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by Makor Capital Research Team

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Rumor Europe Has Run Out of Rumors

Equity Last
DOW JONES 12,529.75 2,839.38 1,320.68 2,156.52 5,350.05 6,315.89 3,038.25 1,434.44 8,574.06

Change
0.27% -0.38% 0.14% 1.05% 1.59% 0.48% 1.16% 2.52% 0.12%

Todays Market Headline

PM Monti: if Italy was to leave the Euro and devalued its currency it would be a huge problem for Germanys exports UK to sell total of 3.5bln GBP in 28, 92 & 182 day Bills (10:10GMT) German & France Consumer Confidence Index, Italian Retail Sales US U. of Michigan Confidence Index

NASDAQ S&P 500 Euro Stoxx50 FTSE 100 DAX 30 CAC 40 RDXUSD NIKKEI 226

Commodities

Market Overview
Good Morning, equities ended the day higher, the USD was higher all across the board, commodities were mixed and German Bond & US Treasuries were lower (higher yield). The Vix Index ended the day 3.54% lower to close at 21.54 and Facebook gained another 3.22% to close at $33.03. The market surprisingly took the EU Summit (no) results and the weak economic data quite well; given the so many negative headlines one would expect the price action a bit different. There was a rumor that was spread out about another coordinated liquidity injection by several central banks which proved to be incorrect but also this didnt seem to disturb the positive price action which absolutely ignored the micro & macro environment. Yesterdays price action can probably be referred best to month end flow and to the long weekend that lies ahead (US markets closed on Monday). On the macro field, there were the European PMI Manufacturing & Services Indices which were weak and signaled that the economic contraction in the 2Q in Europe is likely to be bigger than estimated (France & German manufacturing PMIs were both weaker at 44.4 vs. 47.0 and 45.0 vs. 46.8 in respectively), and there was also the German IFO survey which was weaker all around (Business climate 106.9 vs. 109.4, Current Assessment 113.3 vs. 117.1 & expectations 100.9 vs. 102). In the US Labor market data met expectations and there was also the first ever PMI print which came in at 53.9. Today, Asian markets are mostly lower, US Futures are also lower (-0.3%) and European markets are set for a lower open on the day. 1 PROBE: a proprietary index measuring the break-even probability of a given deal. 25 May 2012

Gol d Na tura l Ga s Crude Oi l

1,553.55 2.65 90.50

-0.37% 0.26% -0.18%

Currencies
EUR/USD GBP/USD EUR/GBP EUR/CHF USD/JPY 1.2538 1.5652 0.80102 1.20212 79.73 0.05% -0.12% -0.14% -0.07% 0.16%

US Rates
US 2Y US 10Y 0.30 1.77 0.00% -0.48%

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 0.44 38.30 -2.5 -10.9 -5.9 -1.3 -4.4 -2.6 4.08 401.80 3.52 345.96 2.52 113.46 6.12 472.83 5.54 415.28

World Spreads (vs. US)

Germa ny 2Y 0.06 -23.81 UK 2Y 0.22 -7.24 -0.5 -3.5 1.1 1.2

Germa ny 10Y 1.39 -37.60 UK 10Y 1.77 0.64

PM Monti: if Italy was to leave the Euro and devalued its currency it would be a huge problem for Germanys exports; this comment comes on the back of mounting pressure Euro Zone countries are putting on Germany for it to agree to issue Euro Bonds. The fact that the pressure is mainly coming from Euro Zone members that face high borrowing costs as which are struggling to meet their deficit goals along with a discomfort Labor market environment isnt a surprise. In order to justify this view PM Monti made it clear that also Germany has a lot in stake. Economic data today offers German & France Consumer Confidence Index, Italian Retail Sales & US U. of Michigan Confidence Index, and Good Luck!

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

Bloomberg: Iran and world powers agreed to hold a new round of talks about the Persian Gulf nations nuclear program next month after failing to bridge differences during two days of negotiations in Baghdad. Negotiators from the U.S., the U.K., France, Germany, China and Russia plan to meet their Iranian counterparts June 18 and 19 in Moscow. It will mark the third attempt in three months to address international worries that Irans atomic energy program may be a cover for secret weapons work, and Irans concerns about sanctions and diplomatic isolation. Its clear that we both want to make progress and that there is some common ground, European Union foreign policy chief Catherine Ashton told a news conference yesterday in the Iraqi capital. However, significant differences remain and we do agree on the need for further discussion to expand the common ground. One significant difference that came out of the Baghdad talks was the Iranian desire to have the nations recognize its right to enrich uranium, said a U.S. official, who briefed reporters on the condition of anonymity because the negotiations are private. Iran went into the meeting seeking relief from at least some U.S. and European Union sanctions on oil, banking, insurance and trade that have hobbled its economy. That would require verifiable and sustained evidence of Iran resolving concerns about its nuclear program, U.S. and Western diplomats in Washington said on condition of anonymity before the talks began.

