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Todays Market Headline
Merkel Buries Euro Bonds for as long as she lives Before EU Summit Cyprus Hasnt Raised Amount of Bailout Yet Estimated between 6 to 10bln Euro Merkel to Address German Lower House on Upcoming EU Summit (10;30GMT) Merkel, Hollande hold meeting Ahead of EU Summit S&P 500 Puts at Five-Year High Italy to Sell 9bln Euro 185 day bills (9:00GMT) German Import Price & Consumer Price Index, Italian Business Confidence US MBA Mortgage Applications, Durables Goods Orders & Pending Home Sales Glencores 16.9bln GBP offer for Estrata in Doubt after Qatar Holding Demand a 16% bid Increase (Risk Arbitrage News)
Equity
DOW JONES NASDAQ S&P 500 Euro Stoxx50 FTSE 100 DAX 30 CAC 40 RDXUSD NIKKEI 226

Last
12,534.67 2,854.06 1,319.99 2,127.95 5,446.96 6,136.69 3,012.71 1,460.16 8,730.49

Change
0.26% 0.63% 0.48% -0.13% -0.07% 0.07% -0.30% 2.11% 0.77%

Commodities
Gol d Na tura l Ga s Crude Oi l 1,569.23 2.80 79.18 -0.95% 1.34% -0.23%

Currencies
EUR/USD 1.2493 1.5631 0.79929 1.20106 79.52 0.02% -0.04% -0.06% 0.00% 0.15% GBP/USD EUR/GBP EUR/CHF USD/JPY

Market Overview
Good morning, equities ended yesterdays trading mixed (Flat to negative in Europe & Higher in the US), the FX market traded in a tight range, commodities were mixed (metals were modestly lower & but energy was higher and the so called safe haven assets, German Bonds & US Treasuries were weaker (higher yield). The VIX Index was down 3.24% and closed at 19.72. The Spanish & Italian equity Indices were down nearly 1.4% & 1.11% in respectively and underperformed other major equity indices in Europe and the Auto sector was the worst performing sector in Europe. In the US, Homebuilders & Housing outperformed due to the better housing data. News Wise, Fitch affirmed Netherlands triple A credit rating even though it expects its economy to contract by 0.7% in 2012. Although the Cyprus aid request didnt mention the exact amount market talk is that it will need between 6 to 10bln Euros the exact amount and the strings that would be attached to this loan are still unknown. On the macro field, German & French consumer Confidence Indices were slightly better, Italian retail sales were weaker (posted the biggest year to year drop since 2001) and in the US, S&P Case/Shiller home price
1

US Rates
US 2Y US 10Y 0.31 1.63 -0.39% -0.16%

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 0.47 37.46 -7.3 -17.0 -14.7 -2.9 -10.4 -6.1 5.05 494.94 4.53 443.12 2.61 109.78 6.78 526.35 6.13 461.64

World Spreads (vs. US)

Germa ny 2Y 0.10 -20.74 UK 2Y 0.27 -3.39 0.2 -1.1 1.2 -0.3

Germa ny 10Y 1.52 -11.01 UK 10Y 1.68 5.53

PROBE: a proprietary index measuring the break-even probability of a given deal. 27 June 2012

index was slightly better than expected (135.8 vs. 134.85 expected) but the Richmond Fed Manufacturing Index was weaker (-3.0 vs. +2.0 expected). Today, one day ahead of the EU Summit and with month end flow on the pipeline there are good odds that investors is likely to witness some short covering interest, Asian markets are higher for the first time in 5 days, US Futures are flat & European markets are set for a modest higher open on the day. Merkel Buries Euro Bonds for as long as she lives Before EU Summit; Merkel comment came after EU Van Rompuy released a report on closer fiscal and banking union envisaging a Euro Zone Treasury that would issue common debt. Merkel made it very clear that even if Europe moves closer to a fiscal and banking union sharing debt liabilities isnt an option. Merkel is expected to address the German lower House of Parliament today, brief them about the Summit tomorrow and then head for a meeting with Hollande. Cyprus Hasnt Raised Amount of Bailout Yet Estimated between 6 to 10bln Euro; after negotiations for a loan from Russia and China failed Tiny Cyprus had no choice but to ask EU for aid. The 3 smallest Euro Zone country which managed to escape a bailout request in 2011 after receiving a 2.5bln Euro loan from Russia couldnt pick a worse timing days before Cyprus is due to take up the European Union's presidency and the task of guiding Europe out of its financial crises. The European Commission and European Central Bank officials are expected to head to Cyprus early next week to start work on the countrys bailout program. An EU commission spokesman said it was not yet clear if the IMF would be involved in the bailout. Cypruss GDP is about 17bln Euro and estimates are that the country would need about half of it to bailout its financial sector due to its high exposure to Greece. S&P 500 Puts at Five-Year High; Puts protecting against a 10% decline in the benchmark gauge for American equities cost 1.73 times more than calls betting on a 10% gain, according to data on three- month contracts compiled by Bloomberg. The price relationship known as skew rose to 1.95 last week, the highest level since July 2007. The last time the skew ratio for the S&P 500 climbed this high, in July 2007, the equity gauge was three months away from an all-time high of 1,565.15. It then plunged 57% to a 12-year low in March 2009. Economic data today offers German Import Price & Consumer Price Index, Italian Business Confidence, US MBA Mortgage Applications, Durables Goods Orders & Pending Home Sales, and Good luck!
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Middle East Focus on Israel/Palestinian relations & the Iranian Story

