This Week in the Markets  

The name is Bond – Eurobond, and of course given the clear and present danger of Greece exiting the Euro next month, the concept of a common bond to go with the common currency is back on the agenda.

Well, that is for most in Europe apart from the most important play and veto holder, Germany. 

In fact, looking back at the foundation of the single currency, a fair chunk of the problems faced by Europe since the financial market crisis began would simply not have materialised had the Eurobond existed from Day 1. 

The U.S. Credit Agency trio of Fitch, Moody’s and S&P wouldn’t have been able to take pot shots at PIIGS nations every other week, neither would speculators have been able to relentlessly short the bonds of the downgraded nations, thereby sending the yields to unaffordable levels and leading to ballooning debt. 

Now Europe has reached the tipping point, in order for the Eurozone dream to survive, a single bond will have to be created. Ironically, the cost to the Germans of a higher yield on a common bond might be rather less than its share of the odd €100bn here and there to periodically bail out Club Med. 

In the aftermath of G8 – a talking shop of the highest quality, the ball has been put firmly back in the EU court by Prime Minister David Cameron, with calls from him to ‘make up or break up’. 

At least for stock market bulls, the Eurobond idea has to be taken as not only the solution of last resort, but also the put option that could ensure the May sell off in equities was merely a ‘seasonal’ event.

Closer to home, while Mr Cameron was keen to provide guidance to fellow EU nations, so in turn the International Monetary Fund was happy to tell us how to go about our business. The message from IMF boss Christine Lagarde is that we should find a ‘Plan B’, although arguably this is wholly inappropriate given that ‘Plan A’ led to a ballooning deficit and a double dip recession. 

The Week Ahead:

Key Companies Reporting: May 28th – June 1st

Monday - Finals: Gulf Keystone Petroleum (LON:GKP)

Tuesday - Finals: De La Rue (LON:DLAR), Pennon Group (LON:PNN) Interims Britvic (LON:BVIC)

Wednesday - Finals: Severn Trent (LON:SVT)

Thursday - Finals: Halfords (LON:HFD) Trading Announcement Kingfisher (LON:KGF) 

Friday - No significant corporate announcements due

As we edge into June at the end of the week, there is already a sense that the stock market is easing into summer mode due a dearth of major corporate announcements.

Those chasing M&A stocks will eagerly be awaiting finals from Gulf Keystone (LON:GKP) as the Northern Iraq focused oil explorer attempts to distract the hot money away from recent bid speculation and towards the positive progress on its drilling programme. 

The explorer’s Shaikan block in the Kurdistan region of Iraq has independently audited volumes of between 8bn barrels to 13.4bn barrels of oil, which would mark the shares out as a win – win buy situation whether or not any takeover offer reappears.  In the meantime investors may be eyeing up the Investec target of 232p for the stock given at the end of last month.

News of sharp 2.8% plunge in UK April Retail Sales vs. the March rise to 1.8% will doubtless be of concern for bikes to auto parts group Halfords (LON:HFD) as we come to its finals. 

The like-for-like sales decline slowed vs. last year but were still down -2.3% in April vs. the -2.7% drop for the 2011 equivalent. Nevertheless, the fundamental headwinds affecting the company continue to blow, and observers will be looking to see if growth areas such as the Autocentres business can take up any of the slack.

In contrast, B&Q owner Kingfisher (LON:KGF) walks on fundamental water, a point underlined once again at the end of March when the group revealed like-for-like sales had risen 1.3%, while adjusted pre-tax profit rose 20.4% to £807m from £670m the previous year, just above market expectations. 

The Kingfisher share price is now some 15% off the peak seen at the time of the update, so there may be an opportunity to buy the dip if another solid performance is reported.

Major Economic Data:  May 28th – June 1st       

Monday – No significant economic data due

Tuesday – Germany: May Harmonised Index of Consumer Prices. U.S.: March S&P/Case-Shiller 20-City Composite, May Conference Board Consumer Confidence.

Wednesday –. EU: May Economic Sentiment. U.S.: April Pending Home Sales.

Thursday – Germany: May Unemployment Rate. EU: May Harmonised Index of Consumer Prices. U.S.: May ADP National Employment Report, May Chicago PMI, Q1 GDP.

Friday – UK: May Manufacturing PMI. EU: April Unemployment Rate. U.S.: April Personal Income, Personal Spending, May ISM Manufacturing.

Not a big week on the Economic Data front, but some key numbers to take note of nevertheless, especially the big U.S. Non-Farm Payrolls number on Friday where a slight improvement over the past couple of months is expected. The May number is called at 140,000 vs. the 115,000 gain in April. 

Also worth noting from across the pond are April Pending Home Sales where a drop to just +0.8% from 4.1% is due.

Moving to the troubled Eurozone and plenty of attention will be paid to the April EU Unemployment Rate and the May equivalent for Germany, with previous 10.9% and 6.8% figures for comparison. 

At home, May Manufacturing PMI tops the bill, especially for those double dip recession doubters who have been hoping that the initial Q1 reading was a blip, although 50.5 last time shows how borderline the position is.

Main Markets Outlook

FTSE100: 

Apart from being extremely impressed at how well our ‘Sell In May’ strategy has fared this month, the question is how much of this pain will spread over into June? 

From a charting standpoint, the singular hope for the bull argument is a line of support from August last year running through 5,200. While this would be a very deep retracement, such a last chance saloon rebound is possible and for many investors essential given that a sub-5,000 probe might for many be the last straw. 

At this stage, only back above this week’s early resistance at 5,408 would remove the immediate prospect of a 5,200 or less destination for leading UK stocks, and with the threat of much worse to come.

Sterling / Dollar:

The $1.5800 level came into play as support at the beginning of April, with the 200-day moving average at $1.5810 also a temporary support for this market after the retreat from early May $1.600 plus peaks. 

Sterling / Dollar has been the preferred cross vs. the ailing Euro over the past week, but some of the mud from across the English Channel is sticking to our currency too. Even more so considering the real safe haven of 2012 to date has not been Gold, but the U.S. Dollar. Without a swift implementation of Plan B it could very well be that the beginning of June sees a retest of the March floor for this market just above $1.56.

Gold:

After a brief spurt towards $1,600 when it appeared that the yellow metal had finally shaken off the doldrums, after bouncing $5 higher than the $1,522 December intraday low, once again the post autumn malaise for this market has reappeared. 

The ongoing strength of the U.S. Dollar is coupled with the fact that a risk off trade in the Euro is seen as a reason to sell the risk friendly Gold price. 

While this market remains a proxy to the single currency, (currently at its lowest level since 2010), December support looks certain to not only be retested, but broken. Sub $1,522 points to the July $1,478 floor.

• FTSE (-0.53%), CAC (-0.44%), DAX (-0.28%), SMI (-0.08%), IBEX (-0.75%), EURO STOXX (-0.52%) prices taken at 1343BST

DJIA

Earnings:

N/A

Other news:

JP Morgan – The co. unit responsible for bets on corporate credit that cost the bank over USD 2bln includes a group that separately invested in financially challenged companies such as LightSquared that filed for Chapter 11 bankruptcy protection this month. (WSJ)

Verizon - Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, a Democrat, indicated that he has serious concerns about Verizon's request to purchase more spectrum. (The Hill)

Bank of America – Co. has entered into an agreement to sell their remaining interest in Archstone for around USD 1.5bln, co. says Archstone has a net debt and third-party preferred securities of approximately USD 10.5bln. (Newswires)

Microsoft – Co. is mulling an increase to licensing fees for OEM versions of Windows 8 according to Taiwan-based supply chain makers. (DigiTimes)

Pfizer – Co. announced that the FDA committee has found the co.’s clinical data supports the effectiveness of their novel drug. (Newswires)

Companies paying dividend: Alcoa (USD 0.0300)

S&P 500

Earnings:

N/A

Other news:

Goldman Sachs – Co. are to set up a Japanese private REIT with an initial size of JPY 30-50bln this summer, according to source. The source said the trust will eye JPY 100bln in the longer-term. (Newswires)

Morgan Stanley/Facebook – Morgan Stanley has told brokers that Facebook trades from last Friday will be adjusted to ensure that no limit orders will be filled at more than USD 43.00 per share, according to a person familiar with the conference call. The adjustments will take place on a few thousand remaining shares. (Newswires)

Citigroup – Co. has completed the sale of 10.1% equity interest in Akbank, and expects USD 1.15bln in proceeds from the stake sale. (Newswires)

Wells Fargo – Co. gave the SEC hundreds of emails and other documents related to its mortgage-backed securities business after the bank was taken to court. (WSJ)

CME Group – Co. have declared a five-for-one stock split, in the form of a 400% stock dividend to be paid on July 20th to shareholders of record on July 10th. Co. believes the stock-split will appeal to a more diverse mix of investor portfolios. (Newswires)

Blackrock/Chesapeake Energy - Blackrock has dramatically increased its stake in Chesapeake Energy from around 1mln shares to between 4-5mln shares according to CNBC. (CNBC)

Express Scripts – Co. is seeing additional benefits from its merger with Medco besides increased size, including choosing to switch to Medco's information technology platform. (Newswires)

Comcast/Microsoft - NBCUniversal is in talks to buy out Microsoft from their jointly owned MSNBC.com website, according to NBC News. (WSJ)

Baxter International – Co. announced positive results from multi-centre trials on their low glucose PD solution which shows a favourable impact on metabolic measures in trials. (Newswires)

Sealed Air – Co. announced the appointment of Carol P. Lowe as Senior Vice President and Chief Financial Officer, effective on June 18, 2012. (theflyonthewall.com)

Nextera Energy- Co. reaffirmed their 2012 forecast of USD 4.35-4.65 vs. Exp. USD 4.52. (Newswires)

Companies going ex-dividend: Allegheny (USD 0.1800)

Companies paying dividend: Citigroup (USD 0.0100), Eaton (USD 0.3800), Consol Energy (USD 0.1250), Charles Schwab (USD 0.0600)

Nasdaq 100

Earnings:

N/A

Other news:

eBay – Co.’s PayPal unit struck deals with 15 retailers including Toys R Us, J C Penney and Barnes & Noble that will allow consumers to pay for purchases with their cellphones as they increase the online payment company's service into more physical stores. (Newswires)

Dell – Co. is reported to be in talks to buy Quest Software, despite the firm agreeing to be bought by Insight Venture Partners for around USD 2bln. (Newswires)

Yahoo - Alibaba.com's minority shareholders have voted in favour of a proposal to be taken private by Alibaba Group. (WSJ)

Dish Networks - Fox, NBC and CBS have sued satellite TV provider Dish Network over its "AutoHop" ad-skipping technology, a service that offers commercial free TV. (Associated Press)

Companies paying dividend: Starbucks (USD 0.1700)

Broker moves

Upgrades:

Salesforce.com – Co. upgraded to Outperform from Perform at Oppenheimer, Price target is USD 180

Illinois Tool Works – Co. upgraded to Overweight from Neutral at JPMorgan, Price target raised to USD 66 from USD 56

Eastman Chemical – Co. upgraded to Overweight from Neutral at JPMorgan, Price target raised to USD 58 from USD 57

Downgrades:

Lululemon – Co. downgraded to Hold from Buy at KeyBanc

Heinz – Co. downgraded to Neutral from Overweight at JPMorgan, Price target lowered to USD 56 from USD 59

Other News

Dendreon - After attending the American Urology Association meeting, Jefferies says physician sentiment towards Dendreon's prostate cancer drug Provenge remains lukewarm. (theflyonthewall.com)

US Banks - Lending declined in Q1 after about a year of growth, deepening questions about the recovery and confidence of borrowers and bankers. Loan balances dropped over USD 56bln, or 0.8%, in the quarter ended March 31, according to the Federal Deposit Insurance Corp. (WSJ)

ECB’s Weidmann says the ECB has reached the limit of the mandate with tools.

Spain may have to raise its 2011 deficit figure for the second time after the examination of accounts of regions and city halls is completed.

Lack of data in both the EU and US sessions keeps focus on speakers and macro concerns.

RANsquawk European Morning Briefing Video: http://youtu.be/yJohZrSsd5c

Market Re-Cap

European stock futures saw a jump higher at the cash equity open as the Eurostoxx broke through yesterday’s high of 2160. Comments from the Italian PM from late yesterday, who said that the majority of ministers are in favour of Euro bonds was noted but the move was largely technically driven with stops tripped on the ascent. In reaction to this the European bond yield spreads in the 10yr part of the curve tightened aggressively with OAT’s outperforming once again edging back toward the psychological 100bps level.

Meanwhile in the FX market the USD weakened in early trade on the renewed risk appetite which bolstered the gains in EUR/USD alongside touted option defence by a Swiss name at the 1.2500 level. Commodity linked currencies such as the AUD was the main benefactor of a moderate move higher in crude futures and precious metals but has been capped so far by offers at 0.9800.

Into the North American open prices have pared, with European equities in the cash and futures both slipping into the red, excepting the DAX. A distinctly light calendar from the US with only the May final Michigan report due, coupled with an early closure in the Treasury pit today, ahead of the Memorial day holiday, means that volumes will likely decline into the latter stages of the US session today.

Asian Headlines

According to a central bank-run paper, the possibility of cuts to China’s benchmark lending rates in the near term cannot be ruled out, although room for such cuts is ‘very limited’. (Financial News)

An ADB senior economist has said China’s economy will likely bounce back between July and September after reaching a low in the current quarter, as Beijing works to spur growth with infrastructure investments and monetary policy fine-tuning. The economist is sticking with his 8.5% forecast for Chinese growth in 2012. (Newswires)

JP Morgan now sees Chinese GDP growth of 8% in 2012. (Newswires)

EU and UK Headlines

With little data of note released today, the focus has remained on macro commentary; however, it is worth noting the German GfK Consumer Confidence Survey recording a slight beat on expectations coming in at 5.7 vs. Exp. 5.6 (Prev. 5.6, Rev. 5.7). Elsewhere, French Consumer Confidence came in higher: 90 vs. Exp. 88 (Prev. 88, Rev. 89). (Newswires)

ECB's Weidmann has said the ECB has reached the limit of mandate with tools, adding that the ECB has taken considerable risks with their measures. On the LTROs, Weidmann commented that they did not solve the structural causes of the financial crisis. (Newswires)

Spain may have to raise its 2011 deficit figure once again after the examination of accounts of regions and city halls is completed. (El Pais) The reports follow the Spanish government having previously revised higher their 2011 deficit figure to 8.9% from 8.5% of GDP.

Changes to inflation calculations that could save the Chancellor billions of pounds a year - while hurting gilts investors - are being considered. (Times) A committee that advises the UK Statistics Authority may recommend an overhaul that could permanently pare back gains in the retail prices index. If the changes are adopted, they could lead to a reduction in interest payments on government bonds that are linked to the RPI. This would help George Osborne to save as much as GBP 3bln a year in interest paid on index-linked gilts, according to calculations from Alan Clarke, an economist at Scotia Capital.

French OATs continue their outperformance from yesterday’s session with the French 2- and 5-year bonds touching record low yields in today’s session, with UK Gilts also touching record low yields in their 30-year lines. European bond yield spreads against the German 10yr were seen significantly tighter in the first half of the European morning, however they have come far off their tightest levels in recent trade, with the Spanish 10yr yield coming back above 6%, and holding there at the midpoint of the session.

EQUITIES

European equities in cash and futures have managed to slip into negative territory after a few hours of gains following the open, with comments from ECB’s Weidmann somewhat weighing on sentiment heading into the North American open. The health care sector is seen benefitting from its defensive status, as financials come off their highs and move to trade lower by around 0.5% in Europe. Looking at the weekly performance in equities, all major indices are looking to close higher since Monday, with the exception of the Spanish IBEX 35, faltering under the strain of selling in its financial sector throughout the last five days.

In individual stocks news, Siemens are performing particularly strongly ahead of the US open, currently trading higher by over 1.5%, following a broker upgrade at Deutsche Bank. Elsewhere, closely watched Spanish lender Bankia has had its share suspended as the bank intends to present their recapitalization plan. Source comments have said that Bankia will ask for over EUR 15bln when they do present the blueprints, so should the presentation go ahead, focus will be European peripheral financials, with UniCredit, Banca Monte dei Paschi and Banco Popular already in negative territory.

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

EUR/USD was seen on an upwards trajectory in the early hours of the session, moving in line with the stock futures amid unconfirmed market talk of the BIS on the bid in the pair. EUR/USD moved above 1.2600 to print session highs of 1.2603, but did not last above this level, following the paring of gains in stock futures and the widening of European bond yield spreads. EUR/USD now trades comfortably below the 1.2600 handle, between two touted option expiries at 1.2550 and 1.2600 for the 10am NY cut (1500BST).

Commodity linked currencies NZD and AUD are seen higher against the USD moving into the US open, with AUD/USD stabilising in a tight range just below a touted option expiry at 0.9800 for the 10am NY cut and NZD/USD is seen higher by almost half a cent, in line with the moves in gold and commodities.

COMMODITIES

WTI and Brent crude futures are seen modestly higher, picking up from lows seen overnight in Asia and moving in line with European stock futures. Volumes remain thin ahead of the NYMEX pit open, but may pick as the session progresses. The next risk event will come from the US with the final reading of University of Michigan Confidence data due at 1455BST/0855CDT.

Oil & Gas News:

The CME group have cut margins for Crude by 13%.

China may consider cutting diesel and gasoline prices for a second time this year after a fall in a basket of crude oil costs passed a trigger point used by Beijing to set prices, according to a Chinese information provider. However, C1 Energy have forecast that such a move will not be considered until early June as it has been less than a month since the last cut.

A new draft of Nigeria's long delayed oil bill, whose passage is needed to unblock billions of dollars of stalled investment into exploration and production, will be finalised this week, sources close to the matter said on Thursday.

Asia is seen as replacing the US as Nigeria’s biggest crude customer, amid surging output and refinery closures in the US.

Geopolitical News:

EU's Ashton said that following the P5+1 talks, it is clear that both sides want progress to be made, but there are some significant obstacles to overcome. The next talks will be in Moscow between June 18-19th.

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report.

Britain’s largest insurer Aviva (LON:AV.) is “too cheap” according to broker Exane BNP Paribas.

It believes the stock is an attractive buy as the market struggles to see past blustery short-term headwinds following an investor revolt at the start of the month which led to CEO Andrew Moss stepping down.

Exane analysts, who have upgraded the stock to ‘outperform’ from ‘underperform’, reckon the new CEO will put investors first in an attempt to get them back on side.

“We consider it likely that the group will highlight the value in the UK estate cash flows yet to be released, value we believe consensus is currently ignoring,” they said ahead of an investor day in July.

Shares lifted 8 pence in early trading but dropped back to 269.7 pence at midday, up 1.7 pence from yesterday.

Broker Nomura is not recommending investors dive into coal mining stocks.

It says although the cost of coal could rise longer-term, it sees short-term headwinds as coal growth projects could be pushed back if coal prices drop as it expects.

The broker is nudging investors towards shares in BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO) as they avoid this risk.

It also points to contracting margins, which will mean developing projects will be “challenging”, especially for export thermal coal.

US heavyweight Morgan Stanley has United Utilities (LON:UU.) at the top of its list of UK water companies.

Fellow broker Nomura agrees, with a ‘buy’ tag on the stock.

It believes the tough economic outlook in the North West is already priced in and raises its target price by 20 pence to 715 pence.

“Like other regulated UK utilities, it offers a stable, attractive real return in an uncertain, low-yield world,” the broker concluded.

Shares rose 3.6 pence today to 640.6 pence.

HSBC has upgraded rival water company Pennon (LON:PNN) to ‘overweight’ from ‘neutral’ as it believes the economic fears are “overdone” in waste.

Its target price for the South West water firm has been raised by 30 pence to 830 pence on higher estimates, higher retail price index and lower tax expectations.

Shares are on the up today, rising 8.1 pence or 1.1 per cent to 730 pence so far.

Broker Daniel Stewart thinks today’s Pakrut project financing announcement should help boost Kryso Resources’ (LON:KYS) share price.

The US$93.5 million loan facility from China Nonferrous Metals and International Mining (CNMIM), Kryso’s largest shareholder, will be used to develop its Pakrut gold mine in Tajikistan.

Investec analysts, who are ‘buyers’, called it a “significant leap” and a good result in an otherwise “challenging market”.

The broker’s slightly reduced target price, down 6 pence to 42 pence, still represents good upside to the current price of 26.2 pence.

Westhouse Securities sees the Kalsaka mine life extension at fellow gold miner Cluff Gold (LON:CLF) as a “key move”.

The company announced the acquisition of the adjacent Sega mine on Wednesday which will potentially also increase the production profile for the combined area.

“Extending the LOM [life of mine] at Kalsaka is a key move for Cluff as it enables the company to continue to generate cashflow while remaining flexible over future plans,” Westhouse analysts said.

Tissue Regenix (LON:TRX) should be able to significantly expand its portfolio of products thanks to an upgraded agreement with the NHS’s Blood and Transplant unit, says Merchant Securities.

The company, whose dCell technology replaces worn-out or damaged body parts using cells from human and animal tissue, already has a chronic wound trial under way with NHSBT under its original deal.

“In summary, this development should allow TRX to accelerate current and planned activities in a world-leading clinical treatment and development network, which has international links into worldwide blood and tissue banks,” the broker said.

Mediterranean Oil and Gas (LON:MOG) has “turned the corner” according to Panmure Gordon.

The broker, which has a ‘hold’ stance at the moment, suggests investors keep an eye on the stock as further progress is likely to push up the share price above current levels.

It also highlighted the importance of a successful farm-out of Mediterranean’s Maltese Licence, which it says will be “transformational”.

Shares rose 0.72 pence or 14.9 per cent today to stand at 5.6 pence.

Northland Capital welcomed the news that Vane Minerals (LON:VML) will keep producing gold and silver in the medium-term at the La Colorada mine in Mexico.

The broker sees the exploration activity as the “key driver” for the shares which are down 0.145 pence or 15.7 per cent at 0.78 pence today.

WTI and Brent crude futures are seen modestly higher, picking up from lows seen overnight in Asia and moving in line with European stock futures. Volumes remain thin ahead of the NYMEX pit open, but may pick as the session progresses. The next risk event will come from the US with the final reading of University of Michigan Confidence data due at 1455BST/0855CDT.

Oil & Gas News:

The CME group have cut margins for Crude by 13%.

China may consider cutting diesel and gasoline prices for a second time this year after a fall in a basket of crude oil costs passed a trigger point used by Beijing to set prices, according to a Chinese information provider. However, C1 Energy have forecast that such a move will not be considered until early June as it has been less than a month since the last cut.

A new draft of Nigeria's long delayed oil bill, whose passage is needed to unblock billions of dollars of stalled investment into exploration and production, will be finalised this week, sources close to the matter said on Thursday.

Asia is seen as replacing the US as Nigeria’s biggest crude customer, amid surging output and refinery closures in the US.

Geopolitical News:

EU's Ashton said that following the P5+1 talks, it is clear that both sides want progress to be made, but there are some significant obstacles to overcome. The next talks will be in Moscow between June 18-19th.

Corporate News:

Shell may join Russia's Arctic Shtokman gas project, with Gazprom keeping its majority stake, according to reports.

Total and Inpex Corp are seeking USD 20bln in loans for the Ichthys LNG project in Australia, according to sources familiar with the talks.

Russian President Vladimir Putin has said that while non-state oil companies should be able to develop offshore resource assets, they should not be allowed to sell on their rights to foreign enterprises.

Gulf Keystone Petroleum has spudded the Sheikh Adi-2 exploration well on the Sheikh Adi Block in the Kurdistan Region of Iraq.

Glencore International bought 10,000 metric tons of naphtha from Bharat Petroleum Corp, according to three unidentified traders.

Weather News:

The latest Weather Derivatives update forecasts temperatures in the US for the next 6-10 days to be -0.2% cooler than normal for this time of year (using data accurate on the 24th May). Pacific Hurricane Bud has strengthened into a major Hurricane and is expected to cause flooding when it reaches the Southwest Mexican coast today, according to the NHC.

Morning View

Gold – central bank purchases may exceed 2011 - IMF 

• We view gold prices as well supported in the current, uncertain, economic environment 

• IMF figures released yesterday on central bank gold purchases suggest that nations are boosting their gold holdings to lend extra support to their trade and economic standing.  Major purchases were seen by the Philippines (32t bought in March), Sri Lanka (2t since January), Turkey (29t in April), Mexico (3t), Kazakhstan (2t), Ukraine (1.4t) 

Liquidity – institutions have been concerned at a potential lack of market liquidity this week

• Investors have been reluctant to buy as the Greek crisis pulled markets down

• Revisions to DGP growth in China, Europe and the UK on the back of the Greek crisis are not helping 

• BUT, investors are seen to be actively looking for ideas and opportunities and while there is a lack of trade, there is definitely no lack of interest in the mining sector (see Medusa comment below) 

Medusa Mining – presented to a packed room of private investors at the Chesterfield Hotel last night 

• The ‘Evening with Medusa Mining’ demonstrated the very considerable interest in the stock with over 100 investors in the room

• Management seem to have taken on near ‘rock star’ status with this hugely appreciative audience

• Mention of potential for a special dividend in future years might have helped

• Production growth from 65,000oz to 120,000oz for FY 2013 and 200,000oz in 2014 also looks like good news

Australia – Resource investment rises to $261bn in 98 projects with 39 mineral projects and 38 energy projects and 19 infrastructure projects

• Iron ore projects account for just 10% of the figure with new gas projects making up 60% of the investment spend

• Inflation is sure to continue to rise in Australia with so much inward investment 

• Australian dollar is also likely to remain relatively firm on this news although concerns over iron ore shipments and prices may add downward pressure

The Argentine – nationalisation of YPF stake held by Repsol of Spain is causing miners to re-examine investment projects in the region

• Xstrata reassessing plans for $5.5bn expansions at El Pachon and Agua Rica.

• Vale looking to dump its $6bn Rio Colorado potash project in Argentian

Eurovision – the most horrendous television song contest the world has ever known is on tomorrow night in Azerbaijan

• Thankfully better things do happen in Azerbaijan such as gold, copper and oil production.

• We have learnt that the Azerbaijan energy operator is fully ready for the ‘peak demand’ expected from the event

• Hopefully Anglo Asian Mining have stand-by generators in case Eurovision proves too much for the grid system

• It is traditional for the winning nation to host the Eurovision contest the next year and we wonder if Greece might back out as we are not sure they can afford to host the event next year.

• Whatever happens in Azerbaijan it looks better organised than ESKOM the South African power utility which is paying heavy energy users to not take energy so it can maintain supply to households and other industry.

