equity indices which only listened to the announcement to cool off the unprecedented monetary and fiscal stimulus. That helped the global economy avoiding a downside spiral similar to the Great Depression, and brought it close to stabilizing. G8 finance ministers said they have begun talking about how to unwind steps they have taken. But it looks that this is aimed at calming inflation fears, and there appears to be no concrete measures planned yet regarding when and how to withdraw from the current expansionary policies. The goal here is to bring bond yields down and to stabilize the U.S. dollar . Indeed, some too fast surging bond yields do not reflect (yet) the economic speed, but rather the worsening budget deficits. Whatever the reason, if the latest rise was to keep on going at that pace, it might spoil the native economic recovery in hurting once more households purchasing power and spending. Inflations worries at this stage are premature (see CPI tomorrow). Just that, as the Great Depression scenario has been avoided, the deflation so much seen as granted by most economists is not happening thanks (or because) of the latest commodity rally, and above all the pick up of demand in housing and better confidence indicators including the equity rally. We doubt the yield rise had much further to go for the time being anyway. Same as the equity indices, bond markets (as well as commodity markets) are just admitting too that an economic recovery in H2 seems now a strong probability and no longer just a hope. In such a context, the 10 year Note would hardly stay at 2.5% for ever, especially as it was sent to that level in order to create a demand in housing and to the lower the mortgage rates. The current 3.6% is an historically low and attractive level. Historically low interest rates and unprecedented stimulus should produce an economic lift in the second half of the year , which should makes stock market hold firmly and resume their upside trend anytime before the end of this week.

in H2. The dollar should now be driven by such a news flow and no longer be supported by equity clashes or commodity prices drop. The latest new weakness in the dollar made officials react in the G8, where U.S. Treasury Secretary Geithner appears to have won a respite. The most dramatic signal of support for the dollar came from Russian Finance Minister Alexei Kudrin when saying the dollar's role as the world's main reserve currency wasn't likely to change any time soon. That marked a change of emphasis for Kudrin and other Russian officials. Russian and Chinese officials have this year repeatedly called for changes in the global financial system that would downgrade the dollar's role as the world's primary reserve currency. Officials have said they fear massive U.S. borrowing will erode the value of the greenback and the value of their reserves. China is the largest holder of dollar reserves. Japan is second and Russia is third. And just ahead of the G8 meeting, Japanese Finance Minister Kaoru Yosano told Bloomberg that the government's trust in U.S. Treasuries was "absolutely unshakeable." On Sunday an aide to Russian President Dmitry Medvedev told reporters in Moscow that the meeting of leaders of Brazil, Russia, India and China -- the BRIC nations -- won't discuss alternative reserve currencies at their summit meeting in Yekaterinburg, Russia, happening today . The dollar managed to recover as it is good for all the exporting countries to be competitive back again and to help to end their recession following the US economy. The focus should now be turn on a strong US economy which should be dollar supportive, good then for everyone, which is what they probably discussed through last weekend G8 meeting.

avoided, the recovery might not be as prompt as in the past. Indeed, the economic shock was brutal, a real heart attack just after Lehman's fall, now out of intensive care, the economy needs to be running on its own which officials are carefully thinking on doing, but only gradually in harmony with the picking up demand. The dip in the US Empire State manufacturing index to -9.4 in June, from -4.6, is a reminder that this will hardly be a V-shaped recovery. Admittedly, the decline itself is relatively modest. The only good news in the survey was that the future capital expenditures balance recovered to a 9-month high of 11.5, from -1.1. That suggests we should see a turnaround in business investment in the second half of the year. As to the NAHB which came out at 15 vs 16 expected, it doesn't change much as these levels might be much higher than their 8 lows from January, they remain very off the level seen 4 years ago. The index peaked at 72 four years ago and was at 18 a year ago. At 15, the index shows that about one in six home builders thinks the market is "good." The number of unsold new-homes on the market remains high in relation to sales at 10.1 months' worth of sales, but the total number of homes on the market - 297 in April -- is close to the average that prevailed before the housing bubble grew. Builders are making slow progress in reducing unsold inventories.

