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January’s US personal income and spending figures confirmed that consumption rebounded at the beginning of the year and is
therefore unlikely to be as large a drag on Q1 GDP growth as in Q4. The 0.6% m/m rise in spending was the first in six months and was
driven by the surprise 1% rise in retail sales in January. The PCE deflator increased by 0.2%, meaning that spending rose by 0.4% in real
terms. The 0.4% m/m jump in income was driven by a 3.5% jump in transfer payments: A 5.8% cost-of-living increase was applied to
social security benefits (thanks to the strength of inflation last year) and the extension of unemployment benefits generated a 15.1%
increase in unemployment insurance. Based on that jump in transfer payments, disposable income increased by an even bigger 1.7%
m/m. So despite the rise in spending, the savings rate still rose , jumping from 3.9% in December to a 14-year high of 5.0%. The savings
rate will eventually rise to at least 8%. Accordingly, these figures bode well for Q1 GDP.
The drop back in prices over the past couple of years has been so dramatic that housing no longer appears over valued relative
to incomes and rents. In fact, on some measures housing even looks cheap compared with historical valuations . According to the Case-
Shiller index, prices fell by 18.2% last year, while on the FHFA index they fell by 8.2%. Theoretically, these two indices should move very
closely together since the methodology and geographical coverage is similar. However, the Case-Shiller index pointed to a much bigger
run up in prices during the bubble years and is now showing a much bigger decline. The most plausible explanation is that the Case-
Shiller index gives more weight to urban areas and cities, which experienced the biggest booms. Nevertheless, while the two measures
differ in their assessment of the scale of the boom and bust in housing, they both suggest that housing is no longer over-valued. With
incomes continuing to rise at a healthy clip while house prices have fallen, the ratio of house prices to disposable income per capita has
fallen sharply. At the peak of the boom, the Case-Shiller index suggested that housing was as much as 35% over valued compared with
incomes. Now housing appears to be 10% under valued. Housing still looks a little pricier relative to rents, but even here the improvement
has been dramatic. According to the Case-Shiller index, after being almost 50% over valued at the peak of the boom, housing is now back
at fair value relative to rents. If we go further and take into account the low level of interest rates, housing looks even cheaper. According
to the National Association of Realtors’ housing affordability index, which takes into account house prices, incomes and mortgage rates,
housing is now the most affordable it has been in the past 37 years.
The key question is how far below fair value will house prices fall this time? A lot depends on the size of the inventory overhang, or
the number of unsold properties on the market, which is still very substantial. Historically, house prices haven’t started to rise again (at
least at a faster pace) until at least six months after the months’ supply of unsold homes has peaked. Admittedly, although there is no sign
yet that the months’ supply of homes for sale has peaked, it may not be too far away. All this would be a welcome development, which
Obama administration is very aware of while working actively on it. While some experts expect another 10% fall in the housing prices, we
will remind them that a 1% cut in mortgage rates means a 10% drop in housing prices in term of affordability ...
But who cares, the market is just driven by selling flows probably coming from hedge funds redemptions still, but also from insurance
and pension funds. This flows are even hurting more as the volume is very poor and the visibility rather poor, even poorer as we keep on
falling. Even the ISM survey kept on showing signs of stability, but this last downside wave from Elliott chartists is a tough one which, let's
hope, will really end soon and lead to some anticipation from brighter news which we mentioned above and that the Obama government
will boost even more. 1847 was the bottom on the Eurostoxx (cash) reached in March 2003 which will be the focus for today. A breach of
such a level should spark stop orders, a close above this after the stop orders were executed would be a positive sign for the coming
days.
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 40,2 1,2633 97,53 2,92 3,03 -8,27 -6,67 -6,24 -4,45 -3,28 -3,82 -6,53 -3,95 -5,04 -4,66 -3,99 -4,24 US
Perf 1d % -8,38 0,44 -0,08 5,86 bp -8,2 bp -6,62 -5,04 -4,95 -3,21 -1,44 -2,75 -4,89 -1,70 -2,23 -3,20 -2,41 -2,88 Europe
ECONOMIC DATA with impact
Atlanta Fed President Lockhart (13h gmt) speaks on U.S. economy, role of the Fed
Pending Home sales (15h gmt) / minor in such a dark mood, were better last month but ...