Economic News

Europe – Figures released today by GFK indicate that German consumer confidence increased in May and is expected to improve again in June. 

• The German consumer has been robust of late with record low unemployment helping brush aside concerns over the fate of the Euro. 

• Expectations continue to mount that the ECB will have to deploy the so called Emergency Liquidity Assistance in greater force in the coming months. 

• Speculation continues to mount as to how many banks have now been moved onto the ELA program. 

• Under the ELA domestic central banks provide emergency liquidity to banks that are not in a position to provide “acceptable” collateral to the ECB. The result is that risk is held by the domestic central bank ring fencing the bank in question without sharing the liabilities with other euro members. 

• French consumer confidence unexpectedly rose for a third month as President Hollande was elected. The sentiment index rose to 90 from a revised 89 in April. 

US – Michigan confidence index for May will be announced today. Forecasts indicate that the level remained unchanged at 77.8 in May. 

• Initial jobless claims figures released yesterday were in line with expectations. 

• Continuing claims increased highlighting the headwinds still facing the labour market 

• Durable goods orders increased by 0.2% in line with expectations. 

China – Bank officials have warned that some of the country’s largest banks may fall short of loan targets this year. 

• If accurate, it will be the first time in seven years that lenders have failed to hit targets. 

• The decline in loan demand indicates the extent of the slowdown in China. 

• Interest rates will likely be dropped in the near term in an attempt to sustain demand. 

Japan – Consumer prices rose 0.2% in April indicating the third monthly increase. 

• The government could implement further monetary easing in the near term in an effort to sustain the price increases as it pushes for it 0.7% target by the end of the year. 

Australia – The average yield on 10 year bonds this week fell to 3.15% - the lowest level in 30 years. 

• Demand for Australian assets has continued to increase as the debt crisis in Europe prompts investors to seek safe haven assets. 

• The Aussie dollar has weakened further this morning as concerns continue to mount over China and the prospects a slowdown holds for Aussie exports. 

India –The country’s central bank chief has said that officials are committed to reducing the volatility of the rupee as the slump in the currency threatens to increase inflation. 

Singapore – Figures released today show that industrial production unexpectedly fell for the third time in 4 months in April as output of electronics and pharmaceuticals declined. 

• Electronics production decreased by 12.5% yoy in April. 

Thailand – Exports from the country unexpectedly fell last month – the 5th decline in 6 months. 

• Overseas sales dropped 3.67% from a year earlier as demand from western economies started to dry up. 

• Manufacturing has not returned to full capacity since the devastating flooding, but officials remain optimistic that their target of 15% export growth is achievable. 

Philippines – The Mines and Geosciences Bureau has forecast that mineral output this year may drop about 9% on the back of gold sales to central banks declining. 

Currency – The dollar is off today against its most traded counterparts. 

• The pound has strengthened marginally today against the dollar. 

• The yen is marginally weaker this morning against the dollar as the prospect of further stimulus from Japan increases. 

US$1.2556/eur vs 1.2590/eur yesterday. Yen 79.64/$ vs 79.50/$. SAr 8.340/$ vs 8.380/$. $1.566/gbp vs 1.569/gbp

Commodity News

Precious:

Gold US$1,562/oz vs US$1,561/oz yesterday – Prices are up this morning as dollar fell from nearly a 20-month high.

• CME Group, the world’s biggest exchange, lowered trading margins for gold, crude oil, unleaded gasoline and lean hog contracts, effective after May 29.

• Margins for gold have been cut by around 21% since the start of the year.

• SPDR gold trust holdings increased to 1,270t (40.840moz) value US$64.039bn from 1,268t (40.772moz). 

Platinum US$1,427/oz vs US$1,424/oz yesterday

Palladium US$591/oz vs US$592/oz yesterday

Silver US$28.29/oz vs US$27.94/oz yesterday

Rhodium US$1,390/oz vs US$1,390/oz last week

Diamond sales - Tiffany report disappointing sales sending stock down 8%.

• The company reported an increase in net worldwide sales of 8% to $819m .

• Sales in the Americas rose 3% to $386m but their NY flagship store reported a sales drop of 4%.

• Sales in Asia Pacific increased by 17% to $195m and in Japan sales rose by 15% to $88m.

• The company have downgraded their sales expectations to 7-8% in worldwide sales from 10% growth.

• The company continue to pursue store expansions with 24 new stores being added - 9 in the Americas, 8 in Asia Pacific and 2 in Europe.

• Conclusion: Tiffany still has a big exposure to US consumer spending where the disappointment and downgrade in sales has come from. Asia Pacific sales and expansion remain intact.

Base metals:

Copper US$ 7,635/t vs US$7,609/t yesterday – Copper set to record a fourth weekly decline on slowing demand in China and concerns Greece will exit the Euro zone. 

• Diego Hernandez, a CEO of the world’s biggest copper producer Codelco, resigned this week after two years in the job for personal reasons. CFO Thomas Keller will replace Hernandez.

• Japanese copper and copper-alloy fabricated goods production, including sheets and tubes, fell 8.1% yoy to 67,900t in Apr, dropping for an eleventh month, on slowing exports, the national Copper & Brass Association said.

• Copper market was in 100,000t deficit in Feb, the International Copper Study Group said.

• A launch of copper ETFs by JPMorgan might lead to a temporary shortage of the readily available metal in exchange inventories and increase metal price volatility.

• It is expected JPMorgan will be seeking to remove 61,800t of copper from LME-monitored warehouses to back the ETF marketed to retail investors.

• The product is currently reviewed by the Securities and Exchange Commission.

Aluminium US$ 2,021/t vs US$2,016/t yesterday

Nickel US$ 17,050/t vs US$16,872/t yesterday

• Norilsk will bid for Asian Mineral Resources that owns a nickel-copper project in Vietnam.

Zinc US$ 1,888/t vs US$1,881/t yesterday

Lead US$ 1,949/t vs US$1,943/t yesterday

Tin US$ 19,750/t vs US$19,425/t yesterday

Energy:

Brent crude US$106.54/bbl vs US$105.55/bbl yesterday- Near term outlook for oil prices off of weak manufacturing figures from Europe and China coupled with high stockpiles suggest further declines. 

• Iran talks have failed to reach any agreement other than to hold further talks to be held in Moscow on June 18-19th. 

• Military action against Iran to destroy nuclear facilities has not been ruled out by the U.S or Israel and the threat of sanctions is yet to have any desired effect. 

• When the sanctions do come into force, its likely that markets will feel more nervous fuelled by uncertainty of either sides action. 

• Meanwhile- Japan seeks more realistic options to ensure imports of Iranian crude are not disrupted 

WTI: US$90.59bbl vs US$90.16bbl yesterday 

US Crude: US$90.67/bbl vs US$ 90.50/bbl yesterday 

Natural Gas US$2.713/btu vs US$2.793btu yesterday

• Uncertainty over the division of royalties between states and municipalities which has required new legislation has held up Brazil’s 11th round of bidding which was due to take place in June. 

• The situation is causing frustration amongst small and mid-sized explorers with Brazil’s National Energy Policy Council still yet to publish official approval for the round which will open a six month bidding process. 

• Perception is that most of Brazil’s hydrocarbon wealth is locked in deepwater basins. 

• Around 45% of all discoveries in Brazil are less than 100/mmbbls and so of no interest to super-majors. 

Uranium US$51.50/lbs vs US$51.50/lbs yesterday- 

• UX consulting weekly spot as of 21st May 2012 was at US$52.00/lb (Unch) 

Coal- 

Richards Bay $88.90/t vs 88.55/t yesterday, 

Newcastle $91.60/t vs $91.90/t yesterday

Rotterdam $88.45/t vs $87.25 yesterday

Other:

Steel – Baoshan Group received an approval to build US$11bn steel plant in the southern port city of Zhanjiang.

• The plant will have an annual capacity of 9.2mt of iron, 10mt of steel and 9.38mt of steel products.

• The government delayed the approval of steel projects by Baosteel and Wuhan Iron & Steel Group in 2009 due to an overcapacity in the industry.

• The Zhanjiang plant will raise Baosteel’s capacity by 2.3% to 53mt, making it the second largest steel producer in the country.

Company News

Anglo American (LON:AAL) Coldelco resignation seen as positive for Anglo negotiations over Anglo Sur

• The resignation by the CEO of Codelco this week could be seen as a positive in negotiations over Anglo Sur.

• Codelco's previous stance taken very publically by their CEO was not particularly helpful given the scale of investment being made by Anglo into Los Bronces.

• Codelco need to grow their copper production but so do Anglo and there should be some middle ground in discussions.

• Coldeco is a Chilean state company with sales supporting the Chilean military.  Rumours are that Codelco may list in London at some stage.

Kryso Resources (LON:KYS) Debt Financing with China NonFerrous Metals International

• Kryso Resources has announced the arrangement of a loan facility with CNMIM, the company's largest shareholder.

• The loan which is in two parts amounting to US$83.5m will be for a US$10m and a RMB 520m loan.

• The loan has an interest rate of 9% and matures in May 2012 with equal payments due from November 2014.

• CNMIM is also planning to exercise its warrants in the company for 73.3m shares at a price of 21 pence giving them 40.7% of the company with gross proceeds of £15.4m.

• The company believe that the company is no longer subject to UK takeover rules as the company's central place of management and control is located outside the UK.

Conclusion: Minority shareholders should be aware that by placing the company outside the UK takeover code, majority shareholders such as CNMIM no longer have to make a mandatory offer for the company once their shareholding goes above 30%.

Vane Minerals (LON:VML) Copper Drilling Update

• Drilling programme at the Peg Leg target has produced negative results.

• Drilling at this target at 1,800 ft and 858 ft have returned weak sulphide mineralisation from both holes with field analysis showing weak to no copper at this target.

• The company has started RC drilling at their next target Railroad and their are planning a DC drilling programme at McGhee Peak on receipt of permits.

Mining this week:

Caledonia Mining (LON:CMCL) Transfer of 20% of Blanket Mine to Indigenous Parties

Uranium Resources (LON:URA) Update on Mtonya Uranium Exploration Programme

Bellzone (LON:BZM) Receives authorisation at Forecariah Mine in Guinea

Gemfields (LON:GEM) Quarterly Update 

Anglo Asian Mining* (LON:AAZ) Profits show strong growth on low cost production 

Solomon Gold* (LON:SOLG) Gold resource update for Rannes project in Australia

Alecto Minerals* (LON:ALO) £1.47m raised in a private placement

African Copper Plc (LON:ACU) Ball mill fails at Mowana Mine

Highland Gold (LON:HGM) Unkurtash project JORC resource rises to 3moz

Noricum Gold Ltd (LON:NMG) Exploration Update at Rotgulden Project

North River Resources (LON:NRRP)* Final Results highlight Namib lead/zinc mine activity

Ariana Resources (LON:AAU) Bonanza grades from drilling at the Red Rabbit Project

DiamondCorp (LON:DCP) Signs Term Sheet for Development Funding for Lace Mine

We have issued a report on DiamondCorp (LON:DCP) on 21.05.12

Vatukoula Gold Mines (LON:VGM) Interim Results to 29 Feb 2012

It believes the stock is an attractive buy as the market struggles to see past blustery short-term headwinds following an investor revolt at the start of the month which led to CEO Andrew Moss stepping down.

Exane analysts, who have upgraded the stock to ‘outperform’ from ‘underperform’, reckon the new CEO will put investors first in an attempt to get them back on side.

“We consider it likely that the group will highlight the value in the UK estate cash flows yet to be released, value we believe consensus is currently ignoring,” they said ahead of an investor day in July.

Shares lifted 8 pence in early trading to over 276 pence.

Broker Nomura is not recommending investors dive into coal mining stocks.

It says although the cost of coal could rise longer-term, it sees short-term headwinds as coal growth projects could be pushed back if coal prices drop as it expects.

The broker is nudging investors towards shares in BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO) as they avoid this risk.

It also points to contracting margins, which will mean developing projects will be “challenging”, especially for export thermal coal.

US heavyweight Morgan Stanley has United Utilities (LON:UU.) at the top of its list of UK water companies.

Fellow broker Nomura agrees, with a ‘buy’ tag on the stock.

It believes the tough economic outlook in the North West is already priced in and raises its target price by 20 pence to 715 pence.

“Like other regulated UK utilities, it offers a stable, attractive real return in an uncertain, low-yield world,” the broker concluded.

Shares rose 10 pence this morning to 647 pence.

HSBC has upgraded rival water company Pennon (LON:PNN) to ‘overweight’ from ‘neutral’ as it believes the economic fears are “overdone” in waste.

Its target price for the South West water firm has been raised by 30 pence to 830 pence on higher estimates, higher retail price index and lower tax expectations.

Shares are on the up this morning, rising 13 pence or 1.8 per cent already to 735 pence.

The Markets

Market opening: Markets consolidating after yesterday's rise could open lower today. FTSE 100 futures were trading 23.5 points down at 7:00 am. 

New York: Wall Street saw choppy, range-bound trading as investors fretted about Greece's future in the Eurozone. The S&P 500 tipped into the green to close 0.1% higher yesterday. 

Asia: Markets started on a positive note following a higher close on Wall Street. However, concerns about the global slowdown and the worsening situation in the Eurozone weighed on sentiment. The Nikkei 225 closed 0.2% up, while the Hang Seng was trading 0.3% down at 7:00 am. 

Continental Europe: Dismal data showing weakening economic activity in the Eurozone did not stop investors searching for a bargain, especially in the energy, banking and utilities sectors, after Wednesday's steep fall. Consequently, the German DAX and French CAC 40 ended 0.5% and 1.2% higher, respectively. 

UK small caps: The FTSE AIM All-Share index gained 0.6% yesterday. 

Today's news

Credit off-take in China slows 

Some of the biggest banks in China could undershoot this year's lending targets as demand for credit shrinks amidst cooling economic activity, three bank officials in the know said today. Demand for new loans was lower in April and May, and officials estimate banks could miss the government's ¥8-8.5tn target by about ¥1tn. 

ECB's Draghi urges 'courageous leap' 

European Central Bank President Mario Draghi called for a 'courageous leap of political imagination' while speaking at Rome's Sapienza University on Thursday. He urged governments not to undermine the importance of the growth pact while they focus on the fiscal compact to instil budgetary discipline. 

Company News

United Utilities (LON:UU.)

United Utilities announced results for the year ended 31st March 2012 yesterday. Revenue increased 3.4% to £1.6bn thanks to a 4.5% nominal increase in regulated prices offset by customers switching to meters and lower commercial volumes. However, pre-tax profit declined 14.3% to £280.4m, as the company increased investment in water and wastewater treatment facilities. Regulatory capital investment grew 12% to £680m. Underlying pre-tax profit dipped by £2.2m to £327m. EPS fell to 46.4p from 67.2p. The management aims to enhance efficiency to achieve the targeted dividend growth rate of 2% above RPI inflation, at least until 2015. Final dividend increased 6.7% to 32.01p per share. 

Our view: The utilities sector is not expected to be impacted by the on going weakness in the economy. Also, despite the drop in profits, the company has been able to keep its commitment of dividend growth. Attracted by the company's ability to deliver real return and higher yields compared to peers, we remain buyers of the stock. 

SABMiller (LON:SAB)

SABMiller said revenue grew 11% to US$31.4bn in FY2012 thanks to strong growth in the Latin American and African markets. Lager and soft drink volumes increased 3% and 7% respectively, on an organic basis. Organic revenue was up 7%. EBITDA swelled 12% (8% organic) to £5.6bn. EBITDA margin improved 10 basis points to 17.9%. Pre-tax profit soared 55% to £5.6bn. EPS grew 74% to US$2.66. The management expects a mid-single digit increase in input costs. They anticipate modest growth in consumer spending in the developed markets and continued robust growth in the developing markets. Dividend for the year was hiked by 12% to US$0.91. 

Our view: SABMiller's success is mainly due to its presence in emerging markets, where a younger population with rising disposable income is trading up to premium brands offered by SABMiller, spurring growth. The inclusion of Foster's has helped the Asia Pacific segment to report a 13% growth in volumes. The management said the integration was progressing well. However, it highlighted the growing trend of customers in the developed markets choosing trading down to value brands as rising inflation and low real wage growth constrain personal budgets. North America and Europe contribute about a third to SABMiller's EBITA. This, coupled with the expected increase in input cost, limits the upside potential for forecast revisions. At a premium valuation to peers, we see better value elsewhere in the sector. 

QinetiQ (LON:QQ.)

QinetiQ released results for the year ended 31st March 2012 yesterday. Underlying operating profit increased 10.9% to £161.3m despite a 13.7% fall in revenue to £1.5bn. Underlying profit margin improved to 11.0% from 8.5% in FY2011 helped by strong margin expansion at the UK service division and the global products division. Underlying pre-tax profit was up 3.2% to £118.3m. However, the management warned that the presidential election in the US could result in contract delays and reiterated that as governments re-balance budgets with spending cuts, the defense market is expected to remain challenging. Nevertheless, dividend for the year was increased to 2.9p per share from 1.6p per share. 

Our view: The restructuring plan is clearly yielding results in the form of margin improvements, despite a fall in revenue. Though the US and the UK defence budgets are expected to shrink, the alteration of the Ministry of Defence (MOD)'s veto rights could give the company more leeway in choosing clients and increase competitiveness. Also, the recent deal with Shell to supply the oil major with monitoring equipment for its natural gas fracking operations seems to be the next logical step of CEO Leo Quinn's turnaround plan for opening up another avenue for growth. 

Booker (LON:BOK) 

Booker said FY2012 total sales for the 53 weeks ended 30th March 2012 rose 9.4% to £3.9bn, driven by an increase in the number of customers and a 21% growth in internet sales. Like-for-like sales increased 6.1%. Operating profit jumped 17% to £89.6m. Pre-tax profit was up 27% to £90.8m and EPS grew 0.93p to 4.83p. The management said that the food wholesale market remained challenging with intensifying competition. However, a 'good' start to the current year makes them confident in meeting full year expectations. Total dividend increased 37% to 2.28p per share. 

ASOS (LON:ASC) 

ASOS released final results for the year ended 31st March 2012 yesterday. Revenue surged 46% to £494.9m, driven by a doubling of international retail sales which closed at £283.7m. Gross profit increased 51% to £251.9m implying a margin enhancement of 180 basis points to 50.9%. Retail sales margin improved 290 basis points to 49.5%. Pre-tax profit soared 93% to £30.4m. EPS doubled to 29.3p from 14.6p in the previous year. The management maintained a positive outlook for FY2013 which is expected to bring the company nearer to its target of £1bn in sales by 2015. 

Economic News

UK GDP

The Office of National Statistics (ONS) revised its Q1 2012 GDP estimate downwards to show a contraction of 0.3% deeper than the 0.2% reported previously. Construction activity shrank 4.8%, significantly more than the 3.0% decline reported initially. Industrial output fell 0.4% while manufacturing output remained flat. Service sector activity increased 0.1%. Personal consumption gained just 0.1%. A 1.6% increase in government spending added 0.4% to output. On an annual basis, GDP declined 0.1%. 

Our view: Economists, already sceptical about the ONS' earlier reading, were not expecting a downward revision to the GDP growth. Earlier in the week, the IMF urged the BoE to pursue a more accommodative monetary policy and expand its asset purchase programme to stimulate the stuttering economy. The BoE's minutes released on Wednesday revealed that though majority of members decided against stretching the quantitative easing programme, they were open to embarking on one, if the situation worsened. With recent inflation data showing inflation is at least not accelerating at the moment, the poor GDP data may heightened expectations that the BoE will pump in more fresh money in the near future, which in the long-term is bound to be inflationary. 

German IFO

Business sentiment index in Germany slumped 3 points to 106.9 in May, the IFO institute's survey showed yesterday. The gauge of current conditions dropped to 113.3 from 117.5 points in April touching its 21-month low. The measure of outlook for the next six months declined to 100.9 from 102.7 the previous month. 

Our view: The business climate index fell more than that expected by economists. The decline in the headline index is consistent with other morale measuring surveys. This indicates that the uncertainty in the Eurozone periphery is breaching German borders too. Though the German economy dodged a recession after recording growth of 0.5% in Q1 2012 (see below), the eroding business confidence suggests businesses expect activity to slow in the near term. 

US durable goods

Orders for durable goods grew 0.2% in April after declining 3.7% in March, the US Department of Commerce said yesterday. A 2.1% increase in orders pertaining to transportation offset the 2.8% fall in orders for machinery and a 34% drop in orders for military aircraft. Commercial aircraft orders, a very volatile series, rose 7.2% after dropping 46.6% in March. Orders for autos and auto parts increased 5.6%. Orders for durable goods, excluding transportation, dipped 0.6% after falling 0.8% in March. Orders for non-defense durable goods, excluding aircraft, a close lead indicator of business investment, declined 1.9% in April after declining 2.2% in March. 

Our view: The increased demand for durable goods is in line with economists' expectations. Buoyant orders for autos and auto parts suggest consumer demand is still strong. However, core durable goods orders, a proxy for business investment, dropped for the second month in April, suggesting factory activity was subdued as Q2 2012 commenced, which is a concern for a continued US recovery. 

Eurozone PMI

The flash composite purchasing managers' index (PMI) fell to 45.9 in May from 46.7 in April, index compiler Markit said yesterday. Economists' expected the reading to edge lower to 46.6. The index for services shrank to 46.5 from 46.9 in April, larger than the expected decline of 46.7. The manufacturing PMI slipped to 45.0 from 45.9 the previous month confounding economists forecasting a slight rise to 46.0. 

German GDP

The German economy expanded 0.5% q-o-q in Q1 2012 reversing the 0.2% contraction in Q4 2011, Destatis said yesterday. A 1.7% growth in exports and 0.4% increase in personal consumption contributed to the expansion. In Q1 2012, GDP grew 1.7% y-o-y following an increase of 1.5% in the previous quarter. The results were largely in line with market expectations. 

Mining News

ECR Minerals (LON:ECR) has appointed Richard Watts, a mining engineer, as a non-executive director. Mr Watts is currently a Principal Mining Consultant for Turgis Consulting and was formerly also a Principal Mining Consultant for SRK UK. This appointment has now completed the reconstitution of its board of directors. The Company now plans to look at maximising the value of its holdings in THEMAC Resources Group Ltd (TSX-V:MAC), West Wits Mining Ltd (ASX:WWI) and Paniai Gold Ltd (unquoted), divestment of non-core assets, principally its 70% interest in the ACS Asia metal products business and continue the exploration and development of its Sierra de las Minas gold project in La Rioja Province, Argentina, in particular focussing on the El Abra gold prospect.

Shanta Gold (LON:SHG) has announced that it plans a 1000 for 1 reverse consolidation of its Convertible Loan Notes due 2017, to amend the nominal value of the notes (US$25m) held by Computershare.

Vane Minerals (LON:VML) has announced the latest results of its porphyry copper exploration programme in SW USA. Unfortunately the two holes drilled at Peg Leg, New Mexico encountered weak sulphidation and weak to no copper values. The Company is now progressing its next target Railroad also in New Mexico, where drilling has commenced. Meanwhile work is progressing to obtain drilling permits at McGhee Peak where previous drilling indicated the presence of mineralisation and drilling is expected to recommence in late June/ early July.

Premier Gold Resources (LON:PGR), the Kyrgyzstan focussed gold exploration company has released its final results for the 11 months until the end of December, 2011. The focus for the year was on establishing the Company and identifying its first targets. This was achieved through the acquisition of Central Asia Resources, which provided two licences, the Cholokkaindy gold prospect and the Uzunbulak lithium prospect. Fieldwork during the year has now established 4 targets at Cholokkaindy with semi-continuous mineralisation and potentially economic gold grades. The 2012 work programme will include continued trenching at two of these targets, Talbaital and Jarkonush, to further constrain mineralisation and the Company expects to drill 1,500m targeting geophysical anomalies. Trenching will also extend to cover the other two targets at Aksai and Torsai in the east and north east of the licence. As well as its exploration targets, the Company is looking at further acquisitions.The Company finished the year with £919,427 in cash and raised an additional £350,000 in May, 2012 post period.

Kryso Resources (LON:KYS) has announced that its largest shareholder, China Nonferrous Metals International Mining (CNMIM), has agreed to provide a secured loan facility to the Company, which completes the planned debt financing requirement to finance the design, construction, operation and administration of the Pakrut gold mine in the Republic of Tajikistan. The loan will be in two denominations of US$ 10 million and RMB 530 million (approximately US$ 83.5 million). The Company expects to draw down the Loan by 20 June 2012. The US$ 10M loan will be disbursed directly to Kryso's bank account, whereas the RMB530M will be used to enter contracts and pay third parties for the development of Pakrut directly. All repayments will be made in US$ and in equal instalments commencing in November 2014, with the final repayment on 31 May 2017. The loan terms include an annual fixed interest rate of 9% together with a one-off management fee of 0.5%, which is payable upfront. Default interest is charged at 13.5% and the loan is governed by the law of China. CNMIM has also indicated that it intends to exercise its warrants for 73,333,333 shares at 21p per share. This will raise £15.4M for the company and take CNMIM's shareholding to 40.7%. However, the Takeover Panel has confirmed that the company does not fall under the jurisdiction of the City Code on Takeovers and Mergers and so CNMIM does not have to make a mandatory offer under Rule 9 of the Code.

Oil & Gas News

Gulf Keystone (LON:GKP) - Drilling Continues on Sheikh Adi: News that the Company has spudded its second exploration well, Sheikh Adi-2 on the Sheikh Adi block is welcome. Of more interest, however, is the geological characteristics of the northern part of the structure where the well is being drilled; this part of the structure appears to be more tightly folded and therefore GKP believes that it is more likely to have a well-developed system of natural fractures. The short-medium term outlook for shareholders is bolstered by the impressive preliminary resource estimate for the block of 1 to 3 billion barrels of gross oil-in-place as a result of the first exploration well, Sheik Adi-1. The medium to longer term outlook is buoyed by the development strategy for its Kurdistan assets and the remainder of its exploration portfolio. In the news:

• Sheikh Adi-2 will target prospective intervals in the Jurassic formation and has a planned TD of approximately 2,450 metres

• Being drilled in the northern part of the Sheikh Adi structure with the Discoverer-4 rig

• The northern part appears to be more tightly folded

• Preliminary resource estimates for the Sheikh Adi block is 1 to 3 billion barrels of gross oil-in-place (P90 to P10 estimates)

Medi Oil & Gas (LON:MOG) - Year-end results encouraging: Since the restructuring in May last year, the Company has made excellent progress across its portfolio as it tries to restructure both its financial and commercial position. Commencing production on the Guendalina gas field and subsequently entering into a gas sales contract with Repower Italia SpA was a significant achievement. In addition, the 18 month extension of the first exploration phase under the Malta offshore Area 4 Production Sharing Contract and the 3 year extension to the Company's exploration permit BR269 GC should both go some way to rebuilding and consolidating the Company's fortunes as it focuses on unlocking value within its Italian and Maltese assets. 