Jerusalem Post: Russian President Vladimir Putin on Tuesday met with Palestinian Authority President Mahmoud Abbas, praising him for his approach to the peace process. Speaking following the leaders' meeting in Bethlehem, Putin said that the "Palestinian leadership, and the president personally, have been behaving responsibly to achieve peace based on the two-state solution." Putin said that the Soviet Union had recognized a Palestinian state in 1988 and Russia's view on the matter had not changed. Abbas called for an international peace conference to take place in Moscow, according to the Bethlehem-based Ma'an News Agency. The PA president reiterated his position that peace negotiations would not resume until Israel halted settlement activity. According to Ma'an the two leaders also discussed efforts at Hamas-PA reconciliation. "We know that Russia is concerned about reconciliation, and I assured Putin that we are going ahead with it. If a date will be set for legislative and presidential elections, that will be the gate to reconciliation," Abbas was quoted as saying.

27 June 2012

Risk Arbitrage
Reuters: Mining groups Glencore and Xstrata are considering changing the retention packages in their merger deal after shareholders balked at the millions offered to executives to stay, three sources familiar with the matter said on Tuesday. Shareholders from both companies are due to vote on Glencore's takeover of Xstrata in mid-July but several investors have raised concerns at the packages, particularly after a spate of pay revolts this year in what has been dubbed the "Shareholder Spring". Xstrata Chief Executive Mick Davis was due to get almost 30 million pounds ($47 million) over three years to keep him at the helm. In total, 73 key executives were due to get more than 170 million pounds in retention deals. Reuters: Five pharmaceutical giants including Novartis AG and Sanofi SA remain in the running for Amylin Pharmaceuticals Inc, as the auction of the diabetes drugmaker with a market value of $4.5 billion enters the last leg, according to people familiar with the matter. Bristol-Myers Squibb Co, AstraZeneca Plc and Merck & Co Inc also remain involved, the people said. Final bids are expected starting the end of this week, they said. All of the potential acquirers declined to comment. Amylin was not immediately available for comment. The bidding for Amylin comes as big pharmaceutical companies that are flush with cash and have easy access to debt make aggressive bids for promising biotech firms and other targets. These biotech companies offer big pharma the chance to replenish their pipelines as some blockbuster drugs come off patent. Reuters: The London Metal Exchange's chief executive is confident that its shareholders, with some persuasion, will approve a $2.2 billion offer by the Hong Kong stock exchange for the world's biggest marketplace for industrial metals. "I think we will (get shareholder approval)," Martin Abbott said on the sidelines of the IDX International Derivatives Expo in London. "It's a board recommendation and we wouldn't have recommended something we weren't confident about. But it doesn't mean it's a done deal. We have to get out there and talk to shareholders." Bloomberg: Anheuser-Busch InBev NVs push to acquire full ownership of Grupo Modelo SAB is moving the beer industry into the final stages of a decade-long consolidation. AB InBev, the worlds largest brewer, said yesterday it was in talks with Modelo, the Mexican company of which it owns 50 percent. AB InBev could pay $20 billion for the outstanding stake, according to a person familiar with the matter, who declined to be identified because the discussions are private. Bloomberg: Glencore International Plcs 16.9 billion pound ($26.4 billion) offer for the rest of Xstrata Plc is in doubt after the targets second-largest shareholder demanded the bid be increased by 16 percent. Qatar Holding LLC, which built a 10.36 percent stake in Zug, Switzerland-based Xstrata since February, wants the bid raised to 3.25 Glencore shares for each of Xstratas, compared with the existing offer of 2.8 terms, according to a statement yesterday. Bloomberg: Barrick Gold Corp., the worlds largest producer of the metal, cant block Goldcorp Inc.s 2010 acquisition of a majority stake in the El Morro copper and gold project in Chile, Goldcorp said. Ontario Court Justice Herman Wilton-Siegel dismissed Barricks claims seeking to declare the purchase unlawful and ineffective, Goldcorp said yesterday in a statement. Barrick is reviewing the ruling and may consider an appeal among its options, it said in a statement yesterday.

