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by Makor Capital Research Team

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God Created Heaven on Earth & the Rest was made in China
Todays Market Headline
China PMI Manufacturing at 50.4 in May after 53.3 in April China HSBC Manufacturing PMI at 48.4 in May after 49.3 in April US & Spain Discuss ESM Support for Banks Irish yes Camp sees 60% in Favor of Treaty Final Results today afternoon UK to sell 1.5bln GBP 26, 1.5bln GBP 89 & 1.5bln GBP 180 Day Bills (10:10GMT) European PMI Manufacturing Data, Italian Unemployment US Payrolls, Unemployment Rate, ISM Manufacturing, PCE Deflator & Personal Income & Spending
Equity
DOW JONES NASDAQ S&P 500 Euro Stoxx50 FTSE 100 DAX 30 CAC 40 RDXUSD NIKKEI 226

Last
12,393.45 2,827.34 1,310.33 2,118.94 5,320.86 6,264.38 3,017.01 1,403.57 8,450.13

Change
-0.21% -0.35% -0.23% 0.13% 0.45% -0.26% 0.05% -1.66% -1.08%

Commodities
Gol d Na tura l Ga s 1,559.03 2.38 86.44 -0.09% -1.86% -0.10%

Market Overview
Good Morning, equities had a mixed close in Europe & the US, this was followed by a stronger USD and Yen against other currencies, by continuing weakness in commodities and by a mixed price action in the safe haven assets, as the German bonds were higher (German Bobl offering 0.002% yield!) & US Treasuries lower (higher yield). The Vix Index ended -0.33% to close at 24.06 and Facebook finally ended a day in positive territory up 5.0% to close at $29.6. Almost the same routine again, equities and other risky assets rallied at the start of the European session but then as we neared the US open all gains were lost and markets moved into the red. Unlike other trading days earlier in the week most stock indices managed to erase the losses and close the day around flat. There was very little micro developments, worth noting is IMF Lagarde comment which stated the fund doesnt have any intentions to bailout Spain. On the macro field, German unemployment rate (6.7% in May) and Retail Sales (+0.6% in April) beat expectations and in the US data was weaker than expected and included the ADP Employment Change (133k vs. 150k expected), Initial Jobless Claims (383k vs. 370k expected) and a weak Chicago Purchasing manager Index (52.7 vs. 56.8 expected in May). Today, Asian markets are mixed followed by the weak Chinese manufacturing data, US Futures are negative (-0.5%) and
1

Crude Oi l

Currencies
EUR/USD GBP/USD EUR/GBP EUR/CHF USD/JPY 1.2357 1.5382 0.80334 1.20105 78.45 -0.06% -0.15% -0.09% 0.01% 0.17%

US Rates
US 2Y US 10Y 0.26 1.56 -0.39% 0.00%

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 0.40 41.20 -1.9 -18.9 -18.2 -0.6 -6.7 -5.9 4.79 480.10 4.24 424.85 2.34 115.02 6.48 529.36 5.82 463.55

World Spreads (vs. US)

Germa ny 2Y (0.01) -26.53 UK 2Y 0.21 -5.24 -0.4 -2.3 -1.7 -1.1

Germa ny 10Y 1.19 -37.49 UK 10Y 1.56 0.06

PROBE: a proprietary index measuring the break-even probability of a given deal. 01 June 2012

European markets are set for a mixed open on the day. China PMI Manufacturing at 50.4 in May after 53.3 in April & China HSBC Manufacturing PMI at 48.4 in May after 49.3 in April; the numbers signal a deepening economic slowdown than estimated and raise the everlasting question about the intensity of future easing measures. U.S & Spain discuss ESM support for banks; the meeting took place yesterday in Washington with the participation of IMF Chief Lagarde. Lagarde made it clear that there is no such plan for the IMF to provide financial support to Spain leaving the possibility that the ESM will provide the support needed as the only remaining option on the table. Also Treasury Geithner expressed his view and suggested that the ESM should provide financial support not only to Spain but also to other Euro Zone countries. Geithner comment stands in line with the European Commission proposal from Wednesday when it expressed the same view. Irish yes Camp sees 60% in Favor of Treaty; the final results are expected to come out in the afternoon. Ireland is the only country holding a national referendum on the fiscal pact, which all 27 EU members have signed except Britain and the Czech Republic, and the result will be closely watched around the continent. Economic data today offers European PMI Manufacturing Data, Italian Unemployment, US Payrolls, Unemployment Rate, ISM Manufacturing, PCE Deflator & Personal Income & Spending, and Good Luck!