Oilex (LON:OEX) - Prepares for the commercialization of Cambay field: Today's news that the Company is formulating a drilling programme for the next phases of work at Cambay basin is a significant step towards the commercialization of the prospective basin. The Company has concluded suspension of Cambay-76H well following the problems faced during clean-up operations. Drilling has indicated porous hydrocarbon bearing intervals throughout the horizontal section which bodes well for the commercialization of the structure. It is also worthwhile noting that Cambay-76H well is the first tight reservoir well drilled in India. Oilex has identified six potential Eocene reservoirs and now plans to test the deeper zones in a four well drilling programme. Expect positive movements today. In this news:

• The Company previously announced that operations at the Cambay-76H well were to be suspended as a direct consequence of an apparently poor integrity of drill pipe and potentially adverse consequences of continuing to use this equipment.

• The first stage of work will comprise a well to be drilled from the Cambay-76H pad with the intention of re-entering and maximising the value of the large stimulated rock volume around the 610 metre well bore at Cambay-76H.

• The detailed design and precise location of the well will be finalised once engineering feasibility studies have been completed over the coming weeks and an update will be provided once drilling plans are finalised.

• Following demonstration of hydrocarbon flow from this well, the intention is to proceed with a three well work programme.

• Subsequent phase will be designed to acquire cores, modern wireline logs, reservoir fluid information and production test data that would assist the independent certifier to move contingent resources to reserves, generate sales of oil and gas for local markets as well as evaluating the significant potential of the deeper, tight reservoirs at Cambay Field.

ASIA

Nikkei share average closed higher by 0.2%, but closed 0.4% lower on the week, marking the eighth straight week of losses. The close shows the worst losing streak for the index in 20 years as fears over Europe and the global economy continue to loom. (Newswires)

Top performing sectors in the Nikkei 225: Consumer Services (+1.70%), Health Care (+1.38%), Utilities (+1.11%)

Worst performing sectors in the Nikkei 225: Basic Materials (-1.45%), Technology (-0.93%), Oil & Gas (-0.58%)

Chinese banks - Chinese banks officials said that Chinese banks may fall short of their 2012 lending goals following a decline in April and May, noting the economic slowdown has curbed loan demand. (Newswires)

US

Morning trade in US equities was fairly volatile as market participants deliberated mixed top tier US macroeconomic data. In-line initial and continuing jobless data mixed with less than impressive durable and capital goods components, despite the headline figure also being in-line with analyst expectations, failed to spur a continuation rally from the European session. By early afternoon, news that Chinese banks may miss their 2012 loan targets was enough to send the three major indices firmly into negative territory. Heading into the final hour, however, comments from Italian PM Mario Monti that more EU member states had been in favour of Euro-bonds than against them lifted equity futures off their lowest levels, and the SPX and DJIA back into the green, albeit on thinning volumes. Finally, the DJIA finished at 12529.75, up 0.27%; the NDX finished at 2531.35, down 0.62%; and the SPX finished at 1320.73, up 0.14%. (RANsquawk)

Top Performing Sectors in S&P 500: Consumer Goods (+0.84%) Health Care (+0.81%) Telecommunications (+0.59%)

Worst Performing Sectors in S&P 500: Technology (-0.97%) Industrials (-0.11%) Oil & Gas (0.00%)

Goldman Sachs – Co. are to set up a Japanese private REIT with an initial size of JPY 30-50bln this summer, according to source. The source said the trust will eye JPY 100bln in the longer-term. (Newswires)

Morgan Stanley/Facebook – Morgan Stanley has told brokers that Facebook trades from last Friday will be adjusted to ensure that no limit orders will be filled at more than USD 43.00 per share, according to a person familiar with the conference call. The adjustments will take place on a few thousand remaining shares. (Newswires)

Citigroup – Co. has completed the sale of 10.1% equity interest in Akbank, and expects USD 1.15bln in proceeds from the stake sale. (Newswires)

CME Group – Co. have declared a five-for-one stock split, in the form of a 400% stock dividend to be paid on July 20th to shareholders of record on July 10th. Co. believes the stock-split will appeal to a more diverse mix of investor portfolios. (Newswires)

UK

Royal Dutch Shell – Co. may replace Statoil ASA in Russia’s Arctic offshore Shtokman gas-extraction project, according to unidentified representatives of state gas producer OAO Gazprom. (Kommersant)

BG Group – Co.’s Brazilian Vice President said the co. plans to spend about USD 30bln on its Brazil oil and gas expansion by 2025. (Newswires)

InterContinental Hotels – Co. have announced their Chairman Webster will retire at the end of this calendar year to be replaced by former Unilever CEO Cescau. (Newswires)

Companies paying dividend: BG Group (GBP 0.09100) Inmarsat (USD 0.2773) RSA Insurance Group (GBP 0.06467)

OTHER UK

Gulf Keystone – Co. has drilled their Sheikh Adi-2 exploration well in Kurdistan, with estimated resources amounting to 1.8bln BBLs. (Newswires)

FRENCH

EADS – AirAsia is pondering the potential purchase of another 50 Airbus A320s, worth USD 4bln at current list prices. (Newswires)

EDF – Co. plans to merge its Polish assets and operate under the EDF brand within Poland, according to the Co. deputy chief officer. (Parkiet)

GERMAN

N/A

Companies paying dividend: Deutsche Telekom (EUR 0.7000)

Companies going ex-dividend: Deutsche Telekom (EUR 0.7000)

PAN EUROPEAN

Italian Banks – S&P said that Italian banks are bearing the brunt of the Euro-zone crisis, as fears over economic contagion may be causing investors to re-price risk, as the pricing of the bonds and CDSs of BMPS, Intesa Sanpaolo and UniCredit suggest that investors consider these banks to be riskier than S&P’s investment-grade ratings on them otherwise imply. (Newswires)

Spanish Banks – The auction of seized lenders CatalunyaCaixa, Banco de Valencia and Novagalicia Banco may be cancelled by the government as it considers merging them in a single state-controlled entity, according to unidentified sources in the financial sector. (El Pais)

Bankia – Co. will ask for over EUR 15bln when presenting restructuring plans today, according to people familiar with the situation. (Newswires)

Dexia Bank Belgium - Moody's downgraded the co. to Baa1; outlook stable. (Newswires)

Akzo Nobel – Co. has reached a deal with Swiss Re to cap the risk that 17,000 UK employees will live longer than expected when they retire. The deal covers EUR 1.75bln worth of liabilities. (FT-More)

SMI

Roche – Co.’s Pertuzumab cancer drug has received a priority review from the FDA for distribution in Japan. The drug’s 2012 revenue was CHF 82.3mln, with 2015 expected revenues of CHF 1.04bln. (Newswires)

Richemont – Co. has recently turned down a EUR 4bln acquisition proposition of a jewellery company, according to the CEO. The CEO said no acquisitions are planned at the moment. (Financial Mail)

BROKER MOVES

SABMILLER RAISED TO HOLD VS SELL AT INVESTEC

ARM RAISED TO BUY VS NEUTRAL AT UBS

AVIVA UPGRADED TO OUTPERFORM FROM UNDERPERFORM AT EXANE

U.K. OIL & GAS RAISED TO OVERWEIGHT VS NEUTRAL AT UBS

SIEMENS UPGRADED TO BUY FROM HOLD AT DEUTSCHE BANK

E.ON UPGRADED TO NEUTRAL FROM UNDERWEIGHT AT HSBC

SAP RAISED TO BUY VS HOLD AT COMMERZBANK

Former MPC member Julius has said that an IMF-recommended rate cut might have a short-lived announcement effect; it would be unlikely to make a difference to the rates that banks offer to borrowers. (FT-More) Julius adds that the most effective of the IMF’s proposals is a change in the type of quantitative easing and liquidity support offered by the BoE, adding that the suggestion that QE should be expanded to include private-sector bonds is the most sensible.

Changes to inflation calculations that could save the Chancellor billions of pounds a year — while hurting gilts investors — are being considered. (Times) A committee that advises the UK Statistics Authority may recommend an overhaul that could permanently pare back gains in the retail prices index. If the changes are adopted, they could lead to a reduction in interest payments on government bonds that are linked to the RPI. This would help George Osborne to save as much as GBP 3bln a year in interest paid on index-linked gilts, according to calculations from Alan Clarke, an economist at Scotia Capital.

London’s reputation as a global centre for capital markets suffered another blow yesterday when a third company pulled its planned London Stock Exchange listing in the space of a fortnight. (CityAM) Georgian Railway blamed market turmoil as it postponed plans to raise up to GBP160mln by selling as much as a quarter of its stock. Its decision represents a blow to the City, just 24 hours after bid vehicle Tungsten put off a GBP 200mln fundraising and two weeks after a similar move by Russian property investor O1 Properties.

David Brooks: How change happens - This interesting article published by the NYT and IHT goes to the heart of the US presidential election debate. Here is the opening:

Forty years ago, corporate America was bloated, sluggish and losing ground to competitors in Japan and beyond. But then something astonishing happened. Financiers, private equity firms and bare-knuckled corporate executives initiated a series of reforms and transformations.

The process was brutal and involved streamlining and layoffs. But, at the end of it, American businesses emerged leaner, quicker and more efficient.

Now we are apparently going to have a presidential election about whether this reform movement was a good thing. Last week, the Obama administration unveiled an attack ad against Mitt Romney's old private equity firm, Bain Capital, portraying it as a vampire that sucks the blood from American companies. Then Vice President Joseph Biden Jr. gave one of those cable-TV-type speeches, lambasting Wall Street and saying we had to be a country that makes things again.

The Obama attack ad accused Bain Capital of looting a steel company called GST in the 1990s and then throwing its workers out on the street. The ad itself barely survived a minute of scrutiny. As Kimberly Strassel noted in The Wall Street Journal, the depiction is wildly misleading.

My view - I do think this topic is at the centre of the US presidential debate, or at least it should be. I remember the earlier corporate transformation that David Brooks refers to. My own take on the subject is that it moves in cycles and that corporate America became bloated and complacent again in the 1990s.

In the worst excesses, management was gaming the system with golden hellos, short-term contracts for CEOs, lucrative option schemes and golden parachutes, even for poor results. Some of the best US companies were losing competitiveness in the early days of globalisation.

The wakeup call came in 2008. Corporations, and not just in the USA, went into survival mode, reduced overheads and upgraded their technology. Today, many are much more competitive, with strong balance sheets, boosted by earnings from all over the globe. They are also looking after their shareholders by increasing dividends. These are the corporate Autonomies and Dividend Aristocrats which Fullermoney prefers.

Today, Europe also wants growth in addition to debt reduction austerity, but will it opt for an even bigger public sector or create more business friendly policies?

Email of the day (1) - On the USD/BRL:

"Good morning. Would you say that the BRL daily move constitutes a key day reversal?"

My comment - Yes, and thanks for pointing it out. USD/BRL clearly shows a sizeable key day reversal following an extremely consistent uptrend until some climactic acceleration recently. You may have also noted that the move started with a smaller upside key day reversal on 29th February.

What are the implications?

This item continues in the Subscriber's Area and leads to a broader market discussion.

Facebook: Hype of the decade or another successful tech growth story? - This item is in the Subscriber's Area.


Email of the day (2) - On similarities with 2008:

"As ever your service is invaluable but I am at the stage where I am looking at the charts and seeing similarities between now and the start of the 2008 crash. Please accept my apologies for the attached word document but I have cut and paste the chart from your library for the FTSE100 between 2006 and mid 2008 and tried to compare it as best as I can against the chart from 2010 to today. They look very similar to me. Of course the FTSE then crashed after the point that I cut it off from on the 2008 chart. My question therefore is do you see the same patterns and what probability do you place on a similar crash as in 2008, with Greece and Spain playing the role of Lehman and Northern Rock?

"We have placed our clients' portfolios extremely defensively for the time being with exposure to the aristocrats, cash, inflation linked bonds and the US dollar via treasuries. We have also had some clients start to take money out of Santander which is worrying as they are not particularly sophisticated investors.

"I have promised myself to get to one of your chart seminars but each time the timing is rotten as I seem to have new born to keep me occupied during the May London seminars and other life events happening at the November ones. Maybe a Caribbean one in the future to keep the wife and kids happy whilst I go off and study charts!"

My comment - Thank you for your kind words, fascinating email of general interest and emotive graphic.

This item continues in the Subscriber's Area.

Email of the day (3) - On "The death of equities… again?":

My thanks to a subscriber for this interesting item which is posted in the Subscriber's Area.

ASIA

JGBs were seen marginally lower, with 10-yr JGBs trading down 7 ticks at 143.09 heading into the EU session, dealers noted that pension funds are looking to sell short-end paper, and seems likely that they will soon start month-end buying. Last price taken at 0600BST. (Newswires)

Japanese National CPI (Apr) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.5%)

Japanese National CPI Ex Food, Energy (Apr) Y/Y -0.3% vs. Exp. -0.4% (Prev. -0.5%) (Newswires)

Chinese bank officials said that Chinese banks may fall short of their 2012 lending goals following a decline in April and May, noting the economic slowdown has curbed loan demand. (Newswires)

According to a central bank-run paper, the possibility of cuts to China‟s benchmark lending rates in the near term cannot be ruled out, although room for such cuts is „very limited‟. (Financial News)

An ADB senior economist has said China‟s economy will likely bounce back between July and September after reaching a low in the current quarter, as Beijing works to spur growth with infrastructure investments and monetary policy fine-tuning. The economist is sticking with his 8.5% forecast for Chinese growth in 2012. (Newswires)

JP Morgan now sees Chinese GDP growth of 8% in 2012. (Newswires)

US

T-notes settled in negative territory for the day as early selling pressure emerged on speculation of a potential liquidity scheme from the ECB grabbed attention. Additionally comments from Fed's Dudley on the end of operation twist prompted decent selling from dealers. The 7y note auction was about par, with the lowest yield on record at this maturity, buy-side demand was a little weak, however treasuries bounced slightly into the close with short-sets seen covering. At the pit close, t-notes settled at 133.17+, down 8 ticks. Finally, the DJIA finished at 12529.75, up 0.27%; the NDX finished at 2531.35, down 0.62%; and the SPX finished at 1320.73, up 0.14%. T-notes were seen trading down 1+ ticks at 133.16 following a relatively quiet overnight trading session. Last price taken at 0635BST. (RANsquawk)

The results of yesterday‟s USD 29bln 7y note auction heralded a record low yield of 1.203% vs. exp. 1.203%, with the WI stopping at 1.200%; indirects were 42.7% vs. avg. 39.31% (prev. 38.28%); and the allotted at high was 91.24%. (Newswires)

Fed's Dudley said he endorses the current Fed policy, including extraordinarily low rates until 2014, adding that the costs of further easing would likely exceed the benefits should economic growth cut into the Fed‟s unused resources. (Newswires) The Fed Vice Chairman added that he would consider tightening fiscal policy earlier if US growth strengthened enough to materially improve the medium-term outlook.

Foreign Central Bank holdings of US debt rose USD 16.84bln to USD 3.510trl as of May 23, Fed holdings of US Treasuries total USD 1.657trl as of May 23 vs. USD 1.657trl the prev. week, Fed holdings of agency debt total USD 93.25bln as of May 23 vs. USD 94.17bln the prev. week and Fed holdings of MBS totalled USD 864.99bln as of May 23 vs. USD 858.230bln the prev. week. (Newswires)

EUROPE

Italian PM Monti said the majority of the leaders at the EU summit backed Euro-bonds, and believes the Euro-area could have Euro-bonds “soon”. (Newswires)

A Greek Public Issue poll showed that the Greek far-left Syriza party now leads with 30% of the vote followed by the New Democracy party with 26% and PASOK with 15%. The poll also showed that 85% of Greeks are in favour of the EUR with 12% opposed. (Newswires) However, a Second Greek poll this from Pelop showed New Democracy leading with 23.5%, Syriza second with 23% and PASOK third with 10.6%.

ECB's Asmussen said the ECB‟s 3-year LTRO loans will not fuel inflation, but if inflation risks emerged, the ECB would act. (Newswires) The ECB official also said that EIB instruments could be used to enhance growth, but that the bulk of the responsibility lies with governments.

Spain may have to raise its 2011 deficit figure once again after the examination of accounts of regions and city halls is completed. (El Pais) The reports follow the Spanish government having previously revised higher their 2011 deficit figure to 8.9% from 8.5% of GDP.

French President Hollande may levy part of this year‟s wealth tax as an exceptional payment, according to unsourced reports. (Les Echos)

Bankia will ask for over EUR 15bln when presenting their restructuring plan today, according to people familiar with the situation. (Newswires)

FX

JP Morgan have cut their Australian 2012 GDP forecast to 2.7% from 3.0%, and their 2013 forecast to 3.0% from 3.3%. Core inflation forecast for the country in 2012 has been cut to 2.3% from 2.4% and 2013 forecast to 2.7% from 2.9%. JP Morgan expect the RBA to cut rates once more in 2012, likely in August. (Newswires)

NY Fed said the total dollar swap facility borrowings fell to USD 26.425bln in the week ending May 23rd, and that the ECB tapped USD 300mln from the dollar swap facility in the same week. (Newswires)

GEOPOLITICAL

EU's Ashton said that following the P5+1 talks, it is clear that both sides want progress to be made, but there are some significant obstacles to overcome. (Newswires) The next talks will be in Moscow between June 18-19th.

COMMODITIES

WTI crude futures were seen trading down USD 0.17 at USD 90.51, extending on its longest run of weekly declines since August, on concerns of an economic slowdown in China, following reports that Chinese banks may fall short of their 2012 lending goals. Last price taken at 0630BST. (RANsquawk)

The CME group have cut margins for Crude by 13% and Gold by 19%. (CME)

UK Market Snapshot

UK markets closed higher yesterday, following European Council President Herman Van Rompuy’s suggestion that there should be a tighter fiscal union between the 17 euro zone members. Earlier in the session, stocks traded lower as data released indicated that the British economy officially went into a double dip recession in the first quarter and China’s manufacturing activity would contract for a seventh month in May. Miners, Randgold Resources, Vedanta Resources and Rio Tinto jumped between 1.7% and 8.0%, as metal prices traded higher. Energy stocks, BP, BG Group and Royal Dutch Shell rallied between 2.2% and 3.3%, led by gains in crude oil prices. United Utilities gained 2.7%, following a lower-than-expected fall in its full year profits. The FTSE 100 rose 1.6% to close at 5,350.1, while the FTSE 250 added 0.9% to settle at 10,472.5.

US Market Snapshot

US markets closed mostly higher yesterday, as Italian Prime Minister, Mario Monti, stated that Greece is likely to remain in the Euro bloc that outweighed downbeat European and Chinese economic data. Hewlett-Packard climbed 3.3%, following stronger-than-expected second quarter earnings and revenue and after it announced plans to cut its workforce by 27,000. Energy stocks, Chevron and Exxon Mobil gained 1.1% and 0.7%, respectively, as crude oil prices traded higher. Dow Chemical rallied 3.4%, following an announcement by the company that an arbitration panel ruled that Kuwait must pay $2.16 billion in damages after it cancelled a 2008 agreement to buy a stake in the company’s plastics business. Tiffany declined 6.8%, after lowering its full-year sales and profit forecasts. The DJIA rose 0.3% to settle at 12,529.8, while the NASDAQ slid 0.4% to close at 2,839.4. The S&P 500 gained 0.1% to settle at 1,320.7.

Europe Market Snapshot

Other European markets finished higher yesterday, as gains in commodity and banking sector stocks overweighed downbeat European economic data and disappointing meeting of European Union leaders. ArcelorMittal and Total climbed 2.8% and 1.5%, respectively, on higher commodity prices. Banks, Societe Generale, BNP Paribas and Deutsche Bank jumped between 0.8% and 2.3%, on higher risk appetite amongst investors. Utility stocks, RWE and E.ON gained 2.2% and 2.1%, respectively, following broker upgrades. Exporters, Siemens, Daimler and BMW added between 0.3% and 1.2%, amid reports that German’s gross domestic product rose 0.5% in the first-quarter. The FTSEurofirst 300 index gained 1.1% to close at 982.6. Among other European markets, the German DAX Xetra 30 rose 0.5% to close at 6,315.9, while the French CAC-40 advanced 1.2% to settle at 3,038.3.

Asia Market Snapshot

Markets in Asia are trading mostly higher this morning, amid hopes that Greece would remain in the Euro zone and following data that showed Japan’s consumer prices rose in April. In Japan, Japan Tobacco is trading 4.8% higher, amid reports that the company agreed to buy Belgium-based Gryson NV for $597 million. Realtors, Mitsui Fudosan and Mitsubishi Estate are trading 1.4% and 1.1% higher, respectively, amid areport that Goldman Sachs Group would start investing in Japanese real estate for the first time since 2008. In Hong Kong, Agricultural Bank of China and Industrial & Commercial Bank of China are trading 2.2% and 1.7% lower, respectively, on concerns that the banks might fall short of lending targets for the first time in at least seven years. In South Korea, Daewoo Shipbuilding & Marine Engineering and Hyundai Mipo Dockyard are trading 0.6% and 1.9% higher, respectively. The Nikkei 225 index is trading 0.1% higher at 8,570.9. Hang Seng index is trading 0.2% down at 18,629.3, while the Kospi index is trading 0.2% higher at 1,818.1.

Commodity, Currency and Fixed Income Snapshots

Crude Oil

At 0335GMT today, Brent Crude Oil one month futures contract fell 0.25% or $0.27, to trade at $106.28 per barrel, on concern that an economic slowdown in China would affect fuel demand. Yesterday, the contract gained 0.94% or $0.99, to settle at $106.55 per barrel, amid speculation that talks on Iran’s nuclear program have stalled during two days of negotiations in Baghdad.

Gold

At 0335GMT today, gold futures contract fell 0.37% or $5.80, to trade at $1554.00 per ounce, as the dollar strengthened against other major currencies and after the EU summit did not yield expected results, decreasing the appeal of the precious metal. Yesterday, the contract rose 0.74% or $11.4, to close at $1559.80 per ounce, following China’s pledge to consider reforms to boost economic growth.

Currency

At 0335GMT today, the EUR weakened against the USD, marginally losing 0.07%, to trade at $1.2526, as the preliminary composite PMI in the Euro-zone dropped to 45.9 in May, compared to 46.7 posted in April. Market had expected the index to fall to a reading of 46.6 in May. Yesterday, the EUR fell 0.21% versus the USD, to close at $1.2535, as initial jobless claims in the US fell to 370,000, compared to the previous week's revised figure of 372,000. Market was expecting the claims to drop to 371,000, following 370,000 claims originally reported for the previous week.

At 0335GMT today, the GBP weakened slightly against the USD, losing 0.04%, to trade at $1.5651, as the Index of Services in the UK increased less-than-expected by 0.1% in March, following a revised 0.1% rise recorded in February. Market had expected the index to rise 0.2% in March. Yesterday, the GBP fell against the USD, losing 0.14%, to close at $1.5658, after the Gross Domestic Product in the UK dropped 0.3% in the first quarter of 2012 following a similar 0.3% fall recorded in the previous quarter. Market had expected the GDP to drop 0.2% in first quarter of 2012.

Fixed Income

In the US, long term treasury prices fell yesterday, pushing the yields on 30-year bond higher, amid reports that the US economy is continuing to recover, and after the US government sold seven-year bonds at a record-low yield. Yesterday, yields on 10-year notes gained 4 basis points to 1.77%, while yields on 2-year notes gained 1 basis point to 0.29%. Meanwhile, 30-year bond yields increased 5 basis points to 2.86%.

Key Economic News

UK economy contracted more than initially estimated in 1Q FY2012

On a sequential basis, the Gross Domestic Product (GDP) in the UK dropped 0.3% in the first quarter of 2012 (1Q FY2012), slightly higher than a 0.2% drop previously estimated and following a similar 0.3% fall recorded in the previous quarter. Market had expected the GDP to drop 0.2% in 1QFY2012. On an annual basis, GDP fell 0.1% in 1QFY2012, compared to a preliminary estimate of a flat growth and a 0.5% rise recorded in the previous quarter.

UK mortgage approvals rose more-than-expected in April

The British Bankers' Association (BBA) reported that mortgage approvals for house purchases in the UK rose to 32,438 in April, compared to upwardly revised approvals of 31,931 recorded in March. Market had expected mortgage approvals to rise to 32,000 for April.

UK service sector output rose less-than-expected in March

On a three-month vs three month ago basis, the Index of Services in the UK increased 0.1% in March, following a revised 0.1% rise recorded in February. Market had expected the index to rise 0.2% in March.

UK total business investment rose more-than-estimated in 1Q FY2012

On a yearly basis, total business investment in the UK rose 14.2% in 1Q FY2012, marking the biggest yearly rise since 2Q FY2005 and compared to a 1.6% rise recorded in the previous quarter. Market had expected total business investment to rise 9.2% YoY in 1Q FY2012. On a quarterly basis, total business investment rose 3.6% in 1Q FY2012, compared to a 3.3% drop recorded in the previous quarter. Market had expected business investment to drop 1.0% QoQ in 1Q FY2012.

Germany economy rebounded in 1Q FY2012

On a seasonally adjusted quarterly basis, the GDP in Germany rose 0.5% in 1Q FY2012, in line with initial estimates and compared to a 0.2% drop recorded in the previous quarter.

German business confidence declined more-than-expected in May, indicates IFO

The Ifo Institute reported that the Business Climate Index in Germany dropped to a reading of 106.9 in May, marking the first drop since October 2011 and compared to a reading of 109.9 posted in April. Market had estimated the index to drop to a reading of 109.4 in May. Additionally, the Current Conditions Index fell to a reading of 113.3 in May, marking the lowest reading since July 2010 and compared to a reading of 117.5 posted in April. Market had expected the index to drop to a reading of 117.1 in May. The Expectations Index fell to a reading of 100.9 in May from a reading of 102.7 posted in April. Market had expected the index to fall to a reading of 102.0 in May.

German manufacturing PMI dropped unexpectedly in May

On a seasonally adjusted basis, the preliminary manufacturing Purchasing Managers’ Index (PMI) in Germany dropped to a reading of 45.0 in May from a reading of 46.2 posted in April. Market had expected the index to rise to a reading of 47.0 in May. Meanwhile, the preliminary services PMI stood at a reading of 52.2 in May, unchanged from the previous month’s reading. Market had expected the index to drop to a reading of 52.0 in May.