Bernanke testifies to Senate Budget Committee (15h gmt)/ is likely to focus on fiscal rather than monetary policy. Since the chairman
doesn’t offer public pronouncements on particular spending or revenue programs for fear of interfering with the authority of Congress / no
fireworks expected
US car sales (anytime pm)
POSITIVE IMPACTS
HAVAS : FY Rev €1.57Bn (1.55Bn e) /Op income €189M (181e) / FY Net €104M (92.7 e)/ No guid for 2009 /DIV €4cts
MUNICH RE Q4 Gross Premium €9.7bn (In line with Feb 4 preliminary) / Operating €844m / Net Profit after Minorities €133m (€100m
est) / CR 97.7% / Reiterates plans to pay €5.5 2008 Div / Net Investment result €1.92bn / Aims for €37.5bn to €39.5bn 2009 gross
premium / Sees 2009 CR at 97% / says goal of achieving EPS of €18 in 2010 no longer realistic
HSBC continues to keep an eye open for deals in Korea, its Asia chief executive said. Sandy Flockhart also said Co remains on the
lookout for potential buys in core markets China, India, Indonesia and Taiwan, but said the bank's strategy remains focused on building
on its existing platform
UK BANKS : The BoE could this week start buying assets with newly created money to boost the money supply & the economy (A.
Darling in Daily Telegraph)
ZURICH FINANCIAL said it will keep some 3.75m shrs repurchased last year to fund potential takeovers, instead of canceling the stock.
UBS : the Obama administration is not interested in escalating a dispute with Switzerland over bank secrecy laws, Switzerland's top
justice official said Yesterday / Separatly SNB 's Chairman said toxic assets transferred from UBS's balance sheet to a fund set up by the
central bank had fallen further in value
GAS NAT - REPSOL : Algeria and Spain are seeking an “amicable” solution to disputes involving Cos, said Algeria ’s oil minister
REPSOL : Spain and Russia are set to sign a broad agreement for energy cooperation (Spanish Prime Minister)
BG GROUP : RDShell said it would accept BG Group 's takeover offer for its stake in coal seam gas producer Pure Energy Resources
CONTINENTAL: Schaeffler dismissed speculation its takeover of the company could unravel under pressure from creditor banks
RENAULT : Nissan is on track with its FY tgt & its projects in Europe may be eligible for up to €400M of support from the European
Investment Bank (Rtrs)
BEIERSDORF : Sticks to strategic goals / Org growth to continue to to exceed mkt growth in future / Drops tgt of 15% EBIT margin for
2010 at consumer unit / To lift China sales with higher investments
NEGATIVE IMPACTS
BAYER: Q4 Sales €7.92Bn(7.83e) /Q4 Adj EBITDA €1.36Bn (1.36e) / Q4 Net pft €106M (190e) /Sees Adj EBITDA –5% (increase est.)
AIR FRANCE : will make a tentative bid for Czech CSA (carriers) (no amount) / Separatly AF may defer some outer A380 orders but will
stick with the planes due this year and next
WOLSELEY: may announce a £1Bn rights offering by the end of this week as it seeks to manage £3Bn of debt (Financial Times)
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K+S (SDF GY): is considering a $2.4 Bn cash bid for Compass Minerals International Inc (Daily Telegraph)
FORTIS : According to Modrikamen (Lawyers) , the deal made these days does not benefit to Fortis shareholders, Belgium Gov,
employee of Fortis or the Belgium economy. Nothing has changed, the plan will not have the support of Ping An & other shareholders
COMMERZBANK : Moody’s cut financial strength ratings to C- from C & kept the bank's outlook at neg / Separately, German fin. minister
told the ARD TV station that the gov wants to sell its 25% in the bank as quickly as possible so long that the sale generates money
GAS NATURAL & UNION FENOSA had their credit ratings cut to Baa1 from A3 by Moody’s
MERK KGAA: U.S. regulators have declined to approve use of Erbitux as a first-line treatment for head and neck cancer until a new U.S.
animal study is conducted, (Merck sells Erbitux outside US )
RESULTS DIVIDENDS EVENTS
US car sales / Vinci / Bayer / Bouygues (AMC) / Mun Re / Standard
Today Xstrata rights Issue (2 per 1) TMT conf at Chevreux
Chartered / Beiersdorf / Xilinx
British Land rights Issue 2 per 3 / Diageo (GBp
Credit Agricole/ Adecco / Adidas / France Tel / Suez Environnement / Scor
Wednesday 15.4444) / Thomas Cook (GBp 7,222222) / Bank of
/ Swisscom / Holcim / Old Mutual / BAE Systems
America ($0.01) / Pepsi ($0.425)
Carrefour / Casino / Essilor / GDF Suez / Aviva / Salzitter / Arkema / Essilor British Airways investor / France
Thursday Nike ($0.25) /
/ Energias de Portugal Tel investor day
Friday Fugro / Belgacom / Italcementi / Veolia Environnement / WPP / Fugro
Monday Fortis / Continental / Ciment Français / Acerinox RFedEx ($0.11) / HP ($0.08)
TRADING IDEAS
BUY Eurostoxx cash to play double bottom possibility (1847.62)
BUY the dollar to play US will manage a recovery sooner than Europe
BUY DB1G / AIR FRANCE / L OREAL / VEOLIA / WPP (results on Friday) on double bottom possibility
BUY FTE (reports Tomorrow) / DANONE / ALLIANZ / CARREFOUR (ahead of Casino results on Thursday) on reversal Head & Shoulder possibility