27 June 2012

Corporate News & Equity Highlights

NY Times: Shares in News Corporation rose more than 6 percent in morning trading on Tuesday, on reports of a potential plan to split the media empire in two. Under the terms of the proposed split, the company would spin off its publishing business from its much larger entertainment unit, according to a person briefed on the matter. That would create two corporate entities: an entertainment giant, driven by a movie studio and powerful television networks, and a much smaller publishing unit containing Dow Jones and HarperCollins. Financial Times: Lloyds Banking Group has moved closer to striking a deal to sell a network of 630 branches to the Cooperative Group, according to people involved in negotiations. The broad commercial terms of a deal could be announced as early as Wednesday, following a Lloyds board meeting, one person said. Bloomberg: Swiss pharmaceutical company Roche Holding AG will close a research and development site in Nutley, N.J. and consolidate its R&D activities in Switzerland and Germany, it said Tuesday. The closure of U.S site is expected to result to the loss of about 1,000 positions, Roche said. Its R&D activities will be consolidated in Basel and Schlieren, Switzerland, and Penzberg, Germany. Bloomberg: SBA Communications Corp. agreed to buy 3,252 towers from TowerCo for $1.45 billion, its second acquisition of wireless network antennas this year as mobile device carriers try to woo subscribers with faster connections. SBA will pay $1.2 billion in cash and 4.6 million shares for towers in 47 U.S. states and Puerto Rico, the companies said today in a statement. Financial Times: Royal Bank of Scotland is discussing at a senior level whether to take legal action against US software maker CA Technologies after a computer update caused a systems failure that left millions of customers without access to their bank accounts. Two people familiar with the situation said there was a significant chance of litigation being pursued against external technology suppliers for a software glitch that triggered a backlog of transactions that have not yet been fully cleared. Financial Times: Coca-Cola is escalating the beverage wars in India, announcing a $3bn investment intended to help it overtake PepsiCo in one of the few countries where it trails its rival. Coke, the worlds largest drinks company by revenues, said it would spread the investment over the next eight years.

27 June 2012

Broker Recommendations
Positive Negative Infineon Cut to 'Neutral' at HSBC Aviva Cut to 'Hold' at Jefferies Informa Cut to Equalweight at Morgan Stanley RIM Downgraded by Morgan Stanley Terex downgraded to Neutral at Longbow Lopes Raised to 'Overweight' at HSBC EON Raised to 'Overweight' at HSBC Shire Raised to 'Buy' at Societe Generale Boeing Raised to Outperform at Oppenheimer Nvidia Raised to Buy at Canaccord Genuity Allianz Added to Conviction Buy List at Goldman Sachs

Economic Calendar Key Events

Time (GMT) 6:00 6:00 8:00 11:00 12:00 12:00 12:30 12:30 12:30 12:30 14:00 14:00 Country GE GE IT US GE GE US US US US US US Event Import Price Index (MoM) Import Price Index (YoY) Business Confidence MBA Mortgage Applications Consumer Price Index (MoM) Consumer Price Index (YoY) Durable Goods Orders Durables Ex Transportation Cap Goods Orders Nondef Ex Air Cap Goods Ship Nondef Ex Air Pending Home Sales MoM Pending Home Sales YoY Period MAY MAY JUN 22-Jun JUN P JUN P MAY MAY MAY MAY MAY MAY Survey -0.60% 2.30% 85.5 -0.00% 1.80% 0.40% 0.70% 1.70% -1.50% 9.90% Actual ------------Prior -0.50% 2.30% 86.2 -0.80% -0.20% 1.90% 0.20% -0.60% -1.90% -1.40% -5.50% 14.70% Revised ------0.00% -0.90% -2.10% -1.50% ---

27 June 2012

Research Disclaimer
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27 June 2012