Germany’s Angela Merkel reiterated oppositions to euro bonds

German Chancellor, Angela Merkel has reinforced her opposition to the idea of issuing euro bonds, as the leaders concluded the meeting with few concrete plans to address the deepening crisis. She said, “we have different views on euro bonds. We need much stronger economic coordination in the Euro-zone.” Merkel added that euro bonds will violate the EU treaty and would not help to kick-start growth. Meanwhile, new French President, Francois Hollande insisted that the option should be actively considered. The idea of eurobonds is backed by several euro members and the European Commission.

French manufacturing PMI dropped to three year low in May

On a seasonally adjusted basis, the preliminary manufacturing Purchasing Managers' Index (PMI) in France dropped to a reading of 44.4 in May, marking the lowest level in thirty-six months and compared to a reading of 46.9 posted in April. Market had expected the index to rise to a reading of 47.0 in May. Meanwhile, the preliminary services PMI stood at reading of 45.2 in May, unchanged from the previous month’s final reading. Market had expected the index to rise to a reading of 45.7 in May.

France business confidence fell more-than-expected in May

The statistical office Insee reported that the business confidence in France dropped to a reading of 93.0 in May from a reading of 95.0 recorded in April. Market had expected the index to fall to a reading of 94.0 in May.

Euro-zone composite PMI dropped more-than-expected in May

The preliminary composite PMI in the Euro-zone dropped to a reading of 45.9 in May, marking the fastest rate of decline since June 2009 and compared to a reading of 46.7 posted in April. Market had expected the index to fall to a reading of 46.6 in May. Additionally, the preliminary manufacturing PMI fell to a reading of 45.0 in May, marking the lowest level in thirty-five months and compared to a reading of 45.9 recorded in April. Market had expected the index to rise to a reading of 46.0 in May. The services PMI dropped to a reading of 46.5 in May from a reading of 46.9 posted a month ago. Market had expected the index to fall to a reading of 46.7 in May.

ECB’s Mario Draghi defends ECB's liquidity injections

European Central Bank (ECB) President, Mario Draghi stated that Europe's leaders need to make a “joint and irreversible” decision on what their union should be and map a way to get there together. He said, “Inflation is correlated to bank deposits and not to liquidity reserves" that banks may hoard amid a crisis.

EU wants Greece to remain in euro zone, says Van Rompuy

European Council President, Herman Van Rompuy stated that the European leaders have voiced their strong desire for Greece to remain in the euro zone and honor its commitments under previously agreed bailout deals that require the implementation of reforms and unpopular austerity measures.

Germany can be convinced on Euro bonds, says Monti

Italian Prime Minister, Mario Monti, stated that Italy can help persuade Germany to support Euro bonds as a united Europe is in Germany’s interest. He further indicated that Greece will probably remain in the union; however its next government must live up to the bailout pledges.

Swiss trade surplus declined unexpectedly in April

The trade surplus in Switzerland decreased to CHF1.33 billion in April from CHF1.58 billion recorded in March. Market had expected the trade surplus to rise to CHF1.9 billion in April.

US durable goods orders rose in April

On a monthly basis, durable goods orders in the US rose 0.2% in April, compared to a revised 3.7% drop recorded in March.

US jobless claims dropped last week

For the week ended 19 May 2012, initial jobless claims in the US fell to 370,000, compared to the previous week's revised figure of 372,000. Market was expecting the claims to drop to 371,000, following 370,000 claims originally reported for the previous week. Additionally, for the week ended 12 May 2012, continuing claims in the US fell to 3.26 million, compared to the preceding week's revised level of 3.289 million.

US manufacturing PMI dropped in May, indicates Markit

The Markit economics reported that its flash manufacturing PMI in the US fell to a reading of 53.9 in May from a reading of 56.0 posted in April.

No need for further easing at present, says Dudley

President of the Federal Reserve Bank (Fed) of New York, William Dudley, indicated that as long as the US economy continues to grow sufficiently, there is no need for any additional stimulus. However, he added that a slowdown in the labour market could tilt the support towards more easing measures.

Japan consumer prices rose in April

On an annual basis, the nationwide Consumer Price Index (CPI) in Japan rose 0.4% in April, in line with market estimates and compared to a 0.5% increase recorded in March. On a yearly basis, Core CPI in Japan rose 0.2% in April, compared to a same rate of rise recorded in the previous month. Market had expected the index to rise 0.1% YoY in April.

Economy shifting towards pick-up phase, says BoJ

The Bank of Japan (BoJ) stated that Japan's economy is shifting toward a pick-up phase, although its economic activity has remained more or less flat. In the monthly report, the BoJ stated that domestic corporate goods prices would rise at a slower pace, reflecting slowdown in global commodity prices. The annual increase in consumer prices is forecast to remain at around zero percent for the time being.

Saints & Sinners: Mining   

Arian Silver (LON:AGQ) have slipped to a very interesting level down here at 16.5p a share, which is a fair way from the recent high of almost 30p. The last few times the shares have been down at this level, October last year and January this year, they have jumped rather aggressively. We will be watching for any signs of another bullish turn around in the stock, as I type the share are 3% higher at 16.75p at the mid-price.

Canada's second-largest copper producer First Quantum (LON:FQM) pushed 9% better to 1161p on renewed bid speculation. Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) have been touted as possible bidders but we can't see this happening given they have both stated their intention to focus less on growth and more on managing costs. However, Anglo American has also been talked of as a possible interested party. Anglo should have a war chest on selling interests in Chile and we think they are the most likely suspect should a bid arise. Regardless of a bid we think First Quantum offer good mid-term value. They have strong growth projects and are projected to boost EBITDA by 84% over the next three years, according to analysts' estimates compiled by Bloomberg. It plans to more than triple copper production within five years as it starts up mines in Peru, Finland and Zambia.

ATH Resources (LON:ATH) collapsed 22% to 10.25p at the mid-price during early trading after the company said that reduced coal prices continue to impact its margins resulting in further reductions to trading performance expectations, adding that it will defer the planned Glenmuckloch Eastern extension due to the lower coal prices. While demand for coal generally remains strong, international prices have fallen significantly in the past nine months, especially in the past few months. The Board will either proceed or begin final restoration of the current site towards the end of this calendar year. The deferment will have little impact on production levels in the current financial year, but if the Board decides not to proceed at all, volumes would be reduced by 500,000 tons during the following two years.

Aquarius Platinum (LON:AQP) eased another 4% to 71.75p on decent volume after Morgan Stanley started the company at Underweight. The shares have been under a lot of pressure since they announced the underground fire at its Mimosa mine in South Africa has been extinguished and a damage assessment has been made, adding that mining operations are expected to restart by May 28 and that mining output will be at an average of 70% of normal production for about three weeks.

The rollercoaster ride that is Rare Earths Global (LON:REG) jumped 36% to 450p after hitting a recent low of 330p. The shares are still a long way from the 52 week high of 1250p.

After the recent slip from 5p down to 1.875p it was no real surprise to see a few bargain hunters stepping in on a very bullish day in the markets on Botswana Diamonds (LON:BOD) The shares jumped by 13% to 2.125p at the mid-price during afternoon trading.

From the Trading Floor   

Another bullish session in the FTSE 100 today, but the real question is, can we string more than just a one day bonce together before we have another big sell off? As I type the FTSE 100 is 74 points higher at 5340 +1.36% on volume of 437 million shares, which does not show me that people are jumping in feet first believing this rally will continue. The FTSE AIM All-Share Index is 0.29% higher on volume of 487 million shares.

Commodities Corner   

Gold - ↑Trading at $1568, up $8 (+0.56%)

Silver - ↑Trading at $28.29, up 51c (+1.86%)

Copper - ↑Trading at $7572, up $29 (+0.38%)

Zinc - ↓Trading at $1867, down $6 (-0.32%)

WTI Crude - ↑Trading at $90.61, up 71c (+0.79%)

Brent Crude - ↑Trading at $106.19, up 64c (+0.61%)

Any questions please don't hesitate to contact me at steve.asfour@fox-davies.com or visit www.viewsfromthetradingfloor.com or www.fox-davies.com

Heavyweight broker JP Morgan Cazenove likes the look of coloured gemstone miner Gemfields (LON:GEM).

It has an ‘overweight’ recommendation for the stock and a target price of 44 pence against the current price of 38 pence, up 1 pence today.

The broker highlights the intensifying demand for emeralds particularly in Asia as a catalyst for the stock.

JP Morgan analysts said: “We believe Gemfields has a very strong position in the production and marketing of coloured gemstones that provides a solid foundation for ongoing growth.”

East Africa-focused oil and gas company Wentworth Resources (LON:WRL) has the capital needed for growth, Panmure Gordon believes.

The broker says it’s in a good position to speed up the pace of its exploration and development programme at short notice, following the cash injection from the swap deal with Cove Energy (LON:COV).

The broker is a ‘buyer’ with a target price of 114 pence, which suggests good value at the current price of 40 pence, up 2 pence today.

Seymour Pierce is urging investors to buy shares in West Africa-focused Cluff Gold (LON:CLF).

Its shares have fallen to attractive levels and it has a ‘buy’ stance and a bullish 136 pence target price.

The shares have dipped in the past month but are rallying this week, climbing a further 4 pence today to stand at 69.8 pence.

Broker Daniel Stewart believes that North Sea-focused oil and gas explorer Providence Resources (LON:PVR) could see its share price rise later in the year.

An updated resource estimate expected in the third quarter of this year and a development plan in the fourth quarter should serve as catalysts for the stock.

The share price rose 10 pence, or 1.8 per cent, to 555 pence today, though broker Daniel Stewart reckons the stock is worth much more, setting a target of 1,334 pence.

Shares in iron ore pellet producer Ferrexpo (LON:FXPO) have suffered recently in line with the market due to the stock’s “high beta” nature, according to Seymour Pierce.

“Nevertheless we still believe the company trades below its intrinsic value of 464p/share,” said analysts.

Despite tumbling recently, the share price fought back this week and is up 2.5 per cent today to 209.5 pence.

US equity futures indicate a higher open as rumours swirl regarding the prospect of liquidity measures regarding coordinated action

boosted equity markets which have recovered well from disappointing EU PMI data.

• US Durables Goods Orders (Apr) M/M 0.2% vs. Exp. 0.2% (Prev. -4.2%, Rev. to -3.7%)

• US Durables Ex. Transportation (Apr) M/M -0.6% vs. Exp. 0.8% (Prev. -1.1%, Rev. to -0.8%)

• US Cap. Goods Orders Non-Def Ex. Air (Apr) M/M -1.9% vs. Exp. 0.8% (Prev. -0.8%, Rev. to -2.2%)

• US Continuing Claims (May 12) W/W 3260K vs. Exp. 3250K (Prev. 3265K, Rev. 3289K)

• US Initial Jobless Claims (May 19) W/W 370K vs. Exp. 370K (Prev. 370K, Rev. 372K)

• FTSE (+1.53%), CAC (+1.30%), DAX (+0.77%), SMI (+0.78%), IBEX (+1.89%), EURO STOXX (+1.28%) prices taken at 1343BST

DJIA

Earnings:

Hewlett-Packard – Q2 adjusted EPS USD 0.98 vs. exp USD 0.91; Q2 revenue USD 30.7bln vs. Exp. USD 29.95bln. (Newswires)

- Co. sees Q3 adjusted EPS USD 0.94-0.97 vs. Exp. USD 1.02

- Co. sees FY 2012 EPS USD 4.05-4.10, previously saw USD 4.00, vs. Exp. USD 4.02

- Q2 services revenue down 1% Y/Y

- Q2 Personal Systems Group revenue flat Y/Y

- Co. announced they are to layoff about 27,000 employees as part of their restructuring

Other news:

Microsoft – Sources are speculating that the co.’s Xbox 720 will be released in 2013, while the PlayStation 4 is set to arrive in 2014. (CNet)

Coca-Cola – According to Barron’s the co. could warrant a price/earnings ratio of 18x earnings, in line with historic averages and it could reach USD 80 a share. (Barron’s)

Johnson & Johnson - An FDA panel has voted 6-4 against a new use for the co.’s blood thinner Xarelto to reduce life-threatening blood clots, saying too much information was missing from company studies to accurately gauge the drug's benefit. (Associated Press)

Hewlett-Packard – Co. CEO Meg Whitman told analysts on its earnings conference call that Autonomy suffered "very disappointing" licensing revenues in Q2. Lynch will be replaced by software head Bill Veghte. (theflyonthewall.com)

Companies going ex-dividend: Johnson & Johnson (USD 0.6100)

S&P 500

Earnings:

HJ Heinz - Q4 adjusted EPS USD 0.81 vs. Exp. USD 0.79; Q3 revenue USD 3.05bln vs. Exp. USD 3.07bln. (Newswires)

- Co. sees FY 2013 organic sales growth at least 4%

- Co. sees FY 2013 EPS USD 3.52-3.62 vs. Exp. USD 3.60

Fred's - Q1 EPS USD 0.28 vs. Exp. USD 0.27, Q1 revenue USD 500.5mln vs. Exp. USD 501.1mln. (Newswires)

- Co. sees Q2 EPS USD 0.15-0.17

Patterson Cos - Q4 adjusted EPS USD 0.61 vs. Exp. USD 0.57, Q4 revenue USD 936.30mln vs. Exp. USD 915.67mln. (Newswires)

- Co. sees FY 2013 EPS USD 2.10-2.16

Tiffany - Q1 EPS USD 0.64 vs. Exp. USD 0.69; cuts forecast for year sales, Q1 revenue USD 819.21mln vs. Exp. USD 819.06mln. (Newswires)

- Q1 comp sales up 4%

- Co. cuts FY12 EPS view to USD 3.70-3.80 from USD 3.95-4.05 vs. Exp. USD 3.97

Costco - Q3 EPS USD 0.88 vs. Exp. USD 0.87, Q3 total revenue USD 22.32bln vs. Exp. USD 22.21bln. (Newswires)

- Q3 same store sales were up 5%

Other news:

Goldman Sachs – Co. is to announce a USD 40bln clean energy investment target for the next decade, with the plan covering investment and financing in several sectors. (Newswires)

News Corp/Time Warner - According to sources close to the process, News Corp is out of the race to buy Turkey's ATV television from Calik Holding. Time Warner and Dubai-based Abraaj Capital remain interested in bidding. (Newswires)

NYSE Euronext – Co. announced there have been no discussions with Facebook on a listing switch. (Newswires)

Chesapeake Energy – Co. have identified for sale during 2012 non-core assets with an expected value of USD 9.5-11bln. (Newswires)

Newell Rubbermaid – Co. reaffirmed their FY12 EPS guidance of USD 1.63-1.69 vs. Exp. USD 1.68 and FY12 core sales growth of 2%-3%. (Newswires)

MasterCard - The Luxembourg-based General Court threw out the co.’s challenge against an EU ban on its cross-border credit card fees. (Newswires)

Dow Chemical – Co. announces USD 2.16bln award in K-Dow arbitration, and says ICC awards hold that PIC was liable. (Newswires)

Conagra – Co. are to affirm previously announced guidance of modest diluted EPS growth in Q4 of fiscal 2012. (Newswires)

Alexion to be added to S&P 500; Motorola Mobility deleted as of 5/24 close

Kinder Morgan to be added to S&P 500; El Paso deleted as of 5/24

Companies going ex-dividend: Keycorp (USD 0.0500), Mcgraw-Hill (USD 0.2550), Abercrombie & Fitch (USD 0.1750)

Companies paying dividend: Harman International (USD 0.0750), Vornado (USD 0.6900)

Nasdaq 100

Earnings:

NetApp - Q4 adjusted EPS USD 0.66 vs. Exp. USD 0.63, Q4 revenue USD 1.70bln vs. Exp. USD 1.68bln. (Newswires)

- Co. sees Q1 EPS between USD 0.10-0.15

Other news:

Apple – A General Electric-owned company is squaring up to the Co. in court over whether its patents were infringed when the Co. launched its iTunes platform. In other news, the Co. have said the US government’s lawsuit against the Co. concerning e-book pricing is fundamentally flawed, adding that the Co.’s actions were classic precompetitive conduct. (Newswires)

Google – Co. will make an initial shipment of around 600,000 units of its 7-inch tablet in June, with its official release set for July, according to upstream sources. (Digitimes) Smartphones powered by the Android mobile operating systems accounted for 59.0% of smartphones shipped in the first quarter of 2012, according to the International Data Corporation. (Newswires)

Teva – Co. CEO says taking a hard look at assets strategy, expecting a strategic update by year-end; sees 2012 non-GAAP EPS USD 5.30-5.40 and 2012 non-GAAP sales USD 10.5bln. (Newswires)

Yahoo - China Investment Corp is in advanced talks to buy a USD 2bln stake in Alibaba from Yahoo. (Newswires) In other news Yahoo unveiled its own Internet browser, called “Axis,” which it promoted as a way to instantly peek into different websites on a mobile device or computer without having to leave a primary search bar. (WSJ)

Research In Motion – According to reports the co.’s head of global sales, Patrick Spence is leaving the firm. (WSJ) In other news while the co.’s instant messaging service remains popular, sources report this could weaken as global sales of BlackBerrys falter and RIM softens efforts to leverage the messaging tool. (WSJ)

Hasbro – Co. and Paramount Pictures announced that the G.I. JOE sequel will now be delayed from June 2012 to March 29, 2013. (theflyonthewall.com)

Viacom to replace Teva in NASDAQ-100 Index

Broker moves

Upgrades:

Duke Energy – Co. upgraded to Buy from Neutral at UBS, Price target raised to USD 24 from USD 22

Westlake Chemical – Co. upgraded to Neutral from Sell at UBS, Price target is USD 54

National Oilwell – Co. upgraded to Buy from Hold at Societe Generale, Price target is USD 85

Arch Coal – Co. upgraded to Neutral from Sell at Goldman, Price target is USD 8

Watson Pharmaceuticals – Co. upgraded to Outperform from Market Perform at Wells Fargo, firm raised its price target range for shares to USD 84- 90 from USD 75-79

Downgrades:

Baker Hughes – Co. downgraded to Hold from Buy at Societe Generale, Price target lowered to USD 47 from USD 53

NetApp – Co. downgraded to Sector Perform from Outperform at RBC Capital, Price target cut to USD 30 from USD 52

RailAmerica – Co. downgraded to Neutral from Overweight at JPMorgan, Price target remains USD 26

Human Genome – Co. downgraded to Market Perform from Outperform at BMO, Price target lowered to USD 13 from USD 17

CNBC’s Jim Cramer on US corporate earnings

THURSDAY earnings: Costco and Tiffany report their earnings. Cramer said that Tiffany remains in the penalty box after last quarter's debacle, but Costco remains a favourite.

Other News

US Banks – Ohio Senator Brown is trying to push a law through the Congress to put an end to the ‘too big to fail’ problem, forcing a break-up of America’s six biggest banks. The proposal may come under heavy opposition as a previous proposal failed to be passed. (Newswires)

General Motors - The NHTSA has expanded its investigation into fires in General Motors' Chevy Cruze to 2012 model year as well as the 2011 model year with the probe now covering about 370,000 vehicles. (Newswires)

Pandora - Q1 loss per share USD 0.09 vs. Exp. loss per share USD 0.18, Q1 revenue USD 80.8mln vs. Exp. USD 74.34mln. (Newswires)

- Co. says active users reached 51.9mln growing 53% Y/Y

- Co. sees Q2 loss per share USD 0.03-0.05 vs. Exp. loss per share 0.03

- Co. sees Q2 revenue USD 99-101mln vs. Exp. USD 99.9mln

European data remains weak throughout the morning, with European PMIs as well as the German IFO disappointing to the downside.

Recovery of equity markets follows unconfirmed market talk of asset reallocation from fixed-income into stocks.

UK recession deepens as Q1 GDP is revised lower to -0.3% from -0.2%.

ECB's Nowotny says the full ECB arsenal has not yet been utilised.

French 10yr OATs outperform amid unconfirmed market talk of domestic and Asian names buying.

RANsquawk European Morning Briefing Video: http://youtu.be/ewP5KI0JaO0

Market Re-Cap

Peripheral stock indices underperformed in early trade, with banks under considerable selling pressure amid renewed tensions in credit markets. Wave after wave of poor data from the European PMIs and the German IFOs placed shares under further pressure and talk of macro names selling EUR/USD weighed on the pair. As a result, in the fixed income space, the German 2/5 spread traded at levels not seen since December 2008. However as the session progressed, stocks staged a decent recovery, which coincided with unconfirmed market talk of an asset reallocation trade, together with talk of Asian real money accounts buying French OATs, which in turn prompted sharp tightening in FR/GE 10y bond yield spread.

This also supported EUR/USD, which after coming close to making a test on the 1.2500 barrier is now trading little changed. In other news, the ONS reported that the UK economy shrank by 0.3% in the first three months of the year, more than previously thought. The downward revision was due to a bigger contraction in construction output than previously estimated. Despite this, FTSE in the cash has persisted, and is the strongest performing index in Europe today.

Going forward, the second half of the session sees the release of the latest weekly jobs data from the US, as well as Durable report for the month of April. Also, the US Treasury will conduct a sale of USD 29bln in 7y notes.

Asian Headlines

Japan’s corporate mood picked up over the last month and is seen as improving in the coming months as the economy continues its recovery from last year’s earthquake. Concerns continue to remain from the European crisis and a Chinese slowdown, according to the Tankan survey. (Newswires)

Chinese HSBC Flash Manufacturing PMI (May) M/M 48.7 (Prev. 49.3) (Newswires)

The PBOC should continue to cut their RRR and take other measures to increase the country’s money supply, according to an influential Chinese paper. (China Securities Journal) In other Asian press, Xinhua have reported that China may ease property development credit controls. (Xinhua)

EU and UK Headlines

Italian PM Monti has said there has been no conclusion on growth boosting measures or Eurozone bonds at their informal summit. Italian PM Monti and French President Hollande said that they both favour Euro-zone bonds as a possible solution, with Monti commenting that a majority are in favour of the bonds according to a source. (Newswires)

Tensions have begun to emerge among EU leaders over how hard a line to take with Greece as the prospect looms of victory in next month’s elections for parties opposed to the country’s bailout terms. (FT-More) There have been signals from both Paris and Rome that some concessions may be required to strengthen the position of pro-bailout parties in Greece. Further from the meeting, ECB’s Draghi has said ECB independence was held up by most leaders at the informal EU summit. (Newswires)

Markets have moved through a slew of poor European and UK data this morning, with European services and manufacturing PMIs disappointing to the downside on most readings, as well as UK GDP data showing country is deeper in recession than originally thought. The ONS have placed the sharp decline of the UK’s construction data as the main drag on growth in the first quarter.

French Manufacturing PMI (May P) M/M 44.4 vs. Exp. 47.0 (Prev. 46.9)

French Services PMI (May P) M/M 45.2 vs. Exp. 45.7 (Prev. 45.2)

German Manufacturing PMI (May A) M/M 45.0 vs. Exp. 47.0 (Prev. 46.2)

German Services PMI (May A) M/M 52.2 vs. Exp. 52.0 (Prev. 52.2)

Eurozone Manufacturing PMI (May A) M/M 45.0 vs. Exp. 47.0 (Prev. 45.9), lowest since June 2009

Eurozone Services PMI (May A) M/M 46.5 vs. Exp. 46.0 (Prev. 46.9)

German IFO - Business Climate (May) M/M 106.9 vs. Exp. 109.4 (Prev. 109.9)

German IFO - Current Assessment (May) M/M 113.3 vs. Exp. 117.1 (Prev. 117.5)

German IFO - Expectations (May) M/M 100.9 vs. Exp. 102.0 (Prev. 102.7)

UK GDP (Q1 P) Q/Q -0.3% vs. Exp. -0.2% (Prev. -0.2%)

UK GDP (Q1 P) Y/Y -0.1% vs. Exp. 0.0% (Prev. 0.0%) (Newswires)

The pessimistic data pushed Bund futures to record highs, printing 144.55 earlier in the session, coinciding with session lows in EUR/USD.

EQUITIES

European stocks in both the futures and the cash were taking heavy hits early in the session, with informal EU summit failing to come to an agreement weighing on sentiment early on. Progressing through the session, risk-aversion was noted with number-after-number of disappointing data from Europe, Germany and the UK coming in below expectations. Despite this, stocks have managed to stage somewhat of a recovery and now trade in the green in all sectors halfway through the European session. The moves follow some unconfirmed market talk of an asset reallocation from the fixed-income markets and into equities.

In individual stock news, Repsol shares are performing particularly strongly following confirmation from the company that their Brazilian pre-salt block holds significant potential, with resources amounting to 700mln BBLs of light crude and 3TCF of gas. After reporting the major discovery, Repsol shares now trade higher by 2.2%.

Major Basic Materials companies are seen trading lower with the larger cap names Glencore and Xstrata making the largest losses. This follows overnight manufacturing data from China disappointing to the downside, dampening expectations for future commodities demand. Glencore and Xstrata shares trade lower by roughly 1.2% apiece.

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

EUR/USD came under renewed selling pressure early in the European session, pressing the pair down to lows of 1.2516, amid market talk of macro names selling in the pair. The weaker European data has placed the single currency under continued downward pressure, however; the pair has seen somewhat of a recovery, moving in line with the European stocks, coming off the lows and back up through 1.2550. The pair now trades between two touted option expiries at the 1.2550 and 1.2600 level for the 10am NY cut (1500BST).

GBP/USD has been echoing the moves in its European counterpart and came under particular pressure following the downward revision to UK GDP, moving lower by just under 20pips following the release. A strong performance in the Business Investment component of growth has been noticed, and the pair, similarly to the EUR, has seen a spell of strength alongside equities. GBP/USD currently sits just below a touted option expiry at the 1.5700 level for the 10am NY cut (1500BST).

COMMODITIES

WTI crude futures traded near a 7-month low as risk-averse trade became the main theme in the early part of the European session, following weaker data points out of Europe. Progression on the Iranian nuclear talks has eased concerns somewhat in the oil markets, with talks resuming today.

Oil & Gas News:

Three Nebraska landowners on Wednesday challenged a state law aimed at speeding up approval of a new route for TransCanada's proposed Keystone XL oil pipeline from Canada to Texas around environmentally sensitive areas of the state.

India oil ministry official says there is no possibility of fuel retailers rolling back gasoline price hike.

Geopolitical News:

The P5+1 group will today make a last-ditch attempt today to persuade Iran to accept immediate restrictions on its nuclear programme, hoping that such concessions will begin to defuse fears that Tehran wants an atomic bomb.