stuck on their highs of the previous rally. They anticipated a gradual improvement from the economy which is happening, but not in a straight line. Option gamma players should lock the market within a range for another 3 days before some half full glass data indicators propel equity indices on higher levels thanks to fund managers who might reduce their underweight equity exposure. Shaky but rebounding day ahead (see eco data below

prices in May. Economists suggest that the energy component increased by about 5% m/m last month, which would be enough to boost
the overall producer price index by 1.0% / bear players will enjoy such a news, which though should not impact much as the most
important inflation indicator for now will be the CPI out tomorrow

output probably fell at a faster pace, even though the survey evidence points to a further moderation in the rate of contraction. Chrysler shut down all its plants at the start of the month when it entered bankruptcy and, starting in May, GM closed a number of plants for up to nine weeks as part of an extended annual retooling / minor today

SAINT-GOBAIN signed a credit revolving facility for \u20ac2.5 bn with banks + said it has completed the refinancing of all LT debt until 2010
TESCO : Q1 UK like-for-like sales ex-fuel, vat +4.3%, in line / FY trading in line with views / FY outlook unchanged
TELECOM IT. sold $2 bn notes in a 2-part sale, including $1bn each in 5 & 10-year notes, both priced to yield 345 bp over US Treasuries
DEUTSCHE TEL. sold $1.5 bn notes in 2 parts, including $750 m in 5-year notes priced to yield 225 bp over comparable Treasuries +

BAYER 's CEO said that management is considering acquisitions and the company will hold on to its plastics division (SZ)
FRAPORT said its May passenger traffic dropped by 6.3% and cargo volume fell by 17.3% from the same month a year ago
SONY - VIVENDI : Global music sales will fall at a 2.5% annual rate over the next 5 years as non-physical formats overtake CD\u2019s (PWC)
SANTANDER & BBVA remain under review for possible cut at Moody's
UBS was placed under review for possible downgrade by Moody\u2019s
THOMSON said that its lenders are considering a significant reduction of TMS's debt through a conversion of debt into equity
EUROPEAN NEW CAR REGIS. -4.9% for May : BMW -14% / GM -10.8% / TOYOTA -8.9% / DAIMLER -8.9% / PSA -5.9% / FORD-5%

Arkema (\u20ac0.60) / Imperial Tobacco (GBp 23,33333) / Land Securities (GBp 7.00) / Raiffeisen internat Bk (\u20ac0.93) / Rio Tinto 21 per 40 / Severn Trent (GBp 45.61111) / United Utilities (GBp 24,47778)

BT.................................. RAISED TO OVERWEIGHT FROM EQUALWEIGHT............................................... BY MORGAN STANLEY BRITISH LAND.............. RAISED TO OVERWEIGHT FROM NEUTRAL...................................................................... BY JPMORGAN SANTANDER................ RAISED TO BUY FROM NEUTRAL............................................................................ BY GOLDMAN SACHS LUKOIL.......................... RAISED TO BUY FROM NEUTRAL............................................................................................ BY MERRILL HAMMERSON............... RAISED TO OVERWEIGHT FROM NEUTRAL...................................................................... BY JPMORGAN HOME RETAIL............... RAISED TO NEUTRAL UNDERWEIGHT........................................................................................ BY HSBC

PENNON........................ CUT TO NEUTRAL FROM BUY.......................................................................................................... BY UBS NORDEA....................... CUT TO SELL FROM NEUTRAL................................................................................ BY GOLDMAN SACHS CEMEX.......................... CUT TO UNDERPERFORM........................................................................................................ BY MERRILL MERCK KGAA.....................................................CUT TO NEUTRAL FROM BUY............................................................ BY MERRILL

After dropping for four consecutive quarters, France industrial production dropped by 18.6 % in April the lowest level since March 1994. Industrial production in France will more likely dropped for a fifth consecutive quarter dragging down the French GDP as showed by the above correlation.