Risk Arbitrage
Sydney Morning Herald: Xstrata shareholders are threatening to scupper a $US90 billion friendly merger with Glencore after scheme documents revealed the chief executive, Mick Davis, stands to collect up to 75 million over the next three years, including retention payments without any performance hurdles. One top 20 Xstrata shareholder told London's Financial Times the benefits package was ''very provocative and has changed the debate from a vote on the GlencoreXstrata merger to a debate on Mick Davis's remuneration''. The FT said 12 per cent of Xstrata shareholders were opposed to the deal, with another large investor telling the newspaper: ''The shareholders of Xstrata are not getting a premium, but Mick Davis clearly is getting one.'' Reuters: Negotiations for Dell Inc to acquire Quest Software Inc have broken off but lower-level representatives from both companies remain in touch, two sources familiar with the matter said. A previous deal for Dell to buy Quest at a range $23 to $26 per share fell through last month. Dell has been seeking to diversify its business away from personal computer hardware. NY Times: Verizon Communications said on Friday that it had agreed to buy Hughes Telematics, a maker of wireless systems for vehicles, for $612 million in cash. Under the terms of the deal, Verizon will pay $12 a share, an exorbitant premium to Hughes Thursday closing price of $4.35. The deal is aimed at building up Verizons offerings in products like GPS and auto safety and entertainment features, at a time when telecom companies are seeking new sources of revenue. Bloomberg: EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, rejected a 6.5 billion-Egyptian pound ($1.1 billion) bid from a group backed by billionaire Naguib Sawiris in favor of setting up a venture with Qatars QInvest LLC. Planet IB Ltd.s 13.5 pounds-a-share offer or 23 percent more than the stocks May 31 close, lacked details on the financing resources as well as information about the investors, Cairo-based EFG-Hermes said today. The shares rose 0.4 percent to 11.01 at the close of trading in the Egyptian capital, taking their gains this year to 10 percent.

04 June 2012

Corporate News & Equity Highlights

Wall Street Journal: Volkswagen AG is shuffling its management as the German company seeks to strengthen its efforts in China and become the world's largest auto maker by 2018. "This step will give us additional force," Chief Executive Martin Winterkorn said Saturday after an extraordinary meeting of Volkswagen's supervisory board. VW also said it would improve cooperation between its truck brands and revamp the board at the company's premium Audi marque. Financial Times: The UK financial watchdog is to carry out spot checks on City firms reporting of suspicious trades, as part of its broader crackdown on market abuse, the Financial Times has learnt. The Financial Services Authoritys market monitoring department plans to visit at least a dozen of the 500 banks and brokers who process the vast majority of the more than 13m transactions that pass through the UK every day. Wall Street Journal: Bed Bath & Beyond is getting legitimately acquisitive, buying up privately held linens distributor Linen Holdings LLC after agreeing to take over Cost Plus last month. The $105 million, all-cash takeover isnt expected to affect results this year. It is the companys second deal in less than thirty days after not buying any full company since 2007. Bed Bath & Beyond CEO Steven Temares indicates Linen Holdings appeal was in its sourcing/sales expertise the company distributes textiles and amenities to the hospitality, cruise line, food service and health care industries as well as Bed Bath & Beyond s opportunity to augment Linen Holdings offerings with its own inventory. Financial Times: Yum! Brands, the operator of KFC, Pizza Hut and Taco Bell, is looking to export its thriving Chinese business model to India, as the US fast-food group steps up its battle with McDonalds overseas. Managers from the companys emerging markets teams will visit China on Wednesday to learn how the company has managed to grow so quickly there and how to apply those strategies to India and other developing countries. Bloomberg: Royal KPN NV and Telefonica SA are considering ways to merge their German units, a move that would create the countrys top mobile-phone operator by customers. The companies are evaluating a variety of options, including a combination of Telefonicas O2 Germany unit and KPNs E-Plus, the two smaller of the nations four operators, said two people with knowledge of the matter, declining to be identified as the discussions are private. The companies are considering selling a stake in a German entity as part of an initial public offering, one of the people said. Financial Times: The group of billionaire oligarchs who are BPs partners in TNK-BP have threatened to thwart any attempt by the UK oil group to sell its stake in the joint venture, creating fresh risks for chief executive Bob Dudley as he moves to execute one of the biggest divestments in the UK energy groups history. The partners, known as AAR, say their shareholder agreement prevents BP giving out any confidential information about TNK-BP to any third party without AARs consent including details of the shareholder agreement itself. Financial Times: The advertising industry has come out strongly against a Microsoft plan that would severely hamper one of the most effective and profitable forms of online advertising. The plan would also hit the income of websites that depend on advertising and reduce the usefulness of the adverts seen by many internet users, according to the software companys critics. Financial Times: The board of Generali has removed its chief executive, Giovanni Perissinotto, bringing to an end a short but bitter battle between the executive and a Mediobanca-led group of shareholders in Europes third-largest insurer by 04 June 2012

premiums. Ten of Generalis 17 board members voted to oust Mr Perissinotto. Five directors, including Mr Perissinotto, voted in favour of the chief executive, one abstained and one missed the meeting.

Broker Recommendations
Positive US: Negative Logica Cut to Neutral from Buy at UBS; PT Set at 107p Kar Auction Services Inc Raised to 'Outperform' at Robert Baird

Economic Calendar Key Events

Time (GMT) 08:30 09:00 09:00 13:45 14:00 Research Disclaimer
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Country EC EC EC US US

Event Sentix Investor Confidence Euro-Zone PPI (MoM) Euro-Zone PPI (YoY) ISM New York Factory Orders

Period JUN APR APR MAY APR

Survey -29.5 0.20% 2.70% -0.30%

Actual ------

Prior -24.5 0.50% 3.30% 61.2 1.50%

Revised -----1.90%

04 June 2012