World powers are hindering talks in Baghdad with Iran over its nuclear programme, creating a "difficult atmosphere", an Iranian delegation official said on Thursday.

A U.N. watchdog report is expected to show that Iran has installed more uranium enrichment centrifuges at an underground site, potentially boosting output capacity of nuclear work major powers want it to stop, Western diplomatic sources say.

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report.

WTI crude futures traded near a 7-month low as risk-averse trade became the main theme in the early part of the European session, following weaker data points out of Europe. Progression on the Iranian nuclear talks has eased concerns some what in the oil markets, with talks resuming today.

Oil & Gas News:

• Three Nebraska landowners on Wednesday challenged a state law aimed at speeding up approval of a new route for TransCanada's proposed Keystone XL oil pipeline from Canada to Texas around environmentally sensitive areas of the state.

• India oil ministry official says there is no possibility of fuel retailers rolling back gasoline price hike.

Geopolitical News:

• The P5+1 group will today make a last-ditch attempt today to persuade Iran to accept immediate restrictions on its nuclear programme, hoping that such concessions will begin to defuse fears that Tehran wants an atomic bomb.

• World powers are hindering talks in Baghdad with Iran over its nuclear programme, creating a "difficult atmosphere", an Iranian delegation official said on Thursday.

• A U.N. watchdog report is expected to show that Iran has installed more uranium enrichment centrifuges at an underground site, potentially boosting output capacity of nuclear work major powers want it to stop, Western diplomatic sources say.

Corporate News:

• BP is awaiting approval from Indonesia’s upstream regulator BP Migas for the planned expansion of its Tangguh liquefied natural gas project in West Papua. In other news, BP agreed to add over USD 400mln in pollution controls at its Indiana refinery, expecting to cut air pollution by more than 4000 tonnes per year, and to pay USD 8mln clean air act penalty.

• ENI makes significant new oil discovery in Egypt, estimates 150-250mln barrels of oil.

• Royal Dutch Shell have noted yesterday’s announcement from PTTEP concerning the takeover of Cove Energy. Co. reports that it will consider its options and make a further announcement if appropriate.

• A bid contest has been launched by Tullow Oil for a major subsea production system on a new field development off Ghana as the UK independent aims to follow up the success of its Jubilee project in the West African country.

Weather News:

The latest Weather Derivatives update forecasts temperatures in the US for the next 6-10 days to be 2.0% warmer than normal for this time of year (using data accurate on the 23rd May). The first eastern Pacific hurricane of the 2012 season, named Bud, has formed off the south-western coast of Mexico. The US National Hurricane Centre said the storm is packing sustained winds of 75mph and is located in the Pacific Ocean about 385miles southwest of Manzanillo, Mexico.

Morning View

Gold and base metals prices holding well considering the financial and economic turmoil seen in the Eurozone

• Oil prices continue to pull back as the US reduces its reliance on imports

• Reports of the Iranian navy helping a US cargo ship in Gulf may also allay some fears 

• US durable orders figures are forecast to increase today off a depressed base

Medusa Mining are presenting at an Evening with Medusa Mining at the Chesterfield Hotel, Charles Street, Mayfair tonight - The event starts at 5:40 – there is no charge

Economic News

Europe – At the “informal” European summit yesterday, officials indicated their desire that Greece remain in the shared currency, but that current austerity plans are adhered to. 

• The European Council President, Van Rompuy, repeatedly stated Greece must “respect its commitments” 

• As expected nothing concrete emerged from the discussion yesterday. 

• The idea of Eurobonds was reportedly aired and unsurprisingly rejected by German officials. 

• The past few years have taught us one thing that remains abundantly clear – European officials are not likely to  take any steps or make any decisions until the market forces them into action. 

• They have failed repeatedly to get ahead of the crisis. Any belief that this will change is erroneous. 

• National priorities and maintaining domestic political capital appear to be top of the agenda for much of the European community – This is the inherent flaw of the Eurozone. 

• This leads us to conclude that the Greek elections and the subsequent official European summit at the end of June will provide nothing to deal with the structural imbalances that remain. 

• Talk of “extra steps to support the regions banks” is frankly a sideshow and a weak attempt to divert attention away from the fact that Europe must integrate further or break up. 

• Liquidity concerns and bank runs are a short term socio-economic issue. Protecting against them does not cure the ills of the region.     

• Region wide Manufacturing figures for May showed further contraction. The figure declined to 45.0 from 45.9 in April. 

• Additionally PMI services figures declined more than forecast. 

Germany – Figures released this morning emphasis the gulf that remains between Germany and the rest of the Eurozone. 

• Export in Q1 rose more than forecast according to official figures. 

• GDP quarter on quarter increased by 0.5% in line with expectations. 

• Similarly year on year growth came in at 1.2% in Q1 – in line with initial forecasts. 

• That having been said – IFO figures on sentiment and the business outlook all failed to hit forecasts, indicating that Germans are worried about the current economic situation. 

France – Preliminary figures released today show that manufacturing in the country declined in May, 

• PMI services however increased more than forecast. 

China – The preliminary HSBC PMI index for May indicates that manufacturing could well decline further this month. 

• If accurate the reading will indicate the longest period of contracting data since the start of the financial crisis. 

• The contraction is prompting further debate of stimulus in the country. 

• Chinese stocks declined today on the back of the announcement on manufacturing. 

• The Chinese Securities Journal has stated that the Central Bank should reduce the interest rate it pays on excess reserves. 

US – Positive housing figures released yesterday helped the market improve marginally.

• New home sales increased more than forecast in April to 343,000 

• The figure is undoubtedly a positive but coming from such a depressed base it is hardly surprising. 

• Forecasts ahead of report due for release later today indicate that orders for durable goods probably increased in April. 

• It worth noting that the forecast increase is only estimated to be 0.2% and would come on the back of a 4.2% decline in March. 

• Initial jobless claims figures will also be released later today. The forecast suggests that claims remained flat from last month at 370K. 

• At present we are not overly optimistic for the jobs market in the US and feel that there could still be some pull back over the summer. 

UK – GDP revision compounds the pressure on the Government. 

• Q1 GDP figures today were revised down. Not Good. GDP in Q1 contracted by 0.3% not the 0.2% contraction expected. 

• Government spending increased by 1.6% qoq as the headwinds facing the global economy increased. 

• Private consumption increased by less than expected. 

• Exports in Q1 beat forecasts increasing by 0.1% 

• Imports increased by 0.4% 

• On the positive side of the coin - Figures on Total Business Investment indicated growth increasing by 3.6% 

• Year on year business investment increased by 14.2% against forecasts of 9.2% 

• The Index of services improved month on month rising by 0.5% in March after contracting by 0.4% in February. 

• Retail sales figures released yesterday fell the most in more than two years – highlighting the problems facing the consumer in the UK as real incomes continue to stagnate. 

New Zealand – The country’s trade surplus grew in April as imports fell. 

• Exports exceeded imports by NZ$355m 

• Exports make up 30% of the country’s economy. 

Vietnam – Figures released today show that inflation fell below 10% for the first time in 19 months in May.

• Consumer prices increased by 8.34% on the back of declining bank earning and moderating food prices. 

Baltic Dry Index – From January through to the end of April the Baltic Dry Index increased by 69%. However of late the index has flat lined and since the start of May has declined by 4.5%. 

• Chinese demand for coal remains buoyant and has supported the index in general since the start of the year. 

• The National Bureau of Statistics shows that China imported 23.9 million tons of coal in April. This is 12% more than was imported in March and 115% more than was imported in April 2011. 

• China’s iron ore imports in Q1 totalled 187 million metric tons an increase of 6% yoy. 

• Looking at the specifics, the Capesize market has traded marginally down of late, with the Handysize market rising slightly and the Panamax market down. 

• The market remains in a tight position though with oversupply likely to remain for the rest of the year despite high scrapping rates. 

US$1.2590/eur vs 1.2676/eur yesterday. Yen 79.50/$ vs 79.60/$. SAr 8.380/$ vs 8.362/$. $1.569/gBP vs 1.574/gBP

Commodity News

Precious:

Gold US$1,561/oz vs US$1,559/oz yesterday – Gold declined for a third day non rising US dollar as European leaders clashed over the idea of issuing Euro bonds.

• Newmont Mining will cut its spending on the Conga project, Peru, by 2/3s to S$440m maid delays caused by state and environmental reviews.

• Turkey increased its gold holdings by 29.7t in Apr, Ukraine bought 1.4t, Mexico added 2.9t and Kazakhstan purchased 2t, according to the International Monetary Fund data.

• SPDR gold trust holdings dropped the most in nine months to 1,268t (40.772moz) value US$63.138bn on Tuesday amid falling prices.

• SPDR are up 1% since the start of 2012, while gold prices are off 2.8%.

• Global Holdings in ETPs backed by gold are set to decline for a third straight month and stood at 2,367.5t.

Platinum US$1,424/oz vs US$1,426/oz yesterday

• Miners at the Rustenburg mine, South Africa, operated by Impala Platinum have returned to work today following a 2-day stoppage on the back of a clash between two different labour unions.

• Production may have lost at least 6,000oz as result of an unplanned shutdown.

• Aquarius Platinum said it may lose 75,000t of ore at the Mimosa mine, Zimbabwe, due to a fire eruption on a conveyor belt in the main decline. The loss will be compensated with stockpiles. 

Palladium US$592/oz vs US$604/oz yesterday

• Prices may grow 24% to US$750/oz by the end of 2012 should concerns with regards to Greece leaving the Euro zone and economic growth in the US subside, according to Stillwater Mining, the sole US producer of PGMs.

• The US economy is doing “far better” than many observers suggest, while Chinese government “made an adjustment they needed” to cool the economy and reign in inflation, Stillwater said.

Silver US$27.94/oz vs US$27.85/oz yesterday

Rhodium US$1,390/oz vs US$1,390/oz last week

Base metals:

Copper US$ 7,609/t vs US$7,640/t yesterday – Prices increased form a 4-month low as Chinese officials pledged to support growth amid high uncertainty over European crisis.

• Codelco, the world’s largest copper producer, recorded a 10% yoy decline to 373,000t in Q1 amid “considerably lower” ore grades.

• Drop at the Chuquicamata, Salvador, El Teniente and Radomiro Tomic mines surpassed an increase at Gabriela Mistral operations.

• The company forecasts production to reach 1.7mt in 2012.

• Prices should not decline “too much” as Europe is struggles with the ongoing sovereign debt crisis and economic growth slows down in China.

• Codelco and Anglo American announced yesterday that both companies agreed to seek out-of-court settlement of the dispute with regards to the copper assets in Chile including the valuable Los Bronces mine. Legal proceedings are decided to be suspended until Jun 22.

Aluminium US$ 2,016/t vs US$2,024/t yesterday

Nickel US$ 16,872/t vs US$16,796/t yesterday

Zinc US$ 1,881/t vs US$1,880/t yesterday

Lead US$ 1,943/t vs US$1,934/t yesterday

Tin US$ 19,425/t vs US$19,430/t yesterday

Energy:

Brent crude US$105.55/bbl vs US$107.80/bbl yesterday

WTI: US$90.16bbl vs US$91.17bbl yesterday 

US Crude: US$90.50/bbl vs US$ 91.02/bbl yesterday 

• Brent was over a $15 premium to U.S. benchmark for July settlement as WTI dipped below US$90/bbl on Wednesday its lowest in seven months 

• The U.S. weekly report showed stockpiles remain at 22-year highs signalling flagging demand. 

• A groundbreaking case has been settled forcing BP to spend upward of US$400m to reduce noxious air pollution from its Whiting refinery in Northwest Indiana. 

• The result could set a precedent for other oil companies nationwide to reduce their air pollution 

• The consent decree requires BP to significantly reduce flaring by capturing pressurized gases and to operate flares more efficiently when they are needed. 

• The new cap on emissions is seen as the toughest yet expecting Whiting to reduce flaring by 90% 

• Whiting processes heavy-crude oil pulled from tar-soaked clay and sand in Northern Canada. 

Natural Gas US$2.793/btu vs US$2.759btu yesterday

• Cove Energy received a hostile bid of 240p per share from Thai oil firm PTT Exploration and Production Public Co. yesterday 

• The offer is a 9% premium to Shell Bidco’s 220p offer which is still the only bidder with Mozambique government approval. 

• Shell’s offer will remain open for an extended period to 13th June which buy’s them more time to consider their position. 

• An offer of 240p per share values each barrel of oil equivalent on the high side of US$3.4. 

• Between US$2.5/boe US$3.00/boe would be more a more realistic valuation figure on these assets. 

• U.S. and China credit agencies and other banks have joined to offer US8.5bn for an Australian JV LNGto liquefy unconventional gas for Asia export. 

Uranium US$51.50/lbs vs US$51.60/lbs yesterday- 

• UX consulting weekly spot as of 21st May 2012 was at US$52.00/lb (Unch) 

Coal- China’s government are urging companies to explore for greater foreign recourses as it expects to consume 5.5bn/mt of standard coal by 2020, officials at the National Energy Administration said on Thursday. 

Richards Bay $88.55/t vs 89.55/t yesterday, 

Newcastle $91.90/t vs $93.55/t yesterday

Rotterdam $87.25/t vs $87.65 yesterday

Other:

Steel – Chinese stainless steel demand may slow down to 3-5% growth, the lowest pace since 2001, and total 10m, Baosteel Stainless Steel said. Production is forecast to grow 3-5% as well to 12-12.5mt.

• Severstal, the second biggest producer in Russia, announced a 18% yoy (-7.8% qoq) drop earnings in Q1 to US$427m on the back of declining prices.

Iron Ore – Rio Tinto comment that they do not see signs of slowdown in the Chinese iron ore market

• We have been concerned about iron ore prices in the short term but information today from Beijing suggests that the Chinese should stimulate demand for steel to maintain price levels.

• There is some softening of iron ore prices but there is also a realisation that when the price softened last October, it only reached the level of marginal suppliers (i.e. 120/t).

• This could keep prices at around this level for some years with limited periods at lower prices when the Chinese shake the price tree.

• Xstrata produced a chart below which points to a marginal cost heading upwards although it is demand which is normally more of a price driver.

• In the medium term the Chinese may increase spending on internal projects to resolve over capacity in steel production and other industries.  Am told this may be vital to peace and tranquillity ahead of the upcoming elections in Q3 2012.  

• Further a withdrawal of funding into many new projects and expansions should also help to maintain a tighter supply demand balance in future years with many projects likely to be delayed and higher cost projects canned.

Company News

Mali (coup update)- President Dioncounda Traore was attacked on Monday as the presidential palace was stormed by hundreds of angry protestors.

• The Interim President was taken to hospital while his close-protection guards killed three of the protesters. 

• ECOWAS mediators left Mali hours before a deal was struck with coup leader Capt Amadou Sanogo to accept a Traore-led twelve month transition back to a democratic rule. 

• The deal he accepted included all the benefits a former president would get, including housing, transport, security and an allowance… a cynic might say that appears more like a bribe! 

• A 3,000-strong military force from the West African region is on stand-by to deploy if Mali the interim government requests it. 

Caledonia Mining (LON:CMCL) Transfer of 20% of Blanket Mine to Indigenous Parties

• The company is fulfilling its obligation under the Zimbabwean indigenisation policy by transferring 20% of the Blanket Mine to two indigenous Zimbabwean Trusts. 

• This is part of the agreement to transfer 51% of the mine for US$30.09m. 

• 10% has been sold for US$7.339m to the Blanket Mine Employee Trust that has been established for the employees. 

• 10% has been donated to the Gwanda Community Share Ownership Trust for the benefit of the local community. 

• 15% was already sold to a consortium of indigenous Zimbabweans for a consideration of US$11m. 

• The company will facilitate the vendor funding for all sale transactions which will be repaid by way of future dividends from Blanket with loans attracting a rate of 10% over the 12 month LIBOR. 

• Repayments will be dependent on the future performance of the mine 

• The Blanket gold mine is an underground gold mine with a production capacity of 40,000 oz a year with total proven and probable reserves as at 31 Dec 2010 of 3.8Mt at 3.78 g/t giving 467,200 oz. 

• The cash cost for the $581/oz with high recoveries of around 93% making this an extremely profitable mine generating operating profits of around $34m after deducting 7% for royalties. 

Conclusion: The payment for the mine of $30m implies an EV/oz of $125/oz assuming no cash at the mine level.  Based on an assumption of FCF of around $23m a year for the mine post tax and expenses, the NPV for a 9 year mine at 12% is around $114m. The current value being paid for the mine would provide returns of close to 30%.

Uranium Resources (LON:URA) Update on Mtonya Uranium Exploration Programme

• The company reported results from a 20,000 m drilling programme at the Mtonya project in southwest Tanzania. 

• 18 DC holes have been completed for a total of 5,400m. 

• 3 holes have intercepted previously unknown roll fronts in Tier 1 at depths of 150 to 220m. 

• Significant intercepts include: 

o 397 ppm U308 over 1 m at 170.4 m 

o 460 ppm eU308 over 4m at 170.4m 

o 329 ppm eU308 over 3.8m at 73.7m 

• The drilling is targeted to both deep mineralisation to in-situ recovery and near-surface mineralisation which would lend itself to more conventional mining. 

• Three drill rigs are currently operating at the project and a fourth rig will be used by the end of June. 

Mining News

Uranium Resources (LON:URA) has issued a further 14 drill results from its exploration programme at its Mtonya uranium project. Significant eU3O8 intercepts include 397ppm over 1.0m at 170.4m, 460ppm over 4.0m at 170.4m and 329ppm over 3.8m at 73.7m. Significantly, the Company is intercepting higher grade and thicker intersections than previously encountered as drilling intercepts new roll-fronts. To date the Company has drilled 5,400m of its planned 20,000m 2012 drilling programme with three rigs on site and a fourth expected in mid-July. The Company expects it will then have sufficient data to estimate a maiden resource. Mtonya is a classic sandstone-hosted roll-front deposit which the Company believe is amenable to in-situ leaching. It is located 60km south of Uranium One's Nyota project (previously owned by Mantra Resources).

ATH Resources (LON:ATH) has deferred commencement of its planned Glenmuckloch Eastern extension due to falling coal prices. This will have no impact on FY'12 production, but will reduce FY'13-14 by 500kt of coal. The project is an extension to the Glenmuckloch colliery and was approved by the local planning authority in Dumfries and Galloway in June last year in the hope of safeguarding 90 jobs. The Company also stated that the current coal prices will mean that margins have been reduced and it will update the market in its interims to be released in late June.

Caledonia Mining Corporation (LON:CMCL) has issued an update on its progress with indigenisation at its Blanket Mine in Zimbabwe. The Company has signed two new agreements following the signing of the Memorandum of Understanding with the Government of Zimbabwe on February 20, 2012, which will see Indigenous Zimbabweans acquire an effective 51% ownership of the Blanket Mine for US$30.09M, paid through deferred dividends. The first agreement was signed for the sale of 10% of Blanket for US$7.339M to the Blanket Mine Employee Trust; a trust that has been established for the benefit of the present and future managers and employees of Blanket. A second agreement has been signed for the donation of 10% of Blanket to the Gwanda Community Share Ownership Trust, a trust that has been established for the benefit of the local community. As announced last week, Blanket will now make a non-refundable donation of US$1.0M to this trust. The final 16% interest will be to the National Indigenisation and Economic Empowerment Fund and Caledonia has submitted an agreement for this. Further announcements will be made in due course. All these transactions will be vendor financed by Caledonia to be repaid from future dividends from Blanket.Outstanding balances on these loans will attract interest at a rate of 10% over the 12-month LIBOR. Caledonia is the first mine to fully go through the indigenisation process and although the US$30.09M valuation may be viewed as somewhat arbitrary, the funding solution is most effective in providing benefit to indigenous Zimbabweans without providing undue burden on the Company.

Cluff Gold (LON:CLF) has announced the completion of its acquisition of the Sega Gold project from Orezone Gold Corporation in exchange for 11M new shares in Cluff Gold. The project is located 20km north of Cluff Gold's Kalsaka heap leach operation in Burkina Faso, and has a current indicated resource of 450,366oz (8.3Mt at 1.69 g/t) and an inferred resource of 147,344oz (2.9Mt at 1.58g/t). This should provide an immediate bolt on to Kalsaka for limited upfront capex.A preliminary economic assessment of Sega is currently in progress and is expected to be completed later in 2Q'12. An environmental and social impact assessment is also currently underway.

Richland Resources (LON:RLD) has released a 1Q'12 Operational and Sales Update. Total production was 533,400 carats at an average grade of 51cpt. The Company limited sales during the quarter to US$1.5Mm to take advantage of the inaugural Arusha International Gem, Jewellery and Mineral Fair in Tanzania which occurred post period between the 26 -29 April. The Company achieved sales of approximately US$3M at the fair. During the period, Richland also increased its JORC resource to 105Mcts Inferred and Indicated and started bulk sampling at Tsavorite following successful pilot sampling. However, due to delays in achieving a secondary listing on the Dar es Salaam Stock Exchange, the Company has further extended its option to acquire a sapphire project in Australia until the end of August 2012, or later if required, in order to avoid having to submit additional information to the Tanzanian Capital Markets & Securities Authority.

Griffin Mining (LON:GFM) has released further good drill results from at its Caijiaying mine in northern China. Highlights from the 190 diamond drill hole/ 30,244m programme include 37.4m @ 6.55 g/t gold & 4.33% zinc, 35.0m @ 5.23 g/t gold & 4.47% zinc, 25.40m @ 15.50% zinc and 30.00m @ 10.91% zinc. High-grade gold mineralization was identified in underground extensions of the Ju Long, Fu Long, Xiao Long and Qing Long ore bodies. High-grade zinc zones were also intersected within a wider envelope of medium-grade zinc-gold-lead-silver ore. All these results are outside the updated JORC released on Tuesday and should be expected to further increase this. The Company stated that drilling will continue during 2012 to further delineate the mineralisation at Caijiaying.

Baobab Resources (LON:BAO) has released a drilling update from its Ruoni Flats pig iron, vanadium and titanium project in Tete Province, Mozambique. As the drilling programmes in the Ruoni prospect area are nearing conclusion the Company states it has intersected a heavily mineralised package, up to 100m thick, that it believes represents the down-dip continuations to the Ruoni North and Tenge resource blocks. In addition recently completed diamond twin holes have penetrated deeper through the current 159Mt resource block and demonstrate that the mineralised package is substantially thicker than that modelled in the resource estimate. Resource upgrade drilling is on-going at Chitongue Grande, Ruoni North and Ruoni South resource blocks. To date more than 7,500m of diamond and reverse circulation (RC) drilling has been completed at Ruoni Flats and we expect the Company should be able to increase the size of its current resource at Ruoni Flats.

Oil & Gas News

Providence Resources (LON:PVR) Oil and gas zones have exceeded the Company's pre-drill expectations, both in terms of reservoir development and more importantly, oil and gas flow rates; the Company believes that a proposed horizontal well could deliver an initial production of about 12,500 bopd. This will be a significant achievement, and no doubt would establish a platform for explosive hydrocarbon production growth. Today's announcement has further highlighted Barryroe's Basal sands prospectivity, and with further work imminent in order to better quantify any remaining resource potential and hydrocarbon in place estimates in the licence area, investors can look forward to further news as management look to unlock value within this high productivity system. The news should also bode well for San Leon Energy (SLE LN) as the Company has a 4.5% Net Profit Interest in the Licence area.

Leni Gas & Oil (LON:LGO)- Ready to commence drilling operations at Goudron Field in south-eastern Trinidad: Today's news of re-entering and completing 5 wells on the Goudron Field is a positive development. Updates on production and well results provides near term catalyst. Expect positive movements today. In this news:

• Re-enter, clean out and re-complete three wells; GY-190, GY-254 and GY-63.

• A further two wells; GY-66 and GY-200, are also candidates for work in this initial trial phase.

• Rig will arrive at the field over the weekend and will commence work immediately.

Faroe Petroleum (LON:FPM) The Company has taken another step forward towards the monetization of its prospective block resources in the Norwegian North Sea as it successfully commenced drilling on its Clapton prospect. Investors can also be buoyed by management's aggressive and accelerated approach towards the drilling programme which could be the catalyst to creating value for shareholders. In the news:

• Clapton prospect in the Norwegian North Sea (Faroe 40% and operator)

• Good address with Giant fields in close proximity

• Faroe Petroleum's first operated well in Norway

• three high impact exploration wells drilling at the same time; Clapton, Cooper, and North Uist

Wentworth Resources (LON:WRL) Sharper focus: Wentworth has a strong liquidity position following the issue of additional equity and monetization of 4.95% net profits interest from Cove Energy's 8.5% working interest in the Offshore Rovuma Area 1 Concession. It expects to commence drilling operations on the Mnazi Bay and Msimbati gas fields, which is another positive key take-away from the today's announcement. The Company sold its power operations segment in the last quarter to focus on the oil and gas operations. Being fully funded for exploration programmes for 2012 and 2013, we expect traction in the drilling activities across its oil fields in Tanzania and Mozambique.

The Markets

Market opening: Markets could open higher today, after falling yesterday, as investors hunt for bargains. FTSE 100 futures were trading 45.5 points up at 7:00 am. 

New York: Wall Street recouped early losses amid rumours that EU leaders would agree on a concrete plan to stabilise Greece and an EU-wide bank deposit guarantee. The S&P 500 recovered a little more than 1.5% to close up 0.2% yesterday. 

Asia: Contraction in the Chinese manufacturing sector for the seventh month following yesterday's dismal data from Japan fanned fears of a slowdown in Asia. Inaction at the EU summit also weighed on the sentiment. The Nikkei 225 closed 0.1% up, while the Hang Seng was trading 0.2% down at 7:00 am. 

Continental Europe: Markets closed deep in the red as hopes of EU leaders outlining any new plans to tackle the region's crisis at the Brussels summit faded and the World Bank lowered China's economic growth forecast. Both, the German DAX and French CAC 40 slid 2.3% and 2.6%, respectively. 

UK small caps: The FTSE AIM All-Share index shed 1.7% yesterday. 

Today's news

Chinese manufacturing sector may have shrunk in May 

The preliminary reading of the Chinese manufacturing purchasing managers' index stood at 48.7 for May compared to the final reading of 49.3 in April. This is its longest run of sub-50 reading since the global crisis, HSBC/Markit said today. 

EU in favour of Greece's stay, but plans for exit 

At the informal summit in Brussels, EU leaders backed retaining Greece in the Eurozone, but want Athens to keep its commitment of implementing the bailout terms. However, the Eurogroup Working Group, comprising senior officials aiding Eurozone finance ministers, has been asked to draw up contingency plans in the eventuality of Greece's exit. Leaders also failed to present new measure to stimulate the region's flagging economy and support job creation as France and Germany differed on the issue of joint Eurobonds and aggressive policy. 