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

Bloomberg: Iran razed two buildings near a suspected nuclear-trigger test site inside of its sprawling Parchin military complex, satellite images published by the Institute for Science and International Security show. These activities raise further concerns of Iranian efforts to destroy evidence of alleged past nuclear weaponization, the Washington-based ISIS wrote in a six-page analysis published yesterday. International Atomic Energy Agency inspectors have been trying to gain access to Parchin since January as part of its oversight of suspected nuclear sites in Iran. The IAEA said last week that it had reached an agreement with Iranian authorities to broaden its investigation. Iran is under multiple international sanctions on concern the country is seeking a nuclear bomb, a charge Iran denies. Jerusalem Post: A day after Ali Larijani, the speaker of Irans parliament, said a Western military intervention in Syria would engulf Israel, Israeli government officials tried to shine the light on Iranian involvement in the Syrian bloodshed. The Iranian regime is in a very concrete manner lending its support to the Syrian governments murder of the Syrian people, and this is part of their very aggressive and dangerous behavior in the region, one official said. If this is what Iran does without atomic weapons, the official added, what would Iranian behavior look like if they had nuclear capabilities?

Risk Arbitrage
Financial Times: Xstrata has provoked the anger of top shareholders by promising a 30m windfall to Mick Davis to retain him as chief executive of the FTSE 100 miner after its proposed merger with commodity trader Glencore. The payout could ignite a fresh round of shareholder activism weeks after a number of business leaders were forced to step down following investor rebellions, including the heads of Aviva and Trinity Mirror. 01 June 2012

Bloomberg: Martin Marietta Materials Inc. failed to persuade the Delaware Supreme Court to throw out a ruling barring the gravel producer from proceeding with a hostile takeover bid for rival Vulcan Materials Co. After an hour-long hearing today, the states highest court concluded that a judge properly found that Raleigh, North Carolina-based Martin Marietta cant bid for Birmingham, Alabama-based Vulcan for four months because it violated an agreement between the two companies. Bloomberg: Talbots Inc., the womens clothing retailer trying to reverse falling sales, agreed to be bought by private-equity firm Sycamore Partners for a reduced price of $369 million, including debt. Stockholders will get $2.75 a share, the Hingham, Massachusetts-based retailer said today in a statement. The offer is lower than Sycamores previous offer of $3.05 a share and more than more than double yesterdays closing price of $1.29 a share. Financial Times: The board of Logica has backed a 1.7bn all-cash takeover by Canadas CGI Group. The deal makes the IT services company the third UK technology business to be acquired by a North American counterpart in a year. Logica said CGIs offer of 105p per share a 60 per cent premium over its share price at the close of trading Wednesday represented good value for its shareholders. The takeover, if agreed by shareholders, follows the recent buyouts of Misys and Autonomy by US companies. Bloomberg: While OAO Magnitogorsk Iron & Steels takeover of Australias Flinders Mines Ltd. is seen as the most likely deal in the world to fail, traders can still double their money betting another bidder will buy Flinders. Flinders , developing an iron-ore mine in Australias Pilbara region, had tumbled 13 percent in the week to yesterday since a Russian court deferred a ruling on the companys A$554 million ($536 million) takeover by MMK, as the Russian steelmaker is known, until after the June 30 bid deadline. Before the market opened today, Flinders was trading 53 percent below the offer, the widest gap of any pending deal greater than $100 million, according to data compiled by Bloomberg. That indicates merger arbitragers are convinced the takeover is the most likely to collapse.