Risk Arbitrage
NY Times: Sberbank of Russia is in exclusive talks to buy DenizBank, a Turkish subsidiary of the struggling French-Belgian lender Dexia, for $4 billion, according to people with direct knowledge of the matter. The deal would give Sberbank, controlled by Russias central bank, access to the fast-growing Turkish market, which has continued to grow despite the effects of the European debt crisis. The Russian bank and Dexia, which received a multibillion-dollar bailout from the French and Belgian governments last year, are expected to announce late on Thursday that they are in exclusive talks, one person said, who spoke on condition of anonymity because he was not authorized to speak publicly. The discussions are expected to last until mid-June. Bloomberg: CVR Energy Inc. began a 60-day sale process and said majority shareholder Carl Icahn wont continue to seek a buyer if one isnt found in the next two months. Icahn Enterprises LP will support any bona fide offer for CVR made between today and July 23 thats equal to or greater than $35 a share, according to a statement from the Sugar Land, Texas-based oil

25 May 2012

refiner today. Icahn may also consider offers less than $35 a share, it said. Jefferies & Co. has been hired to carry out the process Wall Street Journal: Kinder Morgan conflict-ridden acquisition of El Paso has closed, and Kinder Morgan now expects to save even more than it thought before. The companies had faced a blistering critique of its handling of the acquisition in Delaware court after several conflicts of interest emerged, including issues with Goldman Sachs involvement. The companies have said the deal was reached at a full and fair price, and Goldman and the other banks on the deal have said they followed common practice. Still, Chancellor Leo Strine Jr. blasted them for the perception of conflicts. Bloomberg: Billionaire investor Carl Icahn, known for pushing for change at the companies in which he invests, has become one of Chesapeake Energy Corp.s largest shareholders, said a person with knowledge of the matter. Icahns stake in the company may amount to more than 4 percent, said the person, who declined to be identified because the holding hasnt officially been disclosed. That would make him at least the fifth-largest investor in the second-biggest U.S. natural-gas producer, with a stake valued at more than $400 million based on Chesapeakes closing price yesterday. Bloomberg: Rhoen Klinikum AGs management said it will back the 3.1 billion-euro ($3.9 billion) takeover offer from Fresenius SE, contingent on an agreement to maintain certain jobs and locations at the German hospital operator. Rhoen Klinikum executives will remain in leadership positions after the deal is complete, Chief Executive Officer Wolfgang Pfoehler said today in a letter to employees of the Bad Neustadt an der Saale, Germany-based company. The management board entered into an agreement with Fresenius yesterday, the company said in a statement. Press Release: EDF announced yesterday its acquisition of control of Edison Spa through the completion of its previously announced contract to purchase Delmi's participation for 784M. With the completion of this transaction, EDF's equity in Edison's ordinary shares increases from approximately 50% to slightly more than 80% and, with the termination of its shareholders agreement with Delmi, EDF is now in sole control of Edison. Reuters: Royal Dutch Shell said it was considering its options regarding Cove Energy, the explorer it is trying to buy, as it extended the deadline for shareholder acceptances in the face of a higher bid from a Thai firm. The takeover battle for Cove, which has a stake in huge gas finds off the coast of Mozambique, heated up on Wednesday after Shell's $1.8 billion offer was trumped by a $1.9 billion bid from Thailand's PTT Exploration and Production. Shell said in a statement on Thursday that shareholders would have an extra three weeks to accept its 220 pence per share offer. Financial Times: The 5.16bn takeover of TNT Express by UPS creates an opportunity for DHL, the European express parcel leader, to pick up disaffected customers, DHLs chief executive has said in one of his first responses to the deal. Frank Appel, chief executive of Deutsche Post DHL, also insisted that DHLs position was so strong in most markets including fastgrowing Asian economies that it had no need to seek a major acquisition like UPSs, announced in March. Canadian Business: Shareholders of Astral Media Inc. have given their approval for a $3.4-billion acquisition of the TV, radio and billboard company by telecommunications giant BCE Inc. The purchase was approved by shareholders representing more than 99 per cent of Astral's shares. The company decided against holding a vote on payment of a $25million premium to Astral's president and CEO Ian Greenberg, due to inadequate support from shareholders. BCE's takeover of Astral must also receive approval from the Quebec Superior Court at a hearing scheduled for Friday. BCE expects the purchase of Astral to be completed in the second half of the year, pending usual court and regulatory approvals. 25 May 2012

Bloomberg: Delphi Automotive Plc, the former parts unit of General Motors Co., said it is open to more acquisitions after announcing yesterday it has entered exclusive talks to acquire a unit of FCI Group from Bain Capital for about 764 million euro ($958 million). Chief Executive Officer Rodney ONeal had said Delphi was willing to spend as much as $1 billion on an acquisition, and yesterday he didnt rule out further deals. Hes also looking at paying dividends, buying back shares and funding the growth of the business, he said by telephone interview. Delphi had $1.4 billion of cash on hand at the end of March.