Company News

Burberry (LON:BRBY)

Burberry announced preliminary results for the year ended 31st March 2012 yesterday. Total revenue grew 24% to £1.9bn driven by a 32% growth in retail revenue. Retail sales now contribute 68% of total revenue up from 64% in FY2011. Comparable store sales growth was 14% as the strong momentum of H1 2012 (16%) waned in H2 2012 (12%). Wholesale revenue increased 9% to £478.3m. Operating margin expanded to 16.4% from 15.6% in the previous year. Adjusted pre-tax profit was up 26% to £376.2m and reported pre-tax profit increased 24% to £366.0m. EPS improved to 59.3p from 46.9p in FY2011. The company plans to expand retail space by around 12-14% with a bias towards large store formats in core markets of London, Chicago and Hong Kong. The capital expenditure is expected to be around £180-200m. The phasing of revenue and investment is expected to impact operating margin in H1 2013, but the management expects to deliver a modest margin improvement for the year. They proposed a 25% hike in dividend to 25p per share. 

Our view: Burberry's sales, which were resilient till H1 2012, wobbled in the last two quarters as the impact of slowing global economic conditions affected growth in the Asia Pacific, where Burberry generates around a fourth of its revenue. Growth in Asia Pacific helped the retailer offset decline in sales in the US and Europe. Tourists are a major source of revenue for the luxury retailer and the grim outlook for global economic growth is expected to dampen tourism activity too. Additionally, the management's warning on short-term pressure on margins is likely to put any upward revision to forecasts on hold. This leaves the shares that have appreciated 12% since the beginning of the year, fairly valued. 

FirstGroup (LON:FGP)

Yesterday, FirstGroup released preliminary results which showed FY2012 revenue advanced 4.1% to £6.7bn and operating profit surged 45.2% to £448.0m. Pre-tax profit more than doubled to £279.9m from £126.5m. EPS saw a similar increase to 42.7p from 20.0p. The substantial jump in profit was due to easy comparisons thanks to a one-time £147.8m charge in 2011. Excluding this loss, pre-tax profit dropped 1.1% y-o-y. The company is accelerating the disposal of some UK bus division assets as low demand, high fuel cost and shrinking subsidies impact profitability. The operating profit at the bus business fell to £134.4m from £148.8m in FY2011 and the operating margin contracted to 11.6% from 13.1%. The management expects the performance at First Transit to improve and expects continued growth and margin improvement at Greyhound. The management re-iterated its commitment to increasing dividend by 7% in FY2013. Management proposed increasing full year dividend by 7% to 23.67p per share. 

Our view: Around 60% of the UK bus revenue is generated in the northern part of the UK, which has been particularly vulnerable to rising unemployment and cut in government spending. Falling margins at the division, which contributes a third of total operating profit, has been a drag on the group's profits and the repositioning of the portfolio could help margins to expand. Though the recovery in the US and repositioning of the UK bus portfolio could help the business, the near term outlook remains uncertain, prompting us to retain our hold rating. 

Great Portland Estates (LON:GPOR)

Great Portland Estates released preliminary results for the year ended 31st March 2012 yesterday. Net asset value increased 11.9% to 403p per share as the underlying value of its portfolio grew 9.2%. The company signed 88 new leases which will generate a rent of £25.2m per year. Pre-tax profit fell to £155.2m from £261.0m. EPS plunged to 50.2p from 83.8p in the previous year. The management does not expect the turmoil in the UK and Eurozone markets to affect the London commercial property market, given the low supply of new space. The management increased total dividend by 2.4% to 8.4p per share. 

Telecom Plus (LON:TEP) 

Telecom Plus released final results for the year ended 31st March 2012 yesterday. Pre-tax profit increased 11.8% to £30.7m on a 12.6% increase in revenue to £471.5m. The customer base expanded to 415,000 from 371,000 in FY2012. EPS was up 12.3% to 33.8p. The number of services supplied grew 18% and average number of services availed by customers increased to 3.63 from 3.43 in FY2011. The number of customers requesting four or more services doubled. The management expects to increase the number of services supplied by around 20% in FY2013, but profit growth is expected to be limited to 10%. In FY2014, the management expects to see the benefits of current investments with a pre-tax profit growth of around 18%. The management proposed a 23% increase in dividend to 27p per share. 

Economic News

UK Bank of England minutes

Minutes of Bank of England's Monetary Policy Committee (MPC) released yesterday showed members unanimously agreed to keep interest rates at record lows of 0.5%. However, David Miles was the lone voter in favour of increasing the Bank's asset purchase programme by another £25bn. While the other eight members voted against such an expansion, many said the decision was 'finely balanced'. 

Our view: Though the MPC does not seem to be in favour of lowering rates further, it kept the option to pump more fresh money into the economy open. The larger than expected deceleration in inflation in April should give the BoE more leeway to consider stimulating the economy with additional asset purchases after the UK reported a GDP contraction of 0.2% in Q1 2012. On Wednesday, the IMF urged the BoE to consider lowering interest rates and embark on more quantitative easing as the economy had not responded as expected and the risks of stagnation remained high. 

UK retail sales

Retail sales in the UK fell 2.3% m-o-m in April reversing the upwardly revised 2.0% (1.8% reported initially) increase of March, the Office of National Statistics said yesterday. Heavy rains in April caused a 5.2% decline in sales of clothing and footwear and fuel sales declined 13.2%. On an annual basis, retail sales contracted 1.1%. In the three months to April, sales slowed to 0.2% from 0.7% in Q1 2012. 

Our view: The drop in retail sales was significantly worse than the 0.8% decline expected by economists. Warm weather in March and panic buying of fuel, ahead of the fuel-tanker drivers' strike had buoyed sales in March. However, adverse weather conditions coupled with continued high unemployment, inflation, falling real wages and an uncertain economic outlook seems to have weighed on consumers making them reluctant to spend and could put the UK at risk of an extended recession. 

US house price index

The Federal Housing Finance Agency (FHFA)'s home price index indicated that home price in the US increased 1.8% m-o-m and 2.7% y-o-y in March. In Q1 2012, home prices rose 0.6% vis-a-vis Q4 2012 and 0.5% y-o-y. 

Our view: The rise in home prices was better than the 0.3% increase expected by economists. Rising property prices add to the string of other housing sector indicators suggesting a firming recovery in the sector. Rising employment and lower mortgage rates has brought houses within reach of a larger proportion of the population, which should help consumer sentiment and spending. 

US new home sales

Sales of newly built homes in the US grew 3.3% m-o-m to an annual rate of 343,000 in April, the US Department of Commerce said yesterday. This beats economists' expectations of the sale pace increasing to 335,000. New home sales surged 9.9% y-o-y. 

ASIA

Nikkei share average closed modestly higher by 0.1%, aided by a rapid rally going into the close, triggered by short-covering in low volume markets. (Newswires)

Top performing sectors in the Nikkei 225: Financials (+1.11%), Consumer Services (+0.44%), Industrials (+0.38%)

Worst performing sectors in the Nikkei 225: Technology (-1.05%), Health Care (-0.38%), Basic Materials (-0.29%)

US

US equities traded in negative territory for the majority of the session, the sell off a continuation from the European session, investors nervous after yesterday's comments from the former Greek PM about a potential Greek exit ahead of the EU summit today. Positive US macroeconomic data in the form of new home sales did not spur any enthusiasm for a rally either. At the half way mark all three of the major indices were seen down around 1.5%,the SPX back below the 1300 level; the DJIA matching the lows seen on January 13th 2012. The last hour and a half of trade, however, saw an unexpected turn in stocks, lifting the the SPX, NDX and the DJIA back into the green, though only the former two managed to hold into the cash close. Finally, the DJIA finished at 12496.15, down 0.05%; the NDX finished at 2547.08, up 0.31%; the SPX finished at 1318.85, up 0.17%. (RANsquawk)

Top Performing Sectors in S&P 500: Basic Materials (+1.16%) Industrials (+0.60%) Consumer Services (+0.52%)

Worst Performing Sectors in S&P 500: Utilities (-0.65%) Health Care (-0.64%) Telecommunications (-0.23%)

US Banks – Ohio Senator Brown is trying to push a law through the Congress to put an end to the ‘too big to fail’ problem, forcing a break-up of America’s six biggest banks. The proposal may come under heavy opposition as a previous proposal failed to be passed. (FT-More)

Goldman Sachs – Co. is to announce a USD 40bln clean energy investment target for the next decade, with the plan covering investment and financing in several sectors. (Newswires)

Apple – A General Electric-owned company is squaring up to the Co. in court over whether its patents were infringed when the Co. launched its iTunes platform. In other news, the Co. have said the US government’s lawsuit against the Co. concerning e-book pricing is fundamentally flawed, adding that the Co.’s actions were classic precompetitive conduct. (FT-More/Newswires)

Hewlett-Packard – Co. reported Q2 adjusted EPS USD 0.98 vs. exp USD 0.91; Q2 revenue USD 30.7bln vs. Exp. USD 29.95bln; co. sees Q3 adjusted EPS USD 0.94-0.97 vs. Exp. USD 1.02, and sees FY 2012 EPS USD 4.05-4.10, previously saw USD 4.00, vs. Exp. USD 4.02. (Newswires)

UK

BP – Co. agreed to add over USD 400mln in pollution controls at its Indiana refinery, expecting to cut air pollution by more than 4000 tonnes per year, and to pay USD 8mln clean air act penalty. (Newswires)

Royal Dutch Shell – Co. have noted yesterday’s announcement from PTTEP concerning the takeover of Cove Energy. Co. reports that it will consider its options and make a further announcement if appropriate. (Newswires)

Rio Tinto – Co. CEO has said he expects the iron ore market to improve over the next couple of months, and sees strong demand for iron ore in the long-term. (Newswires)

Xstrata – Co.’s copper unit has reported that ongoing protests aimed at its Tintaya mine in Peru have not affected output. (Newswires)

British American Tobacco – EU judges have ruled that the UK Treasury breached EU law in the 2007 Finance Act by retrospectively blocking tax refund claims. The ruling reinstates claims dating back to 1973 from six multinationals, led by the Co. The potential refund is estimated at GBP 1.2bln. (FT-More)

SABMiller – Co. FY EBITDA USD 5.63bln vs. Exp. USD 5.7bln and FY group revenue USD 31.4bln, previously USD 28.3bln. Co. propose a final dividend of USD 0.695 per share. (Newswires)

United Utilities – Co. reports FY revenue GBP 1.565bln, with profit before tax of GBP 280mln. Co. reports that it has continued progress on its capital expenditure programme and has invested GBP 680mln, an increase of 12% from the prior year. Co. proposes a final dividend of GBP 0.2134 per share, an increase of 6.7% in line with policy. (Newswires)

Companies paying dividend: Prudential (GBP 0.1916) Tullow Oil (GBP 0.0889)

OTHER UK

Cove Energy – Royal Dutch Shell have noted yesterday’s PTTEP offer for the Co. Royal Dutch Shell will consider their options and make a further announcement if appropriate. (Newswires)

FRENCH

Renault – Co. is seeking a partner in order to assist in relaunching the Co.’s Alpine sports car, according to the COO. (Les Echos)

Companies paying dividend: GDF Suez (EUR 0.6700) Vinci (EUR 1.2200)

Companies going ex-dividend: Essilor International (EUR 0.8500)

GERMAN

Siemens – Co. is planning to expand its presence in Brazil by investing up to USD 1bln over the next five years. (Newswires)

Bayer – Co. submitted a new drug application for Regorafenib for the treatment of metastatic colorectal cancer. In other news, the US FDA voted 6-4-1 against the Co.’s and Johnson & Johnson’s Xarelto pill for the treatment of acute coronary syndrome. In other news, the Co. have confirmed Xarelto’s peak revenue forecast above EUR 2bln. (Newswires)

Companies paying dividend: Metro (EUR 1.3500) SAP (EUR 0.7500)

Companies going ex-dividend: Metro (EUR 1.3500) SAP (EUR 0.7500)

PAN EUROPEAN

Spanish Banks – The Spanish Economy Minister de Guindos said 70% of the Spanish banking system would survive their stress scenario. De Guindos has also said he is considering postponing the auctions of the bailed-out banks Catalunya Caixa and Banco de Valencia. Concerning the audit of Spanish banks, Eurozone central banks, the IMF and the EBA will supervise the proceedings, according to sources close to the process. (El Pais/Newswires/Cinco Dias)

Bankia - The Spanish government will inject at least EUR 9bln into the co., which will cover capital needs of EUR 7.1bln to comply with two banking reforms, as well as EUR 1.9bln of capital buffers to comply with European capital rules according to the Spanish Economy Minister de Guindos. (Newswires)

BBVA – Co. is studying the sale of its pension operations in Latin America. (Newswires)

Companies paying dividend: ENI (EUR 0.5200) Generali (EUR 0.2000) Telecom Italia (EUR 0.0430)

SMI

Swiss Watchmakers – Swiss watch exports have risen by a real rate of 9% Y/Y across April, with a nominal rate of 7.9%. (Newswires)

Companies paying dividend: Swatch Group (CHF 5.7500)

BROKER MOVES

GDF SUEZ RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE

FRANCE TELECOM ADDED AS LEAST PREFERRED AT UBS

EON RAISED TO 'BUY' AT COMMERZBANK

UK Business Secretary Cable has published a bill to help make Britain one of the most enterprise-friendly countries in the world. Cable has said fostering growth in an acute crisis was the government’s most pressing priority, and his bill would reform employment tribunals, beef up competition rules, cut red tape and give shareholders binding votes on executive pay. (FT-More)

BoE’s Bailey has said UK banks need clearer targets after the IMF’s warning over the pace of Britain’s economy. (Newswires)

UK PM Cameron has reiterated his stance that his government will fight any proposals of a financial transaction tax all the way. (Newswires)

IAG’s CEO Walsh has said the severe delays at the UK’s airports are placing the UK’s trade with China at risk, adding that the Government had failed to do two simple things within its control: make it easy for foreign businessmen to obtain visas and ensure smooth entry into the UK. (Telegraph)

UK participants now look forward to the second reading of Q1 GDP from the UK, due at 0930BST.

ASIA

JGB prices were seen marginally higher, 10-yr was up 4 ticks at 143.29. Price action overnight was limited, with the 10-yr JGBs trading range bound through the bulk of the session. Last price taken at 0605BST. (RANsquawk)

Japanese Tankan Survey: Manufacturers sentiment index +2 in May

Japanese Tankan Survey: Non-manufacturers index +11 in May (Newswires)

Japan’s corporate mood picked up over the last month and is seen as improving in the coming months as the economy continues its recovery from last year’s earthquake. Concerns continue to remain from the European crisis and a Chinese slowdown, according to the survey.

Chinese HSBC Flash Manufacturing PMI (May) M/M 48.7 (Prev. 49.3) (Newswires)

The PBOC should continue to cut their RRR and take other measures to increase the country’s money supply, according to an influential Chinese paper. (China Securities Journal) In other Asian press, Xinhua have reported that China may ease property development credit controls. (Xinhua)

US

T-notes settled in positive territory yesterday, with the 10y yield dropping 5bps to hit a session low of 1.72%. The flight to quality bid was driven by continued speculation on whether Greece will remain in the Euro-zone, firstly on overnight comments from the former Greek PM and additionally on comments from EU officials that Euro-zone governments were preparing contingency plans for a Greek exit. CTA's were observed on the bid from the CBOT open, with a particularly large 10y September curve flattening trade noted later in the session. The 5y note auction witnessed a record low yield at this maturity, however the buy-side demand was a little light compared to the 5 auction average which saw some post-event profit taking in 2s and 5s. At the pit close, t-notes settled at 133.25+, up 15+ ticks. Finally, the DJIA finished at 12496.15, down 0.05%; the NDX finished at 2547.08, up 0.31%; the SPX finished at 1318.85, up 0.17%. T-notes were seen trading down 4 ticks at 133.21+ heading into the European open, price action was capped somewhat overnight with the US 10-yr trading sideways. Last price taken at 0635BST. (RANsquawk)

Yesterday’s results of USD 35bln 5y note auction gave a record low yield of 0.748% vs. exp. 0.748%, with the WI stopping at 0.745%; B/C 2.99 vs. avg. 2.97 (Prev. 3.09; Indirects 42.6% vs. avg. 45.03% (Prev. 47.43%); and allotted at high 95.77%. (Newswires)

Fed's Kocherlakota said the rise in inflation signals the US is nearing the maximum employment that is achievable by monetary policy, which should be responsive to signs of rising inflation. (Newswires)

Fed's Bullard said the Fed's already very easy policy is appropriate right now and that the Fed has probably done as much as can be expected. (Newswires) He added that he believes the ECB is committed to backing the European banking system and therefore the risks to the US are a slightly lower than market perceptions.

EUROPE

Italian PM Monti has said there has been no conclusion on growth boosting measures or Eurozone bonds at their informal summit. Italian PM Monti and French President Hollande said that they both favour Euro-zone bonds as a possible solution, with Monti commenting that a majority are in favour of the bonds according to a source. (Newswires)

Tensions have begun to emerge among EU leaders over how hard a line to take with Greece as the prospect looms of victory in next month’s elections for parties opposed to the country’s bailout terms. (FT-More) There have been signals from both Paris and Rome that some concessions may be required to strengthen the position of pro-bailout parties in Greece. Further from the meeting, ECB’s Draghi has said ECB independence was held up by most leaders at the informal EU summit. (Newswires)

The Bundesbank have reported that a significant dilution of existing fiscal agreements would damage confidence across the Euroarea and strongly weaken incentives for national reform. (FT-More) On a Greek exit, the central bank has also said that the challenges this would create for the Euroarea and for Germany would be considerable but manageable, given prudent crisis management.

A Euro-zone Working Group source said that contingency plans in case of a Greek exit had been discussed, adding that most Euro-zone countries are already working on Greek exit “assessments”. (Newswires) Separately, a Euro-zone draft statement affirmed EU commitment to safeguarding financial stability in the Euro-zone, adding that this programme was the best guarantee for a more prosperous future of Greece in the EMU.

In a report by the Center for Economic Policy Studies, the institute has said that Greece’s economy could rebound from a default more smoothly than many expect if its official creditors are willing to cut the interest rate on the country’s debt. (Newswires)

The Spanish government will inject at least EUR 9bln into Bankia which will cover capital needs of EUR 7.1bln to comply with two banking reforms, as well as EUR 1.9bln of capital buffers to comply with European capital rules according to the Spanish Economy Minister de Guindos. (Newswires)

German Chancellor Merkel has said Germany will propose a deeper internal market and greater labour market mobility in the EU, as well as better and stronger use of the EIB. (Newswires) German finance minister Schaeuble has signalled that he is willing to compromise on the question of project bonds, promising that Germany would study the matter, according to an interview. (Mannheimer Morgen)

German economic growth will be slower in Q2 than previously expected, according to the German finance ministry. The ministry further reports that it expects a notable global economic recovery this year, though Eurozone weakness will continue to weigh on the country’s exports. (Newswires)

FX

New Zealand Trade Balance (Apr) M/M 355mln vs. Exp. 400mln (Prev. 134mln, Rev. 186mln)

New Zealand Trade Balance 12M YTD (Apr) M/M -541mln vs. Exp. -651mln (Prev. 207mln, Rev. 262mln) (Newswires)

GEOPOLITICAL

The P5+1 group will today make a last-ditch attempt today to persuade Iran to accept immediate restrictions on its nuclear programme, hoping that such concessions will begin to defuse fears that Tehran wants an atomic bomb. (FT-More)

COMMODITIES

WTI crude futures were trading up USD 0.45 at USD 90.35 heading into the EU session, dealer noted that traders covered their short positions after prices hit their lowest levels in more than five months in yesterday's session, on continued EU concerns and signs of progress in talks with Iran on its nuclear programme. Last price taken at 0630BST. (RANsquawk)

Global iron ore markets will remain firm and prices could rise in the second half of this year as markets anticipate Indian exports to fall and China to use incentives to boost steel demand, according to participants in this weeks’ Rio Investors’ Day conference. (Newswires)

Andrew Ross Sorkin on Glass-Steagall: "Reinstating an Old Rule Is Not a Cure for Crisis" - This is an interesting column by Andrew Ross Sorkin for the NYT & IHT. Here is the conclusion:


Why do we have financial crises? Why do banks lose money?

If history is any guide, it hasn't often been the result of speculative bets. It has been the result of banks making loans to individuals and businesses who can't pay them back.

Yes, standards became so lax that buyers didn't have to put money down or prove their income, and financial firms developed dangerous instruments that packaged and sliced up loans, then magnified their bets with more borrowed money.

But it often starts with banks making basic loans. Making loans "is one of the riskiest businesses banks engage in and has been a major contributing factor to most financial crises in the world over the last 50 years," Richard Spillenkothen, former director of the division of banking supervision and regulation at the Federal Reserve, wrote in a letter to Politico's Morning Money on Monday. He said that if Glass-Steagall still existed, it "alone would not have prevented the financial crisis."

Still, Mr. Spillenkothen said: "If banks had been limited to 'plain vanilla' lending, notwithstanding its admitted riskiness, the financial crisis may well have been less severe or more easily managed and contained."

In my conversation with Ms. Warren she told me that one of the reasons she's been pushing reinstating Glass-Steagall - even if it wouldn't have prevented the financial crisis - is that it is an easy issue for the public to understand and "you can build public attention behind."

She added that she considers Glass-Steagall more of a symbol of what needs to happen to regulations than the specifics related to the act itself.

So would Glass-Steagall make things slightly better? Sure.

But the next time someone says that it is the ultimate solution, think again.

My view - Andrew Ross Sorkin is technically correct in this assessment but I feel that he misses the behavioural message sent by repeal of the Glass-Steagall Act during the Clinton Administration. Along with revoking the Up-tick Rule, it signalled to Wall Street that it was all-powerful, could push regulators around and basically do whatever it wanted in pursuit of profit.

In other words, it opened the door to a lamentable deterioration in standards of governance within what has often been an amoral industry. This led to an insane increase in leverage, mainly via derivative contracts, some of which only the maths wonks understood.

Yes, banks will always make some bad loans, often because 'everyone else is doing it'. Leverage combined with a lapse of ethical standards creates a toxic cocktail. The CDOs at the centre of the 2008 financial crisis, with their improbably optimistic stated yields proved so popular with gullible customers that salesmen in Wall Street banks clamoured for ever more of them. The rest you know.

Standards of governance are established in a top-down process and in the financial industry profit too often trumps morality. Fortunately, there is a litmus test to alert you when speculation is getting out of hand. When Wall Street banks talk about "spreading risk" (translation: we have parcelled it out among the suckers) head for the hills.

Note: there are 12 earlier references to Glass-Steagall in the Archive. The most recent of these was on 1st November 2011 and you may also be interested inJoseph Stiglitz's excellent article: Capitalist Fools, posted on 27th March 2009.

Email of the day - On the EUR/CHF peg:

"Given the ongoing weakness of the euro and the potential for further devaluation how do you rate the possibility of the SNB having to eventually abandon the CHF-EUR peg? What would be the signs that this might happen?"

This item continues in the Subscriber's Area.

European Banks Unprepared for Pandora's Box of Greek Exit - Here is the opening for this topical article from Bloomberg:

Europe's banks, sitting on $1.19 trillion of debt to Spain, Portugal, Italy and Ireland, are facing a wave of losses if Greece abandons the euro.

While lenders have increased capital buffers, written down Greek bonds and used central-bank loans to help refinance units in southern Europe, they remain vulnerable to the contagion that might follow a withdrawal, investors say. Even with more than two years of preparation, banks still are at risk of deposit flight and rising defaults in other indebted euro nations.

"A Greek exit would be a Pandora's box," said Jacques- Pascal Porta, who helps manage $570 million at Ofi Gestion Privee in Paris, including shares in Deutsche Bank AG (DBK) and BNP Paribas SA. (BNP) "It's a disaster that would leave the door open to other disasters. The euro's credibility will be weakened, and it would set a precedent: Why couldn't an exit happen for Spain, for Italy, and even for France?"

The prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the nation's second bailout by the European Union and the International Monetary Fund won most of the votes in May 6 elections. A fresh round of voting will be held June 17 after politicians failed to form a government. For the first time since the crisis began in November 2009, European leaders and central bankers are speaking openly of Greece abandoning the currency union.

My view - No one yet knows whether or not Greece will leave the euro, not even the Greeks and certainly not the Germans. However, we have a much clearer idea of what the markets are doing.

This item continues in the Subscriber's Area.

Additional commentary by Eoin Treacy

Shale Glut Means $1-a-Gallon Savings Burning Frozen Gas This article by Eduard Gismatullin and Jeremy van Loon for Bloomberg may be of interest to subscribers. Here is a section:

We see opportunities for a concept like this one in other areas of the world as well, said Jose-Alberto Lima, Shell's vice president for LNG and gas sales in Americas. He said Shell, based in The Hague in the Netherlands, doesn't expect a rebound in gas prices anytime soon.

In addition to being cheaper, natural gas burned in trucks emits as much as 25 percent less carbon dioxide, as well as almost eliminating particulate matter and sulfur dioxide produced by diesel-powered vehicles, according to the Calgary- based Van Horne Institute. Using natural gas, a fuel where North America is self-sufficient, would also cut demand for imported crude oil.

Shell eventually plans to deploy LNG technology to power trains, ships and mining industry engines. Gas overtook crude oil to account for more than 50 percent of the company's production for the first time this year. It expects to expand the use of LNG as a transport fuel beyond North America to Europe, China, Latin America and Australia.

My view Basic economics dictate that when the price of a commodity drops versus alternatives demand for it increases as consumers find innovative ways to avail of the more favourable pricing environment and particularly when it has environmental credentials supporting it. Therefore we have anticipated for quite some time that the growth of natural gas as a transportation fuel was inevitable. The main question is how long this will take to evolve into a widespread phenomenon.

While I have previously highlighted Fiat Industrial as a manufacturer of LNG powered haulage vehicles there are now a number of others.

This section continues in the Subscriber's Area.

Eoin's personal portfolio: stock market index breakeven stop triggered, commodity profit taken and order to close left on my ETF long This section continues in the Subscriber's Area.