BUY ASTRA / SELL GLAXO // BUY ST GOBAIN / SELL LAFARGE // BUY TOTAL / SELL ENI // BUY SIEMENS / SELL ALSTOM
BROKER METEOROLOGY
CADBURY ...................................RAISED TO HOLD FROM SELL ........................................................................................... BY RBS
DEUTSCHE POST ......................RAISED TO OVERWEIGHT FROM NEUTRAL ................................................................... BY HSBC
MEDIASET ..................................ADDED TO LEAST PREFERRED MEDIA STOCKS ............................................................. BY UBS
UBS .............................................RAISED TO BUY FROM HOLD .................................................................................. BY CITIGROUP
TELEFONICA ..............................ADDED TO EUROPE 1 LIST ....................................................................... BY BANK OF AMERICA

PEUGEOT ...................................STARTED AT UNDERWEIGHT ........................................................................................... BY HSBC

CREDIT SUISSE .........................CU TO HOLD FROMBUY .......................................................................................... BY CITIGROUP
BANESTO ...................................RATED NEW NEUTRAL ................................................................................ BY GOLDMAN SACHS
BBVA ...........................................CUT TO NEUTRAL FROM BUY .................................................................... BY GOLDMAN SACHS
PEARSON ...................................CUT TO SELL FROM HOLD ................................................................................................. BY RBS

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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CHART OF THE DAY
US Personal savings as a % of Disposable Income
since 1990

10

-2

-4
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source : Bureau of Economic Analysis

The US personal savings rose the most in 14 years or 5% from +3.9 % in December despite the rise en savings. The
January’s US personal income (+0.4% m/m) and spending figures (+0.6% m/m) confirmed that consumption rebounded
at the beginning of the year…

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
23.50 GMT Japan Loans&Discount Corp (YoY) January 3,6% YoY
03 to 06 March Japan Official Reserve Assets February Yen 1011,0 billion
07.00 GMT Germany Wholesale price index January -2,0%,-6,3% YoY -3,0%,-3,3% YoY
09.30 GMT United Kingdom PMI construction February 34,2 34,5
15.00 GMT United-States Pending home sales January -3,0% MoM 6,3% MoM
15.00 GMT United-States ABC consumer confidence March 1 th -47 -48
United-States Total vehicle sales February 9,6 billion 9,6 billion
United-States Domestic vehicle sales February 6,8 billion 6,9 billion

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

DJIA 6763,3 - 4,89% - 22,94% EUR/USD 1,2653 -1,43% -9,37%
S&P 500 700,8 - 5,67% - 22,41% EUR/JPY 123,43 0,50% -2,57%
Nas daq 1322,9 - 4,65% - 16,12% USD/JPY 97,55 -0,94% 7,09%
CA C 40 2581,5 - 5,37% - 19,78% Oil Price % 5 Days Ytd
DA X 3710,1 - 5,75% - 22,87% Brent $/b 42,0 1,01% 0,60%
Eur os tox x 50 1882,8 - 5,47% - 23,08% Gold Price % 5 Days Ytd
DJ 600 164,3 - 6,13% - 17,17% Gold $/oz 929,8 -3,59% 5,22%
FTSE 100 3625,8 - 5,73% - 18,23% Rates USA Euro Japan
Nikkei 7229,7 - 1,23% - 18,40% Central Banks* 0,25 2,00 0,10
Shanghai Comp 2062,1 - 9,21% 13,25% Overnight 0,25 1,10 0,10
Sens ex ( India) 8544,1 - 2,67% - 11,44% 3 Months 0,27 0,87 0,27
MICEX ( Rus s ia) 646,8 2,40% 4,40% 10 Y ears** 2,92 3,03 1,30
Bov es pa ( Bras il) 36234,7 - 8,80% - 3,50% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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Economic data preview