Corporate News & Equity Highlights

Penn Energy: Eni has made a significant oil discovery at the Emry Deep exploration prospect, located in the Meleiha Concession, in the Western Desert of Egypt, 290 kilometers south west of Alexandria. The Emry Deep 1X well led to the discovery of oil and was drilled to a total depth of 3,628 meters. The well encountered over 250 feet of net pay in multiple good-quality sandstones of the Lower Cretaceous "Alam El Bueib" Formation. During production tests the well flowed 3,500 barrels of high quality oil (41 API) per day and 1 million standard cubic feet per day of associated gas. The discovery is now estimated to range between 150 and 250 million barrels of oil in place and will require further appraisal drilling. Financial Times: Lars Olofsson, Carrefours chairman and chief executive, has resigned abruptly, four weeks before the scheduled handover to his successor, Georges Plassat. Carrefour said in a statement that Mr Olofsson had told the board at a meeting on Wednesday that he would retire because he considered that all the required conditions were met to shorten the transition period that began on January 29, 2012. The board then appointed Mr Plassat as chairman and chief executive with immediate effect. Financial Times: Wholesale brokerages including Knight Capital and Citadel suffered trading losses that could top $100m as a result of computer glitches in Nasdaq OMXs software on the morning of Facebooks trading debut last Friday. Problems with the exchanges trading software meant the brokers were unable to calculate their precise shareholdings in the social network through more than two hours of share trading, people close to the firms said. Financial Times: BMW has been fined SFr156m ($163m) by the Switzerland Competition Commission for imposing unfair restrictions on Swiss customers who try to buy models of the German luxury car group abroad. BMW said on Thursday it categorically rejects the charges and would appeal. The group said the accusation was incomprehensible, adding BMW does not perceive any violation of Swiss competition law. Bloomberg: Deutsche Telekom AG, Chief Executive Officer, Rene Obermann said a merger of the T-Mobile USA division is an option, while ruling out revisiting a complete sale after its fallout with AT&T Inc. last year. We do not exclude any option for the T-Mobile unit in the U.S., also not a merger, Obermann told shareholers today at an annual meeting in Cologne, Germany. A complete sale is unlikely. You understand that I cant say more in public on T-Mobile USA. The comments are the clearest yet on Deutsche Telekoms plan to hold onto the asset -- at least partially -- five months after the $39 billion proposed sale of T-Mobile to AT&T collapsed because of regulatory resistance. Deutsche Telekom is discussing a merger of T-Mobile with MetroPCS Communications Inc., with other options including an initial public offering, people familiar with the matter said this month.

25 May 2012

Bloomberg: General Mills Inc., the maker of Cheerios cereal and Yoplait yogurt, agreed to buy Brazilian foodmaker, Yoki Alimentos SA for about 1.75 billion reais ($860.9 million) to more than double its Latin American sales. The transaction will be completed in the first half of General Mills fiscal 2013, the Minneapolis-based company said yesterday in a statement. The deal also includes the assumption of about 200 million reais of debt, the company said in a filing. Buying Yoki will give General Mills nine brands with more than 600 items, including popcorn, soups and seasonings, and boost its Latin American sales to more than $1 billion. General Mills has struggled with weak sales volumes in the U.S. and in February cut its full-year profit forecast because of lower consumer demand.

Broker Recommendations
Positive Negative U.K. Real Estate Cut to Neutral vs Overweight at UBS U.K. Food Producers Cut to Underweight vs Neutral at UBS Pierre & Vacances Cut to Neutral from Outperform at Exane Severn Trent Cut to Neutral from Overweight at HSBC Severn Trent Cut to 'Neutral' at HSBC Siemens Upgraded to Buy from Hold at Deutsche Bank SAP Raised to 'Buy' at Commerzbank Compagnie des Alpes Upgraded to Buy from Hold at SocGen Alpes Raised to 'Buy' at Societe Generale Logica Raised to Buy vs Neutral at UBS ARM Raised to Buy vs Neutral at UBS Tieto Raised to Neutral vs Sell at UBS U.K. Oil & Gas Raised to Overweight vs Neutral at UBS EON Raised to 'Neutral' at HSBC Leoni Upgraded to Overweight from Neutral at HSBC Rational Raised to 'Overweight' at HSBC Aggreko Upgraded to Overweight from Neutral at HSBC Pennon Group Raised to 'Overweight' at HSBC Citycon Raised to Neutral vs Sell at Goldman Aviva Upgraded to Outperform from Underperform at Exane Fidessa Raised to Hold vs Underperform at Jefferies Vossloh AG Raised to Hold from Sell at Berenberg Gjensidige Upgraded to Buy from Hold at Berenberg

25 May 2012

Economic Calendar Key Events

Time (GMT) 01:35 06:00 06:45 08:00 08:00 09:00 09:00 13:55
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Country CH GE FR IT IT IT IT US

Event MNI May Business Condition Survey GfK Consumer Confidence Survey Consumer Confidence Indicator Retail Sales s.a. (MoM) Retail Sales (YoY) Hourly Wages (MoM) Hourly Wages (YoY) U. of Michigan Confidence

Period

Survey

Actual

Prior

Revised

JUN MAY MAR MAR APR APR MAY F

5.6 88 -0.20% ---77.8

--------

5.6 88 0.60% 0.10% 0.00% 1.20% 77.8

--------

25 May 2012

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25 May 2012