Time To Cotton On! - Thanks to a subscriber for this interesting report from BNP Paribas which may be of interest to subscribers. Here is a section:

Cotton's collapse is particularly important as an unprecedented bubble in global cotton prices between July 2010 and March 2011, which saw prices treble on a mix of supply and speculative pressures, has been instrumental in pushing up clothing inflation across the globe over the last year. We estimate that clothing inflation is running at, or close to, record highs in China, the US and the euro zone. Cotton's collapse, which has seen prices drop around 2/3rds from their March 2011 peak, should therefore ensure that clothing inflation falls back rapidly over the next 6-12 months. And demand factors, proxied by Chinese narrow money growth, suggest little scope for any near-term recovery in cotton prices.

Clothing inflation appears particularly important in China given its estimated weight of around 8% in headline CPI which is roughly double the regional average according to our estimates. Econometric estimates suggest that CPI clothing inflation could fall by 2-3% points over the next 6-9 months, crimping overall CPI inflation by c.¼ other things equal. Downside risks to inflation from cotton, not to mention oil, mean that policy space' in China may therefore be greater than typically assumed. Clothing inflation also looks set to retreat in both the US and the euro-zone, also increasing policy space' for both the Federal Reserve and the European Central Bank.

My view Cotton continues to extend its decline but is becoming increasingly oversold in the short term. While potential for a bounce has increased, a sustained move above 85¢ would be required to question medium-term downward potential.

This section continues in the Subscriber's Area.

Email of the day on an addition to the Chart Library:

I would appreciate it if you would include in your chart bank Raging River Explorations RRX at Toronto S&P TSX, a newly spun off junior pure (98%) light oil development company. Thank you once again.

My comment Thank you for this suggestion which has been added to the Chart Library.

The Chart Seminar 2012 - Following a well-received tour of the USA I am looking forward to our next venue in London which now only three weeks away. Anyone interested in securing a place at any of our events should contact Sarah Barnes at: sbarnes@fullermoney.com.

The remaining dates and venues for The Chart Seminar in 2012 are:

London - May 24th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates. 

Saints & Sinners: Mining   

Bumi Plc. (LON:BUMI) Slipped 8% to 400p at the mid-price during afternoon trading after its cracking run yesterday. It was no surprise to see a few short term traders taking a little profit off of the table as the market continued its slide once again. The next major support line I can see is around the 390p to 400p area, so it will be interesting to see if the long term holders, or the day traders look to jump back in on this dip.

Aquarius Platinum (LON:AQP) eased 7% to 77.5p during early trading after the company said Mimosa (50% owned by Aquarius) wishes to advise that all employees have now been safely evacuated from the mine. No injuries have been reported. Details concerning the extent of damage and impact on production will be made available in due course.

Sirius Minerals (LON:SXX) bucked the negative trend in the market today, by pushing 6% higher to 15.625p during early afternoon trading. The company did announce yesterday the appointment of Jason Murray to the board as Finance Director and Chief Financial Officer, adding that Andrew Lindsay has resigned from his executive and board roles but remains a consultant to the company.

West African Minerals (LON:WAFM) jumped 15% to 66.5% on decent volume after the company announced late yesterday afternoon that it reached an agreement to acquire the 5% interest not previously in its control in Compagnie Miniere du Cameroun SA, or CMC Cameroon. Following the acquisition, CMC Cameroon will become an indirect wholly-owned subsidiary. On completion of the acquisition WAFM will issue to the vendors a total of 18.5 million new ordinary shares representing approximately 6.7 per cent. of the enlarged share capital. Based on 21 May closing price of 54.75 pence, the shares are valued at approximately £10,128,750. Completion is expected within 10 days. The principal vendor is Colosseum Holdings Ltd.

Vane Minerals (LON:VML) pushed 10% higher during early trading after the company said it has reached an agreement with the holders of its convertible loan notes over repayment of the notes. Currently has two convertible loan notes outstanding, the first for GBP1 million issued to Geiger Counter Limited; and the second loan, amounting to GBP500,000, issued to City Natural Resources High Yield Trust PLC. Principal points of the agreement are, Will repay GBP500,000 on May 31, out of existing cash resources, to settle the loan with City Natural Resources. Will carry forward a loan note of GBP1 million, issued to Geiger Counter. Maturity date for the new loan note is May 31, 2017. New loan note will continue to attract interest at 8% per annum, payable every six months. New loan note is convertible by the holder, at any time, into 80 million ordinary shares in Vane at a price of 1.25 pence a share.

Eurasia Mining (LON:EUA) eased 15% to 0.50p before settling back at 0.60p, down 7.5% by the end of lunch. The company have been slipping ever since the company announced back on the 4th of April that it issued 288.5 million ordinary shares to Queeld Ventures Limited at a price of 1 pence per share, raising GBP2.9 million. Placing will help the company to take the West Kytlym project to production and to develop other projects. Following the issue of shares, Queeld Ventures will hold 29.9% of the total issued share capital of the company.

From the trading floor   

Comments from former Greek prime minister Lucas Papademos late last night was the reason for the aggressive market sell of today, pushing the FTSE 100 Index 93 points easier as I type to 5310 (-1.75%) on volume of just over 400 million shares, which is thin volume for this time of day given the move in the market. The FTSE AIM All-Share index was 1.12% easier also on thin volume of just over 450 million shares.

Commodities Corner   

Gold - ↓Trading at $1559, down $8 (-0.49%)

Silver - ↓Trading at $27.66, down 45c (-1.59%)

Copper - ↓Trading at $7595, down $95 (-1.23%)

Zinc - ↓Trading at $1872, down $30 (-1.51%)

WTI Crude - ↓Trading at $91.40, down 43c (-0.47%)

Brent Crude - ↓Trading at $107.10, down $1.30 (-1.21%)

Any questions please don't hesitate to contact me at steve.asfour@fox-davies.com or visit www.viewsfromthetradingfloor.com or www.fox-davies.com

Just a note for those of you who don't want to read about my life in ramblings above the site takes a holiday break and the next report is June 13th.

If you've lost money this month, it definitely won't be as much as investor John Morley lost this week.

He had £70 million staked in a share called Pursuit Dynamics (LON:PDX). They slumped more than 80% and he lost mega money on paper anyway, his stake now worth £1.5m.

Though I have a feeling nearly all of you would think: never mind about the £70m, I'll have the £1.5m that is left and be very happy with that thanks!

I think the lesson is beware of having a massive stake in anything that is risky, as you just never know. One statement and you've done your dough. Some statements come out of the blue like for example investors in a share called Lamprell (LON:LAM) lost tons this week after a surprise warning.

It will always happen and I always expect at least one completely unexpected statement a year that will knock one of mine for six.

I think we are going to see a major market crash....   if the Greeks win the Eurovision Song Contest this weekend. 

Can you imagine? That would be it. Turmoil in the markets - the Greeks can't afford to host it next year.

The Irish are probably thinking the same thing - however they have a solution, put on the awful Jedward which should ensure defeat. 

So I hope the Greeks made sure their song was crap - but obviously not too crap as if it is really crap, well then obviously it could win...

Well," Buy when everyone is fearful" (Buffet)  worked yesterday, albiet possibly only temporarily. Though so far it didn't work today!

Fear continues to abound. Will the Greeks exit the Euro? Is the Euro finished? Are we all doomed? Is bloody Robert Peston back on the TV? Austerity or spend? Deal or No Deal?

All these unanswered questions leave us bemused, puzzled and unsure of what to do. 

Very uncertain times today with meetings going on and the feeling the Greeks might be on the way out.

However at the seminar on Friday, as discussed with those who came (more on the seminar above somewhere!) it was fascinating.

Because every time I performed the various tricks I do to see if I can get an edge and see if a share price might be about to rise, I noticed nearly every time... one of the major market makers was snapping up loads of shares. Lots and lots of them at very cheap looking prices.

And given this market maker is pretty good, it was obvious as far as it was concerned, at least temporarily, as I said on the day, a market turn wasn't too far off.

One other noticeable aspect of the day was share charts themselves. Most showed the same thing: 1 - they all seemed very close to a previous support area. 2 - However if that support area gave way, very big falls awaited down to the next area.

So a summary of all that during the day was, it could soon be a good time to buy as a market turn could be around the corner however it's with a big caveat - watch out because things could still get a lot worse if the turn does not materialise.

So I suppose that links up with if a rabbit is pulled out of the hat re Greece, a rebound could be ours. However if it isn't we could see steep falls.

Also one gets the feeling in light volume there is a lot of background manipulation going on with professional money easily taking the money off the amateur.

All of which probably leads me to think one will have to be cautious this summer.

Over the last few weeks I have had a massive clearout  (partly caution partly want a free summer) so for the time being happy to sit on  a shedload of cash - this could turn out to be very handy because if we do get steep falls it gives the ability to buy very cheap stock.

And also I made lots of money this year and last - and I would really rather hang onto the capital created rather than worry about trying to make more. If the year ends as things stand now I would be perfectly happy.

And as those who came to the seminar saw, I am making some decent money using the DB super short (see my book) and FTSE downbets on the spreads. A few grand after today's steep falls,

However I couldn't quite resist the odd bit of bargain hunting with the caveat to clear out fast should the market tank more.

I bought a few Corin (LON:CRG) - it's a small but fully listed company that specialises in knee and hip technology.

What's interesting is that it has a new product or two that could just sell well and in any event it looks like it is going to make a reasonable profit and therefore it looks like a good one to just tuck away for say 6 months to a year and see what happens.

If its new knee product takes off it could do very well indeed and any contract or sales win could potentially be big for the share price because any hint of profits coming in ahead of expectations could see a nice shift in the share price. Also it tends not to move when the ftse tanks which is rather nice!

I picked up a few Smiths News (LON:NWS) at 94 live at the seminar....I like companies that are transforming an old business into a new business and it looks cheap. It's in a business in decline, delivering papers, but moving into new delivery areas and buying up companies in those areas, so interesting!

I added a few more Vislink (LON:VLK) at 27.7 to add to the positions well lower down. Averaging up I guess, bit dangerous in this market perhaps but it has come back a lot.

And I bagged a few Photo Me (LON:PHTM)  at 36p, live at the seminar. Looks oversold and given it has a ton of cash and trades on a low multiple, looks bargain territory.

Facebook Arrrgghhh!! After writing about this over the last month as the best short you are ever going to get I was convinced I was going to make an absolute fortune shorting a company whose valuation should be nowhere near 38m dollars a share.

So early Monday I rubbed my hands all ready to get a lovely big short on. And then....

Bugger! None of my 5 spreadbet firms would take a short! No problem betting on it to go up though, surprise surprise!! Various excuses were made, apparently they say shorting will be okay after its first week.

Hmm, you almost feel they are saying.. think we were going to give you free money? Hah! 

Never mind, I expect Facebook (NASDAQ:FB) will probably rebound and shorts when available will still make some money.

I've continued the spring clean...The last bit of opts went at an average 231 for a profit of £240. The Ocado (LON:OCDO) spread short has gone at 106 for a profit of £660. Vol spreadbet at 231 for a profit of £60 and I've had a lovely run with Aggreko (LON:AGK) but finally parted with it at 2126 for a profit of £4,840. 

Which banks a total profit of £5,800. 

Results from my biggest holding, Telecom Plus (LON:TEP) today. Bang in line, what a great company. Profits, dividends continue motoring up and by the outlook statement, another 10% on profits this year, then next year, things could grow very quickly.

It's everything you want from a long-term hold. A fantastic income and a gradually upward share price - together as long as the world doesn't blow up, it should deliver 15% or so per year. Possibly more. Not bad, and better than a Ponzi scheme! 

So I am happy to continue to hold more than a quarter of a million quids worth of shares without any worries about it or even bothering checking the share price. It helps that in this case I have them mainly in share certs! I also luckily have an option to buy another 4,000 shares at 164p...!

Coastal (LON:CEO) is going to start to buy its own shares back, well undervalued now.  Vislink (LON:VLK) shares have held their own quite well after some large buying last week. The brilliant Nicols stays steady around 7 quid.It is a lovely little long-term share. Hoping for an eventual bid there.   Brought this one up at a few seminars. GB has taken a little hit on profit taking, however I think I'll stay with it.  Long-term there is still more value.

Carpetshite continues to amaze me. It makes a tiny profit, a £45m debt and massive warnings. How can it be worth £400m? Crazy!

My two drug companies BTG (LON:BGC) and Vectura (LON:VEC) have held up reasonably well..both have a very decent pipeline. Costain (LON:COST) remains in a loss but it has support at 2 quid. Nice statement from kenz, however the market doesn't like the sector at the moment. I'm sure value will out here eventually.

Dialight (LON:DIA) has come back a bit though I have been patient all the way from 150p!  as those of you who have to my seminars have seen from my accounts my profits in real life are something like £90,000. For the website profits are more than £50,000 - and of course there have been dividends on top.   

Long-termer Carclo (LON:CAR) seems to be settling around 350-400 for now. I already trebled on it so happy there. Seems to hold okay as does  IP Group (LON:IPO). IP has a more than 20% holding in Oxford Nanopore which has made the world's first hand held DNA sequencer, probably worth a fortune for the company.    LOQ (LON:LOQ)  reported trials in the US had gone well last week causing the share price to head back up towards the three level. Might stay here for a while but should remain a long-term winner giving me a treble.  

So all in all, reasonably happy with the way I've handled things. Of course, with hindsight I should have sold stuff a bit earlier, but I don't mind, I never expect to get out at the perfect time. As long as in the end my losses continue to be less than the profits it's fine.

Goodness knows where we'll be when I next update. It would be no surprise if we had gone lower, or we had bounced back. I'll just try to follow things but feel relaxed with loads of cash and positions I can sell easily if I really have to.  

The call of the day from UBS was estate agents Savills (LON:SVS).

The Swiss broker reckons the stock should appeal to value investors now the share price has fallen 20 per cent in the last couple of months.

The share price has dipped further today to 303.6 pence, well below the broker’s target of 370 pence, which was lowered by 15 pence given the uncertain economic climate.

The broker has however upgraded its rating to ‘buy’ from ‘neutral’ due to the “resilient” London market and a recovery in the Asia and Pacific region.

A company which has seen shares drop even more dramatically is HomeServe (LON:HSV).

But the outlook is rather bleaker for the emergency home repairs group.

Shares fell 29 per cent on Tuesday after HomeServe announced it was shrinking its UK operations as a result of an investigation by the Financial Services Authority over allegations of policy mis-selling.

Both Morgan Stanley and Jefferies have upgraded the company with neutral stances but both remain cautious given the persistent risks to the stock.

“We do not see 15% upside to our price target as compelling enough for a fresh money buy, but if we held the shares we would not sell down here,” said Morgan Stanley, which dropped it target price significantly to 185 pence.

Jefferies followed suit, lowering its target to 160 pence from 195 pence.

Amlin (LON:AML) and Catlin (LON:CGL) were named as US banking giant Morgan Stanley’s top picks in a note on the London market insurers this morning.

The broker says both stocks are attractively valued but is less sure about Hiscox (LON:HSX) and Lancashire (LON:LRE).

It does not see many catalysts for the share price at Hiscox but sees positive momentum in the company’s retail business.

The broker remains bullish on the outlook for the sub-sector as trading updates for the start of this year have been “broadly positive”.

Deutsche Bank has cut sports betting website Sportingbet’s (LON:SBT) target price by 10 pence to 39 pence on the back of the Spanish government tax request.

The taxes are estimated to amount to around €17 million.

It believes the market is overreacting to the injunction against the company in Spain however given the lack of impact Europe has on its profits, and maintains its ‘buy’ rating as a result.

Small cap mining companies from across the globe featured in the broker notes today.

With solid results announced today, Azerbaijan-focused gold producer Anglo Asian Mining (LON:AAZ) is certainly one to keep a close eye on, says broker Fairfax.

Analyst John Meyer repeated his ‘buy’ rating, highlighting the increase in earnings and “relatively low” operating costs in the former Soviet state.

However, Meyer adjusted his target price for Anglo Asian to 70 pence from 72 pence previously due to his lower gold price forecast for the current year, which has been reduced to US$1,600 from US$1,800 per ounce.

“The Gedabek gold resource now looks far larger than had been forecast and the mine is sure to extend well beyond its original six year mine life,” he added.

Shares nipped up 0.4 pence, or 1.2 per cent, today to 33.9 pence.

Elsewhere in mining, Brazilian miner Horizonte Minerals (LON:HZM) has signed outline terms for an earn-in deal with Canadian exploration junior Magellan Minerals for its Agua Azul gold property.

Panmure Gordon analyst Alison Turner noted that the property is not part of Horizonte’s core exploration portfolio and said that, whilst small in itself, the deal demonstrates Horizonte’s commitment to extract value for shareholders from every asset in the portfolio.

“We would note that we had previously ascribed no value to Agua Azul so this deal does demonstrate the potential value hidden in the Horizonte portfolio, which, if unlocked, could in aggregate provide a value uplift,” added Turner, who leaves her ‘buy’ stance and 25 pence target price unchanged.

Shares edged up 0.25 pence, or 2.9 per cent, today to 9 pence.

North of the equator, VANE Minerals’ (LON:VML) renegotiation of two outstanding convertible loan notes to limit possible dilution to other shareholders has been described as “impressive” by broker Northland.

“The new loan note will enable the company to continue to utilise the revenue generated from its Mexican gold operations to explore its prospective copper porphyry and uranium projects in the US,” it said.

Shares rose 0.06 pence, or 7 per cent, to 1 pence in trading today.

Broker Numis expects branded medicines specialist Alliance Pharma (LON:APH) to have a stronger second half to the year in line with the launch of its toxicology product.

It added: “We also expect sales of Anbesol [oral pain relief] and Ashtons & Parsons Infant Powders [teething powder] to pick up now that supply issues are "largely resolved".”

The broker retains its ‘buy’ recommendation and has a 37 pence target on the stock, which implies 28 per cent upside to the current price of 29 pence.

US equity futures indicate a lower open lower as momentum continued from comments stemming from the former Greek PM that

preparations for a Greek Euro exit are being considered. Investors will look to New Home sales data at 1500 BST.

• US MBA Mortgage Applications (May 18) W/W 3.8% vs. Prev. 9.2%

• FTSE (-1.97%), CAC (-2.26%), DAX (-1.86%), SMI (-1.04%), IBEX (-1.19%), EURO STOXX (-2.28%) prices taken at 1343BST

DJIA

Earnings:

N/A

Other news:

ExxonMobil – Co. is to farm out several oil and gas blocks in Indonesia as their output at the sites is not satisfactory, according to a Co. official. (Newswires)

JP Morgan – US regulators have received their preliminary briefing on the Co.’s trading losses. The FSOC are to discuss the Co. review at their June meeting, according to the Treasury. (Newswires) In other news the new head of the co.’s chief investment office is in a "strong position" to eventually succeed Jamie Dimon as CEO according to senior insiders. (Newswires)

Bank of America – Co. has agreed to repurchase USD 330mln of home loans from Freddie Mac after flaws were found in the way the securities were created, according to a Co. spokesman. (Newswires)

S&P 500

Earnings:

Guess - Q1 EPS USD 0.30 vs. Exp. USD 0.26, Q1 revenue USD 579.3mln vs. Exp. USD 569.85mln. (Newswires)

- Co. sees Q2 EPS USD 0.48-0.52 vs. Exp. USD 0.62

PetSmart - Q1 EPS USD 0.85 vs. Exp. USD 0.73, Q1 revenue USD 1.6bln vs. Exp. USD 1.6bln. (Newswires)

- Co. raises 2012 EPS outlook to USD 3.19-3.31 from USD 3.02-3.16 vs. Exp. USD 3.14

Collective Brands - Q1 adjusted EPS USD 0.68 vs. Exp. USD 0.44, Q1 revenue USD 912mln vs. Exp. USD 878.62mln. (Newswires)

Toll Brothers - Q2 EPS USD 0.10 vs. Exp. USD 0.04, Q2 revenue USD 373.7mln vs. Exp. USD 381.69mln. (Newswires)

- Q2 deliveries 671 units, up 14%

- Q2-end backlog USD 1.5bln, 2,403 units

Big Lots - Q1 EPS USD 0.68 vs. Exp. USD 0.69, Q1 revenue USD 1.29bln vs. Exp. USD 1.30bln. (Newswires)

- Co. cuts FY adjusted EPS view to USD 3.25-3.40 from USD 3.40-3.50 vs. Exp. USD 3.33

- Co. sees Q2 cont ops EPS USD 0.37-0.42 vs. Exp. USD 0.54

Hormel Foods - Q2 EPS USD 0.48 vs. Exp. USD 0.42, Q2 revenue USD 2.01bln vs. Exp. USD 2.05bln. (Newswires)

Other news:

Morgan Stanley – The top securities regulator in Massachusetts has issued a subpoena to the Co. as part of an investigation into whether the Co.’s analysts communicated revisions of Facebook’s revenue forecasts broadly to all clients ahead of the IPO last week. (FT- More)

Metlife – Co. CEO Kandarian and members of senior management of the co. are expected to outline the company’s plans to increase shareholder value at an investor conference today. (Newswires)

Altria – Co. reaffirmed their forecast for their year adjusted EPS at USD 2.17-2.32 vs. Exp. USD 2.21. (Newswires)

NASDAQ OMX - Due to delays in Facebook's IPO, an investor has launched a suit against NASDAQ OMX. (Newswires)

Companies going ex-dividend: Northrop Grumman (USD 0.5500), Carnival (USD 0.2500), Costco (USD 0.2750)

Nasdaq 100

Earnings:

Dell –Q1 adjusted EPS USD 0.43 vs. Exp. USD 0.46, Q1 revenue USD 14.42bln vs. Exp. USD 14.91bln. (Newswires)

- Co. sees Q2 revenue up 2-4% vs. Q1, in-line with historical trends

- Q1 enterprise solutions and services revenue USD 4.5bln, up 2% Y/Y

- Q1 ESS revenue up 5%, excluding third-party storage

- Q1 Services revenue was USD 2.1bln, up 4%.

- Co. ends Q1 with USD 17.2bln in cash, investments

Other news:

Facebook – Analysts for at least two of the Co.’s underwriters revised their financial forecasts for the company while it was holding its IPO roadshow, according to people close to the deal. (Newswires)

Yahoo – Co. hopes that interim CEO Ross Levinsohn can build the company's video programming and syndication deals as it evolves into a media company rather than a technology company. (Newswires) Alibaba Group wants to increase to USD 4bln a USD 3bln loan it has taken out to finance the privatization of its Hong Kong listed unit, so it can partly fund its planned acquisition of a USD 7.1bln stake in itself from Yahoo. (WSJ)

Broker moves

Upgrades:

Starbucks – Co. upgraded to Buy from Neutral at BofA/Merrill, Price target raised to USD 68 from USD 65

Warnaco – Co. upgraded to Buy from Hold at Brean Murray, Price target is USD 55

Blackstone – Co. upgraded to Buy from Neutral at Sterne Agee, Price target is USD 18

Bunge – Co. upgraded to Outperform from Market Perform at BMO Capital, Price target raised to USD 75 from USD 63

Teradyne – Co. upgraded to Buy from Neutral at Goldman, Price target is USD 18

Applied Materials – Co. upgraded to Neutral from Sell at Goldman, Price target is USD 11.50

IntercontinentalExchange – Co. upgraded to Buy from Hold at Deutsche Bank

Downgrades:

NASDAQ OMX – Co. downgraded to Hold from Buy at Deutsche Bank

Patriot Coal – Co. downgraded to Hold from Buy at Deutsche Bank

Dell – Co. price target lowered to USD 17 from USD 20 at Deutsche Bank, firm maintains a Buy rating on the name

CNBC’s Jim Cramer on US corporate earnings

WEDNESDAY earnings: Toll Brothers, Hewlett-Packard, Pandora and Phillips Van-Heusen taking the stage. Cramer remained bearish on Pandora and Hewlett, but was bullish on Toll Brothers, which has no exposure to Europe, and Van-Heusen, a well-run retailer.

THURSDAY earnings: Costco and Tiffany report their earnings. Cramer said that Tiffany remains in the penalty box after last quarter's debacle, but Costco remains a favourite.

Other News

Qihoo 360 - Q1 EPS USD 0.21 vs. Exp. USD 0.17, Q1 revenue USD 69.3mln vs. Exp. USD 60.47mln. (Newswires)

- Co. sees Q2 revenue USD 72-73mln vs. Exp. USD 67.28mln

RailAmerica – Co. has stated that its board is considering strategic alternatives, which may include a sale of the company. (Newswires)

BoE minutes show the MPC voted 8-1 to keep their Asset Purchase Facility on hold at GBP 325bln.

Markets await any commentary from the informal EU leaders summit after the European close.

USD index touches 20-month highs, pressing EUR/USD, GBP/USD lower.

RANsquawk European Morning Briefing Video: http://youtu.be/_KtIaxNObIc

Market Re-Cap

Following the morning in Europe, a generally risk-off tone is observed, with stock futures sitting just above session lows and the German Schatz auction resulting in record low yields. Some of the risk-averse moves were noted following unconfirmed market talk that a troubled Dutch housing association may be pressed towards bankruptcy, however this seems to be linked towards an article concerning the Dutch central bank probing into the sale of derivatives to the housing group Vestia. Nonetheless, the long end of the Dutch curve remains well-bid and European 10-yr government bond yield spreads are seen generally wider across the board.

Releases from the UK have come under particular focus; the BoE minutes showed an alongside-expectations vote of 8-1 to keep QE on hold. With some analysts estimating more of a lean towards further asset purchases, the initial reaction was strength in the GBP currency, but countering this effect was the parallel release of UK retail sales, with the monthly reading showing the sharpest decline since January 2010. Additionally, it was noted that several members of the board saw further QE as a finely balanced decision, placing GBP/USD back on a downward trajectory and briefly below 1.5700. Elsewhere in foreign exchange, current sentiment is reflected in EUR/USD, printing multi-month lows earlier in the session of 1.2615, with the USD index at 20-month highs which in turn has weighed on commodities.

Looking ahead in the session, markets will be awaiting any commentary from the extraordinary EU leaders summit. Also, New Home Sales data is expected from the US and the latest DOE crude inventory figures due at 1530BST/0930CDT.

Asian Headlines

BoJ Target Rate (May) M/M 0.00-0.10% (Prev. 0.00-0.10%)

The BoJ have kept the size of their Asset Purchase Program at JPY 70trl. (Newswires)

The BoJ unanimously voted to keep their policy rate unchanged and have said the Japanese economy is more or less flat, and will keep conducting policy in an appropriate manner. The BoJ have vowed to keep watching long-term inflation expectations and commodity prices.