Watch in the United-States the release of the pending home sales for January due at 15.00 GMT and expected to decrease as
household purchase power is strongly hit by the sharp rise of unemployment and by the credit crunch, despite the fell of the pending home
prices. Watch as well the release of the total and the domestic vehicle sales both expected to remains flat despite the sharp car crisis due
to the measures taken Obama in favour of the three majors General Motors, Chrysler and Ford./JB

ate

ECONOMY
UNITED-STATES : ISM MANUFACTURING SLIGHTLY ROSE IN FEBRUARY
The ISM manufacturing in the U.S. rose from 35.6 in January to 35.8 in December. Despite the fact that the price of the barrel stop
dropping, the decline of the interest rate as well as the President Obama stimulus package to boost the economy (a record $3.35 trillion
budget) explained this slight rebound of the ISM manufacturing which is still consistent with a severe recession. Nevertheless the ISM
manufacturing remains widely under the level of 50 signalling a contraction of the activity. Indeed domestic demand is very weak as
household are hit by the credit crunch and the rise of unemployment and as exportations are sharply cut by the global economic downturn.
Consequently and logically factories are cutting production to match collapsing sales.

UNITED-STATES : CONSTRUCTION SPENDING FELL SHARPLY IN JANUARY

Construction spending dropped of 3.3% in January more than twice as much as forecast (-1.5%). This drop is mainly explained by the
deepening recession in housing led by the credit crunch generating an inability to obtain capital. As an illustration housing starts and
building permits fell to record lows in January and sales figures showed that residential construction will even fell deeper in the coming
months.

UNITED-STATES : PERSONAL INCOME AND PERSONAL SPENDING ROSE IN JANUARY

Despite the sharp rise of unemployment the American personal income surprisingly increase in January of $44.8 billion or 0.4% (expected
-0.2%).This rise of personal income was led by the following factors: pay raised for federal civilian and military personnel boosted
government wage and salary disbursement and cost of living adjustment to several federal transfer payment programs boosted personal
current transfer receipt. Meanwhile personal spending increased more than expected to 0.6% in January( forecast 0.4%) from -1.0% in
December as prices stop dropping in the United-States(+0.3%in January). Indeed this index is measured in value. In addition Americans
took advantage of post holidays discount. As an illustration after dropping of 3% in December retail sales increased of 1% in January in the
United-States.

EURO ZONE : INFLATION’S SLOWS IN FEBRUARY

.In the mean time the final release of the consumer price index confirmed that inflation is no more a threat in the Euro area. Indeed after
reaching 4%(YoY) in July led by a barrel at $147, inflation dropped at 1.2% (YoY) in January (prior 1.6%) as the barrel as been divided by
5 and as the global economic activity is sharply declining reducing the demand and leading prices down. The downturn of the labour
market and the deepening economic recession revealed that inflation will drop further in the coming months to reach negative territory to
create a deflation situation. This will be the worst case for the euro area economy as to adjust a demand much lower than the offer
companies will have to cut job again increasing the deflation. Deepening recession and declining inflation are now increasing the pressure
on the European Central Bank to cut its leading rate next Thursday.

EURO ZONE : PMI MANUFACTURING DROPPED TO LOW RECORD IN FEBRUARY

Europe’s manufacturing industry (final release) declined at its fastest pace since the creation of this statistic at 33.5
(prior33.6).Unfortunately this is not a surprise as the Euro area is facing its deepest recession ever, the credit crunch and the
unemployment rise are hitting household demand and the global economic downturn is cutting demand for European goods abroad
forcing companies to lay off cutting again the demand as a vicious circle. This situation underline this absolute necessity to have a sharp
cut in the leading rate of the European Central Bank , to have a euro closet to 1.10 $ and to have global European revival plan./JB
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VIXindex: impliedvolatility onthe 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
05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009 05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009
Source : Bloomberg Source : Bloomberg

UnitedStates : 10-year Treasury yield 10-year Treasury spreadUSA-Eurozone

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
05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009 05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009
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
05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009 05/03/2007 05/09/2007 05/03/2008 05/09/2008 05/03/2009
Source : Bloomberg Source : Bloomberg