Corporate News & Equity Highlights

Financial Times: Mediobanca, the Milan investment bank that has dominated Italian finance for most of the past 60 years, is preparing an attempt to oust Giovanni Perissinotto, the chief executive of Italian insurer Generali, according to two people familiar with the situation. Mediobanca, which owns 13.5 per cent of Generali, will make its move at a board meeting as early as Saturday, according to one of Generalis largest international shareholders. Bloomberg: BP Plc, the U.K.s second-largest oil company, said it would pursue a sale of its shares in Russian oil company TNK-BP after receiving unsolicited expressions of interest. Financial Times: Josef Ackermann ended his turbulent decade-long leadership of Deutsche Bank with a robust defence of his record, saying Germanys flagship bank would have needed a state bailout in the financial crisis if he had not improved its profitability. Addressing Deutsches annual shareholder meeting just hours before stepping down as chief executive, Mr Ackermann said global economic recovery was under threat and criticized some Eurozone countries for a lack of will to carry out reforms. 01 June 2012

Financial Times: James Gorman, Morgan Stanley chief executive, dismissed outrage over Facebooks botched initial public offering, calling investors who had expected immediate gains nave for having bought it under the wrong pretences. The remarks by Mr Gorman addressing Morgan Stanleys role as lead underwriter came in a CNBC television interview on the day that Facebook enjoyed its best session since it started trading two weeks ago. Financial Times: Google is to start charging companies for listing their products in a core part of its search service, the first time it has converted a free section of its giant online index into a purely commercial venture. The change to Google Product Search will mean that many merchants that have relied on the search engine to lure potential customers online will face higher costs, according to analysts.

Broker Recommendations
Positive Negative EU FOOD RETAILERS CUT TO NEUTRAL VS OVERWEIGHT AT SOCGEN Logica Cut to Neutral from Outperform at Exane Sartorius Cut to 'Add' at Commerzbank Tenaris Cut to Underperform From Neutral at Credit Suisse CIR Cut to Hold vs Buy at Deutsche Bank Eurocommercial Properties Cut to Neutral at JPMorgan Pan African Resources Cut to 'Sector Perform' at RBC Capital Local Shopping REIT Cut to 'Underweight' at JPMorgan Gagfah Cut to 'Underweight' at JPMorgan EUROPEAN BEVERAGES RAISED TO OVERWEIGHT VS NEUTRAL AT SOCGEN Munich Re Raised to Buy vs Neutral at UBS Ingenico Rainitiated at Outperform at Exane Quintain Estates & Development Raised to Overweight at JPMorgan Gecina Raised to 'Neutral' at JPMorgan PSP Swiss Property Raised to Neutral at JPMorgan Quintain Estates Raised to 'Overweight' at JPMorgan Finmeccanica Upgraded to Buy from Neutral at UBS

01 June 2012

Economic Calendar Key Events

Time (GMT)
1:00 2:30 7:45 7:50 7:55 8:00 8:00 8:00 8:30 9:00 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 12:58 14:00 14:00 14:00

Country Event
CH CH IT FR GE IT IT EC UK EC US US US US US US US US US US US US US US US US US US US PMI Manufacturing HSBC Manufacturing PMI PMI Manufacturing PMI Manufacturing PMI Manufacturing Unemployment Rate (s.a) Unemployment Rate (SA) PMI Manufacturing PMI Manufacturing Euro-Zone Unemployment Rate Change in Nonfarm Payrolls Change in Private Payrolls Change in Manufact. Payrolls Unemployment Rate Avg Hourly Earning MOM All Emp Avg Hourly Earning YOY All Emp Avg Weekly Hours All Employees Change in Household Employment Underemployment Rate (U6) Personal Income Personal Spending PCE Deflator (MoM) PCE Deflator (YoY) PCE Core (MoM) PCE Core (YoY) Markit US PMI Final ISM Manufacturing ISM Prices Paid Construction Spending MoM

Period
MAY MAY MAY MAY F MAY F 1Q APR P MAY F MAY APR MAY MAY MAY MAY MAY MAY MAY MAY MAY APR APR APR APR APR APR MAY MAY MAY APR

Survey
52 -43.5 44.4 45 --45 49.7 11.00% 150K 160K 16K 8.10% 0.20% 1.80% 34.5 --0.30% 0.30% 0.10% 1.90% 0.20% 1.90% -53.8 57 0.40%

Actual
------------------------------

Prior
53.3 49.3 43.8 44.4 45 8.80% 9.80% 45 50.5 10.90% 115K 130K 16K 8.10% 0.00% 1.80% 34.5 -169 14.50% 0.40% 0.30% -2.10% 0.20% 2.00% 53.9 54.8 61 0.10%

Revised
------------------------------

01 June 2012

Research Disclaimer
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01 June 2012