Following yesterday’s Fitch downgrade of Japan, Moody’s have said their view on the country has not changed, but have said that the concerns cited in their downgrade last August still remain, with the tax debate being a key factor to assess policy response effectiveness. (Newswires)

US Headlines

US President Obama and Presidential candidate Romney are locked in a tight race for the White House amid deep pessimism about the nation’s future and unease with the President’s stewardship of a still-troubled economy, according to a WSJ/NBC News poll. (WSJ)

US MBA Mortgage Applications (May 18) W/W 3.8% vs. Prev. 9.2% (Newswires)

EU and UK Headlines

Much of the focus remains on Greece as overnight, the former Greek PM Papademos clarified that there are currently no preparations in Greece for the country to leave the Eurozone. (CNBC) This has failed to reassure sentiment as a flight to quality is observed in the European markets at the midway point of the session.

The release of the BoE’s May minutes has shown the board to have voted unanimously to keep benchmark borrowing rates unchanged at 0.5%, and has shown that the board voted 8-1 to keep the Asset Purchase Facility on hold at GBP 325bln. David Miles, a known dove, voted for GBP 25bln in further asset purchases. Since the release, BoE’s Bean has said that if conditions deteriorate significantly, the bank may need to resume asset buying. (Newswires)

Following the minutes, comments from the meeting arose that struck a modestly dovish tone, with the bank saying the decision not to expand QE was finely balanced for several members, but the longer-term CPI outlook suggests there is no need for more QE currently. (Newswires)

Coinciding with the minutes release was Retail Sales data from the UK. The figures were far below expectations, with the ONS commenting that poor weather dampened consumer demand across the month.

UK Retail Sales w/ Auto Fuel (Apr) M/M -2.3% vs. Exp. -0.8% (Prev. 1.8%) - Sharpest monthly drop since January 2010

UK Retail Sales w/ Auto Fuel (Apr) Y/Y -1.1% vs. Exp. 1.0% (Prev. 3.3%) (Newswires)

Attention has been paid to unconfirmed market talk that an ailing Dutch housing association is close to declaring bankruptcy. The comments follow the posting of an article in the Dutch press concerning housing group Vestia, in which the Dutch central bank are said to be investigating the sale of derivatives to the company. (De Telegraaf)

According to German press, the ECB has a working group that has been established to look towards the Greek situation. Additionally, the Bundesbank has set up a crisis committee, with ECB’s Asmussen in place as the chair, according to the report. Following this, the ECB had no comment. (Die Zeit)

EQUITIES

European equities are seen lower in the cash and futures as the US comes to market, with basic materials leading the decline, closely followed by oil & gas and financials. The moves lower follow the sentiment of the market, as any Greek commentary steers market direction ahead of the EU leaders meeting later today.

In individual stocks news, UK-listed Cove Energy have removed their recommendation for Royal Dutch Shell’s cash offer for the company and agreed upon the terms of a higher offer from Thailand’s PTTEP. Participants now look ahead to any response from Royal Dutch Shell towards the new offer. As such, Cove Energy shares and Royal Dutch Shell shares trade 11% higher and 1.8% lower respectively.

Basic materials companies are overrepresented in the top losers of the day, with Vedanta Resources, Xstrata, Glencore and Kazakhmys all seen markedly lower ahead of the US open. The downward pressure on basic materials firms follows USD strength throughout the morning weighing on commodities prices as well as the World Bank reporting that China requires further policy tweaking to work against the headwinds of the Chinese economy.

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

The current risk sentiment is reflected across all asset classes as the USD index touches 20-month highs, pressing EUR/USD and GBP/USD lower throughout the morning. EUR/USD broke through Asian session lows relatively early in the European morning, printing multi-month lows at 1.2615. The pair has recovered somewhat since then and now trades in close proximity to a touted option expiry at 1.2650 for the 10am NY cut. (1500BST).

The JPY currency has carried across strength observed in the Asian session following the BoJ keeping rates on hold. USD/JPY now sits comfortably below the 80.00 level as markets await any commentary from Japanese officials who remain concerned about their currency’s strength on the nation’s exporters. USD/JPY now trades in close proximity to a touted option expiry at the 79.75 level for the 10am NY cut (1500BST)

COMMODITIES

Heading into the North American open, WTI crude futures are trading lower on the back of a firmer USD, as well as reports that Western powers are prepared to offer Iran an “oil carrot” that would allow it to continue supplying crude to Asian customers in exchange for guarantees it is not building an atomic bomb.

Oil & Gas News:

China signalled on Wednesday it wanted to ramp up private investment in its energy sector, in line with recently unveiled government plans to fast-track infrastructure investment to help combat a protracted economic slowdown.

Geopolitical News:

Western powers are prepared to offer Iran an ‘oil carrot’ that would allow it to continue supplying Asian customers in exchange for guarantees that it is not building an atomic bomb. Diplomats and oil executives said Washington and Brussels were likely to hold out the prospect of a possible suspension of an EU insurance ban on ships carrying Iranian oil, adding that a deal is unlikely today.

Iran's foreign minister says more Iranian sanctions would be a strategic mistake.

Senior ministers are discussing how Britain would respond in the event of a military confrontation between Israel and Iran later this year.

Israel's defense minister says Iran's preliminary agreement to open its nuclear facilities to U.N. inspectors doesn't rule out a possible Israeli military strike. Ehud Barak said on Wednesday that he's skeptical about the deal, which he calls an Iranian ploy to fend off international pressure to curb Tehran's nuclear ambitions.

North Korea has undertaken a major upgrade of a launch pad that could pave the way for longer-range missiles, according to satellite images taken by a research group. The group suspects that North Korea are looking at rockets larger than its Unha-3, which failed at the test stage on April 13th.

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report.

Heading into the North American open, WTI crude futures are trading lower on the back of a firmer USD, as well as reports that Western powers are prepared to offer Iran an “oil carrot” that would allow it to continue supplying crude to Asian customers in exchange for guarantees it is not building an atomic bomb.

Oil & Gas News:

• China signalled on Wednesday it wanted to ramp up private investment in its energy sector, in line with recently unveiled government plans to fast-track infrastructure investment to help combat a protracted economic slowdown.

Geopolitical News:

• Western powers are prepared to offer Iran an ‘oil carrot’ that would allow it to continue supplying Asian customers in exchange for guarantees that it is not building an atomic bomb. Diplomats and oil executives said Washington and Brussels were likely to hold out the prospect of a possible suspension of an EU insurance ban on ships carrying Iranian oil, adding that a deal is unlikely today.

• Iran's foreign minister says more Iranian sanctions would be a strategic mistake.

• Senior ministers are discussing how Britain would respond in the event of a military confrontation between Israel and Iran later this year.

• Israel's defense minister says Iran's preliminary agreement to open its nuclear facilities to U.N. inspectors doesn't rule out a possible Israeli military strike. Ehud Barak said on Wednesday that he's skeptical about the deal, which he calls an Iranian ploy to fend off international pressure to curb Tehran's nuclear ambitions.

• North Korea has undertaken a major upgrade of a launch pad that could pave the way for longer-range missiles, according to satellite images taken by a research group. The group suspects that North Korea are looking at rockets larger than its Unha-3, which failed at the test stage on April 13th.

Corporate News:

• The Cove board has recommended a new cash takeover offer from Thailand’s PTTEP, which has surpassed the previously recommended Shell bid by 9.1% or GBP 0.20 per share.

• ExxonMobil is to farm out several oil and gas blocks in Indonesia as their output at the sites is not satisfactory, according to a co. official.

• Over 400 blocks have received bids from unidentified players in the UK’s latest North Sea licensing round. A total of 224 applications were submitted to the government for consideration for offshore blocks in the country’s 27th round of licensing.

Weather News:

The latest Weather Derivatives update forecasts temperatures in the US for the next 6-10 days to be 4.5% warmer than normal for this time of year with the region experiencing the most unseasonably warm weather. Using data accurate on the 22nd May.

API Crude Oil Inventories (May 18) W/W 1482K vs. Prev. 6571K

-API Gasoline Inventories (May 18) W/W -4519K vs. Prev. -2637K

-API Distillate Inventory (May 18) W/W -235K vs. Prev. -1570K

-API Cushing Crude OK Inventory (May 18) W/W 491K vs. Prev. 2799K

US DOE Crude Oil Inventories (May 18) W/W Exp. 1650K, Low -1500K, High 2000K (Prev. 2128K)

-DOE Gasoline Inventories (May 18) W/W Exp. -650K, Low -2300K, High 2000K (Prev. -2797K)

-DOE Distillate Inventory (May 18) W/W Exp. -500K, Low -1800K, High 1000K (Prev. -969K)

-DOE Cushing, OK Crude Inventory (May 18) W/W (Prev. 1000K)

-DOE Refinery Utilization (May 18) W/W Exp. 0.30%, Low 0.00%, High 1.50% (Prev. 1.90%)

The call of the day from UBS was estate agents Savills (LON:SVS).

The Swiss broker reckons the stock should appeal to value investors now the share price has fallen 20 per cent in the last couple of months.

The share price has dipped further today to 301.9 pence, well below the broker’s target of 370 pence, which was lowered by 15 pence given the uncertain economic climate.

The broker has however upgraded its rating to ‘buy’ from ‘neutral’ due to the “resilient” London market and a recovery in the Asia and Pacific region.

A company which has seen shares drop even more dramatically is HomeServe (LON:HSV).

But the outlook is rather bleaker for the emergency home repairs group.

Shares fell 29 per cent on Tuesday after HomeServe announced it was shrinking its UK operations as a result of an investigation by the Financial Services Authority over allegations of policy mis-selling.

Both Morgan Stanley and Jefferies have upgraded the company with neutral stances but both remain cautious given the persistent risks to the stock.

“We do not see 15% upside to our price target as compelling enough for a fresh money buy, but if we held the shares we would not sell down here,” said Morgan Stanley, which dropped it target price significantly to 185 pence.

Jefferies followed suit, lowering its target to 160 pence from 195 pence.

Amlin (LON:AML) and Catlin (LON:CGL) were named as US banking giant Morgan Stanley’s top picks in a note on the London market insurers this morning.

The broker says both stocks are attractively valued but is less sure about Hiscox (LON:HSX) and Lancashire (LON:LRE).

It does not see many catalysts for the share price at Hiscox but sees positive momentum in the company’s retail business.

The broker remains bullish on the outlook for the sub-sector as trading updates for the start of this year have been “broadly positive”.

Deutsche Bank has cut sports betting website Sportingbet’s (LON:SBT) target price by 10 pence to 39 pence on the back of the Spanish government tax request.

The taxes are estimated to amount to around €17 million.

It believes the market is overreacting to the injunction against the company in Spain however given the lack of impact Europe has on its profits, and maintains its ‘buy’ rating as a result.

Morning View

Miners sold off as market moves to ‘risk-off’ selling

• Commodities fall on ‘risk-off’ trade

• QE prospects rise in the US and UK

• US dollar bought as safe haven asset and is outweighing prospect of US QE for now

• China – contradictory reports worry investors 

• No significant Eurozone solution is expected till after Greek election on 17 June

• Japanese seen buying commodities, mainly LNG and oil replacing shut nuclear power, widening trade deficit.  This is inflationary and should be good for gold demand 

Economic News

Europe – Eurozone leaders will hold an informal summit today. 

• Amid all the rampant speculation of the push towards Eurobonds (by the French) German officials last night flatly eradicated any chance that these would be created in the short term. 

• Officials highlighted the fact that current treaties forbid the creation of Eurobonds. 

• The Germans have in effect reversed Monsieur Hollande’s Exocet missile and reprogrammed it to target those counties who believe fiscal discipline can be negotiated. 

• Former Greek PM Lucas Papademos stated yesterday that the risks of Greece leaving the single currency were “real”. 

• Spanish yields rose again this morning. 

• Predicting the direction of the crisis at this stage is almost impossible. 

• Past experience has taught us a lot. Politicians will not take the required action to address the structural issues that plague the single currency. If they wanted to, they would have already. 

• Desire to resolve the crisis is self serving. Political will is driven by national issues not co-ordinated reason and we believe this will prove to be the ultimate undoing. 

• Rumours are circulating that Germany is planning to sell up to €5bn to two year treasury notes with a 0% coupon. 

• The announcement indicates the lengths that investors will go find the safest place for their money in the Eurozone.   

China – Stocks declined today for the first time in 3 days on concerns that economic activity in the country is slowing more than initially estimated. 

• The uncertainty on economic growth is not unsurprising given the volume of contradictory information that is emerging. 

• Today China International Capital Corp announced that China’s economic growth, could drop to 6.4% if the Eurozone suffers a Greek exit as it expects growth to drop by half in the region should this happen. 

• CICC estimated that officials need to add close to 600bn yuan in terms of investment to stimulate the economy. 

• In an attempt to increase the options for financing for smaller companies, officials have indicated that China will allow small and medium sized companies to sell bonds through private placements, as soon as next month. 

US – Manufacturing figures released yesterday failed to hit expectations. 

• The Richmond fed manufacturing index fell to a reading of 4 in May against forecasts of 11. 

• Existing home sales in April improved beyond estimates – rising 3.4% month on month. 

• We suspect that the positive figure has been distorted by record low prices. 

UK – Is it Plan A revised or Plan B?

• The Coalition Government has indicated that it will move towards “massive” infrastructure plans in an effort to spur growth. 

• The state backed investment will likely focus on housing and infrastructure in an effort to boost jobs and inward investment. 

• Yesterday the IMF suggested that further stimulus in the economy was required along with a cut in interest rates. 

• Further QE would provide a boost to markets but it is imperative that long term growth be driven by increasing domestic consumption. 

• Expanding the fiscal deficit is not a long term solution. 

• Retail sales figures declined more than expected today further highlighting the problems facing the economy. 

Japan – The Finance Ministry reported a £2.1bn trade deficit in April biggest than a 478bn yen deficit in the same month if 2011. 

• The deficit comes on the back of a huge rise in imports of energy commodities. 

• Yesterday Fitch downgraded Japan by two steps to A+ 

• Japanese stocks fell today and the yen rose as the bank of Japan refrained from adding further stimulus. 

• The yen was additionally helped by the continued uncertainty in the Eurozone and threat that Greece will decide to leave. 

Australia – The Organisation for Economic Cooperation and Development has forecasts that unemployment will rise to the highest level since 2009 as industries, other than mining struggle to deal with the implications of an elevated currency. 

• Unemployment will climb to 5.7% in 2013. 

• Over the past six months the Central Bank has cut benchmark interest rates by 1 percentage point to 3.75%. 

Singapore – Rising wages have lead officials to predict that inflation will remain high over the next couple of months after accelerating in April. 

• The Consumer price index rose 5.4% from a year earlier after climbing 5.2% in March. 

Brazil – Figures released yesterday showed that Consumer prices rose less than economists expected in the first half of this month. 

• Annual inflation slowed to 5.05% in Mid May. 

US$1.2676/eur vs 1.2786/eur yesterday. Yen 79.60/$ vs 79.47/$. SAr 8.362/$ vs 8.236/$. $1.574/gbp vs 1.583/gbp

Commodity News

Precious:

Gold US$1,559/oz vs US$1,588/oz yesterday – Gold is off US$16/oz this morning as the US dollar climbed to a 20-month high against a six-currency basket.

• India’s gold demand may drop for a third consecutive quarter on a weak rupee boosting prices denominated in local currency, according to the All India Gems & Jeweller Trade Federation.

• Consumption fell 19% in Q1 2012 and 44% in Q4 2011, according to the World Gold Council.

• Jewellery sales may decline 30-40% in the three months ending Jun.

• Rupee is down 9.1% this quarter and bullion futures in rupees trade within 1.7% of an all-time high.

• Jewellery consumption is not expected to recover before Sep or Oct in the absence of weddings and major festivals, that usually prompt buying.  

• SPDR gold trust holdings remained at 1,283t (41.248moz) value US$65.670bn. 

Platinum US$1,426/oz vs US$1,473/oz yesterday

Palladium US$604/oz vs US$615/oz yesterday

Silver US$27.85/oz vs US$28.41/oz yesterday

Rhodium US$1,480/oz vs US$1,510/oz yesterday

Base metals:

Copper US$ 7,640/t vs US$7,786/t yesterday – Prices lost US$140/t on strong US dollar and Greece Euro zone exit worries.

Aluminium US$ 2,024/t vs US$2,045/t yesterday

• Norsk Hydro, the third biggest aluminum producer, is planning to halt operations at its Kurri Kurri smelter in New South Wales, Australia, after curtailing output by 60kt (1/3 of the total) in Jan.

• “The plant will not be profitable in the short term with current market prices, while long-term viability will be negatively affected by a number of factors including increasing energy costs and carbon tax,” Hydro said.

Nickel US$ 16,796/t vs US$17,187/t yesterday

• Prices have little upside as supply is forecast to grow 5.4% in 2012 and consumption to add 3.6% amid a balanced market in 2011, mining consultants CRU said.

• Export ban on nickel ores from Indonesia had little effect on the market so far on the back of faltering demand.

• Chinese nickel production may grow 10% annually in the next five years to 642,000t in 2015, according to the National Development and Reform Commission estimates. Demand annual growth may slow to 8% and total 851,000t by 2015. 

• Stainless steel demand is expected to surge to 16mt in 2015 from 9.4mt in 2010.

Zinc US$ 1,880/t vs US$1,907/t yesterday

Lead US$ 1,934/t vs US$1,950/t yesterday

Tin US$ 19,430/t vs US$19,500/t yesterday

Energy:

IRAN- IAEA chief Yukiya Amano believes deal is not far off as six World powers: the U.S., Russia, China, France the UK and Germany- all meet with Iran in Baghdad today around noon.

• A deal has to be agreed or Iran faces sanctions that will come into force on 1st July. 

• Nations have been stockpiling pre-empting supply issues as the US has urged buyers of Iranian crude to seek alternative sources leading up to today in a bid to add pressure. 

• Saudi Arabia has pumped additional reserves to record levels as a buffer and says that there is more than enough oil to meet global demand.  

Brent crude  US$107.80/bbl vs US$109/bbl yesterday- Prices fell this morning as investors await the outcome of today’s meeting in Baghdad and concern over Greece’s possible exit from the Euro.

• Indonesia’s state-owned Pertamina is seeking one-year-term contracts to buy crude oil and petroleum products directly from producers as opposed to the spot market to ensure and secure supply. 

WTI: US$91.17bbl vs US$92.05bbl yesterday 

US Crude: US$91.02/bbl vs US$ 91.92/bbl yesterday 

Natural Gas US$2.759/btu vs US$2.72btu yesterday- PetroChina Co. will begin building the third phase of the West-East natural gas pipeline this year which runs from Zinjiang autonomous region to Fujian Province.

• They hope to complete the project before 2015. 

• A JV between PetroChina and Shell have discovered high levels of shale gas output in the Sichuan Bay, said PetroChina  Vice chairman Zhou Jiping 

• Japan to heavily invest this year in LNG projects for longer term energy security. 

Uranium US$51.60/lbs vs US$51.85/lbs yesterday- 

• UX consulting weekly spot as of 21st May 2012 was at US$52.00/lb (Unch) 

Coal- Stockpiles at major china power plants are at a record high of over 88m/t according to a statement released by the NDRC website today.

• Barclays Plc cuts forecasts for European coal in 2012-2013 amid growing supply from the US, Russia and South Africa continues to outpace demand. 

Richards Bay $89.55/t vs 92.15/t yesterday, 

Newcastle $93.55/t vs $95.45/t yesterday

Rotterdam $87.65/t vs $89.40 yesterday

Other:

Diamonds – To be sold as an investment to wealthy investors in parcels of at least $250,000

• A Group led by Alain Vandenborre, co-founder of Singapore FreePort in conjunction with Antwerp Diamond Bank are setting Singapore Diamond Exchange -  SDX 

• Investments of 1 carat and up will be offered from July 23rd with a minimum price of $250,000. 

• Global demand for rough diamonds could climb at 6% per annum over the next 10 years exceeding supply according to Bain & Co. 

• Few diamond mines are expected to come into supply – miners such as DiamondCorp with financing close to being in place are well positioned to benefit as they restart the Lace Diamond Mine. 

Mining industry has seen US$91bn of M&A deals announced in the year to date, up from US$71.2bn in the same period last year, according to Bloomberg estimates.

• Falling metal prices made targets cheaper, while rising costs and slower-than-expected world economic growth shift the balance in favour of acquisitions as opposed to internal growth.

Company News

Bellzone (LON:BZM) Receives authorisation at Forecariah Mine in Guinea

• Bellzone received is long awaited authorisation for the commercial production of iron ore at Forecariah. 

• This fast tracked project is expected to produce 2mt of 58% Fe ramping up to 4 mtpa by year end. 

• This will be produced from a 55% Fe iron oxide cap which will need to be upgraded through a crushing and screening process to achieve a 58% Fe product for sale. 

• Further test work, development and costing is underway for the gravity beneficiation process to produce 58% Fe from 19.1 mt of lower grade surface oxide resource at Yomboyeli Central. 

• In return for granting the authorisation, the Guinean govt has stipulated requirements on the infrastructure front including a completion of a public haul road in 3 months and a study for rail transport to be completed by the end of June with construction to begin before the end of 2013. 

• A bridge to be designed and constructed at the point where the haul road intersects the National Road. 

• In addition the government has asked the company to relinquish areas of land not included in the mining area within 30 days and to submit a plant to recruit and train local staff within 30 days. 

Conclusion: The Guinean government have sought tighter requirements to fulfil obligations tied to the licence and infrastructure as part of the authorisation – this is no bad thing as it sets out more clearly expectations on the licence to operate. The key thing is that Bellzone now have the authorisation having put into place all aspects to start to produce and ship from this project.

As this project has been fast tracked, there is still work to be done on the quality of the resource and product from the mine but getting product to market is key to lock in good margins against the backdrop of a softening iron ore price.

Gemfields (LON:GEM) Quarterly Update 

• The company reported an 26% increase in quarterly production to 4.9 m carats from the previous quarter with an improvement of grades to 236 versus 222 carats per tonne. 

• The company continues its waste moving programme to open future areas of production with and has signed a debt financing facility of US$9.3m to part finance this programme. 

• The waste rock programme has impacted production but this impact is easing. 

• At the end of the quarter the company had cash and receivables of US$46.6m with full receipt of US$21.4m from sales at the Singapore Auction in March. 

• The next auction for gemstones will be held in Jaipur in June 2012 and the company expect demand to be strong. 

Anglo Asian Mining* (LON:AAZ) Profits show strong growth on low cost production 

• Anglo Asian today reports strong profit growth in its annual results for last year. 

• Sales rose 16% to US$83.8m versus our US$83.5m forecast on higher realised gold prices.  The average realised gold price rose 27% to US$$1,573/oz. 

• Gross profit grew 37% to US$43.0m (vs. US$40.2m estimated). 

• Operating cash costs increased 25% but remain relatively low by industry standards to US$448/oz.  If we strip out the government’s share of gold without cost then cash operating costs rise to US$513/oz eg accounting for the state’s 12.75% share of production. This is broadly in line with our estimates of US$430/oz and US$493/oz, respectively. 

• PBT surged by 60% to US$31.6m (vs. US$30.1m estimated) taking EPS up by 22% to 16.9c/share (vs. 16.0c/share estimated). 

• Gold production of 57,068oz compared with 67,267oz in 2010. Silver output was 39,086oz versus 43,356oz in 2010 as previously announced. 

• Anglo Asian plans to pour 54,000oz of gold in 2012. 

• Gold production was lower than seen in 2010 due to a lower grade of processed ore – 3.29g/t (2011) vs 4.33g/t (2010) – as Anglo Asian worked through the transitional ore, in line with the mine plan. 

• In addition, channelling at one of the cells – eg where solution channels into streams within the heap leach without picking up much gold – extreme winter temperatures this year also slowed the leaching process reducing production towards the year end. 

• In response the team increased waste removal to mine more oxide ore and reduced the size of crushed material to improve its leaching. 

• Average recoveries for the year stood at 64.3%, up from 59.4% in 2010, reaching 77.4% in Q4. 

• Anglo Asian is ready to start construction of the new US$52m agitation leach plant with the first round of financing of US$7.5m secured with the International Bank of Azerbaijan last week.  Total capex is estimated at US$52m. Agitation leaching should lift recovery rates to 85% for oxide ore and 69% for sulphide material, while the Company is carrying additional tests to see if recoveries can be further improved. The plant commissioning is expected in H2 2013. 

• The SART plant, which recovers copper in high grade concentrate form, gained pace through the year producing some 1,037t of copper concentrate, up from 316t in 2010, containing 611t of copper, 134koz of silver and 0.2koz of gold. Production beat the team’s internal target of 525t of copper in concentrate. 

• Anglo Asian sold US$5m worth of copper concentrate in FY2011 and currently holds a stockpile of concentrate containing 743t of copper, 162koz of silver and 200oz of gold, equivalent to more than US$11m at 2011 market prices and assuming 90% payability. 

• In 2012 SART is forecast to produce 833t of concentrate containing 500t of copper, 102koz of silver and 0.1koz of gold. A decline is attributed to a lower grade solution flowing into the system. Construction of the agitated leach plant and its integration into the processing route should significantly lift the SART throughput and the grade of the solution starting from 2014. 

• Exploration:  Gedabek measured & indicated JORC resources rose 49.7% to 1.05moz of gold in April 

• The team started a 24,567m drilling programme at Gedabek in Q1 and is planning to announce the JORC compliant reserve in Q2. 

• Gosha: Anglo Asian has received government approval for a Development and Production Programme at Gosha and is currently preparing a plan of works and should update the market on its progress in due course. Gosha is set to become the first underground mine in Azerbaijan producing 10,000-15,000oz of gold per annum with a mine life of 5 years. 

• Further exploration programme is planned at the Ordubad license area after the Notice of Discovery submission with the government in April 2012. 

• Cash:  The company holds US$9.9m of cash and total debt was US$13.0m as of Dec 2011. 

• Target price:  We marginally reduce our valuation to 70p/s from 72p/s due to our lower average gold forecast for 2012.  Our gold price forecast is reduced to US$1,600/oz from US$1,800/oz for this year. 

Conclusion:  Anglo Asian has produced solid results with significant earnings growth and relatively low operating costs of US$450-500/oz for the FSU.  Steady cash flow from operations should allow the Company to repay outstanding debt ahead of schedule and to finance an extensive exploration programme across the Gedabek, Gosha and Ordubad license areas.  

The Gedabek gold resource now looks far larger than had been forecast and the mine is sure to extend well beyond its original six year mine life.

The construction of agitation leach plant is a major step forward and should raise gold production to 75-80kozpa through better recovery rates and effectively raising capacity.  The effect should also reduce unit production costs when the plant is complete next year.

*Fairfax acts as Nomad and broker to Anglo Asian Mining

** Fairfax analysts visited the Gedabek goldmine last year in Azerbaijan.