THE DAY AHEAD

REUTERS NEWS
KEY ECONOMICS EVENTS NFIB small business optimism for Mar ICSC/GS Report ww for w/e 06/04 Redbook mm for w/e 06/04 Wholesale inventories for Feb Wholesale sales for Feb

North American Edition

ET/GMT 0730/1130 0745/1145 0855/1255 1000/1400 1000/1400 REUTERS POLL ---0.5 pct 1.3 pct PRIOR 90.8 4.7 pct 0.8 pct 1.2 pct -0.8 pct SOURCE

For Tuesday, April 9, 2013

International Council of Shopping Centers/Goldman Sachs Redbook Research Commerce Department

MARKET RECAP
Stocks edged higher in choppy trade ahead of earnings season, while Treasuries fell. The yen plummeted to its lowest level in nearly four years as the Bank of Japan kicked off its stimulus program. Oil rose, while gold fell.

COMING UP
U.S. Treasury Secretary Jack Lew concludes a trip to Europe, his
second international tour since taking office a month ago, to discuss recent deterioration in the euro zone and prospects for boosting global economic growth. Early in the day he is expected to meet with German Finance Minister Wolfgang Schaeuble in Berlin. A meeting in Paris with French Finance Minister Pierre Moscovici was canceled.

STOCKS DJIA Nasdaq S&P 500 Toronto Russell FTSE Eurofirst Nikkei Hang Seng

Close 14612.86 3222.25 1563.01 12344.56 931.54 6276.94 1164.79 13192.59 21718.05 Yield 0.2341 0.7084

Change 47.61 18.39 9.73 12.71 8.26 27.16 2.58 358.95 -8.85

% Chng 0.33 0.57 0.63 0.10 0.89 0.43 0.22 2.80 -0.04

Yr-high 14684.50 3270.30 1573.66 12904.71 954.00 6533.99 1209.05 13225.62 23944.74

Yr-low 12035.10 2726.68 1266.74 11209.55 729.75 5897.81 1132.73 10398.61 21703.28

Federal Reserve Bank of Richmond President Jeffrey Lacker

speaks on "Ending Too-Big-to-Fail Is Going to Be Hard Work" before the Global Society of Fellows conference at the University of Richmond. Also, Atlanta Federal Reserve Bank President Lockhart speaks at the Financial Markets Conference in Stone Mountain, Ga., and Minneapolis Fed President Narayana Kocherlakota moderates a panel at the same event.

Verizon Communications chief executive officer Lowell McAdam

speaks at the National Association of Broadcasters conference in Las Vegas.

TREASURIES 10-year 2-year 5-year 30-year COMMODITIES May crude $ Spot gold (NY/oz) $

Price FOREX 0 /32 Dollar/Yen -3 /32 Sterling/Dollar

Last % Chng 1.3002 99.30 1.5246 1.0172 0.22 1.49 -0.58 0.02

1.7469 -10 /32 Euro/Dollar

Expect quarterly results from Minneapolis-based Cargill, one of the

world's largest privately held businesses, which markets food, agricultural, financial and industrial products worldwide. Back in January, Cargill reported a four-fold increase in quarterly earnings, tapping its global command of cash markets and food processing and posting strong profits from trading operations after a poor performance in the previous year.

2.9147 -25 /32 Dollar/CAD Price 93.56 1572.39 3.3680 289.69 Price 5.00 0.50 1.08 3.14

$ change 0.86 -9.11 0.0280 0.91 $ change 0.85 0.08 -0.08 -0.20

% change 0.93 -0.58 0.84 0.31 % change 20.48 19.49 -6.90 -5.99

The Bank of Nova Scotia hosts its annual general meeting of

shareholders in Halifax, Nova Scotia. Scotiabank, Canada's thirdlargest bank, operates in more than 50 countries, with the heaviest weighting in Latin America and a growing presence in Asia. Canadian bank stocks have churned steadily higher in recent weeks in spite of signs that Canadian lending is slowing due to a cooling housing market and generally more frugal borrowing from heavily indebted Canadians.

Copper U.S. (front month/lb) $ Reuters/Jefferies CRB Index

BIG MOVERS
JinkoSolar Holding Suntech Power Affymax RadioShack

For The Day Ahead - Canada, click here

THE DAY AHEAD

For April 9, 2013

MARKET MONITOR
Stocks ended a volatile session higher as investors looked ahead to an earnings season expected to show modest growth despite concerns about macroeconomic conditions. "We're waiting for earnings for evidence that the market can be supported at these levels," said Jim Dunigan, chief investment officer at PNC Wealth Management. "We will see growth in earnings, but clearing the expectations bar could be difficult, which could give us reason to pause." Shares of Monster Beverage rose 4.69 percent. Lufkin Industries surged 37.59 percent and GE was up 0.83 percent. Johnson & Johnson fell 1.13 percent. The Dow was up 0.33 percent, the S&P 500 Index rose 0.63 percent and Nasdaq was up 0.57 percent. The Treasury market was relatively quiet, with long-dated bonds selling off modestly late in the session. Benchmark 10-year Treasury notes last traded down 10/32 in price for a yield of 1.75 percent. "We should see good buying on any backup (rise) in yields," said Michael Cullinane, head of U.S. Treasuries trading at D.A. Davidson & Co. The 30-year bond was down 25/32, yielding 2.91 percent. The U.S. central bank bought $1.399 billion in Treasury inflation-protected securities. The dollar hit its highest level against the yen in nearly four years after the Bank of Japan, in an attempt to eradicate persistent deflation, kicked off an aggressive program of monetary easing. "Todays price action looks like a continuation from what we saw last week, as investors are starting to position themselves for increased Japanese investment abroad," said Charles St-Arnaud, fx strategist at Nomura Securities in New York. "I think that for now dollar/yen may take a breather, but reaching 100 this week is very likely," he said. The dollar rose as high as 99.32 yen, before pulling back slightly to trade at 99.29 yen, up 1.48 percent on the day. The euro rose as high as 129.23 yen. It last traded at 129.11, up 1.85 percent on the day. Click on the chart for full-size image

Oil prices edged higher, lifted by gains in gasoline futures and strong selling of the spread between Brent crude and U.S. crude. "Crude oil got a bounce after last week's drop, and from the lack of a deal or any progress with Iran in the talks about its nuclear program, but the dollar's strength may limit the rise," said Phil Flynn, analyst at Price Futures Group in Chicago. May crude was up 0.93 percent at $93.56 a barrel, having reached $93.75 during the session. Gold fell as a stronger performance in U.S. equities and a dollar rise prompted investors to take profits after its rally in the previous session. Spot gold dropped 0.56 percent to $1,572.66 an ounce. On price charts the metal looked vulnerable to re-test a 10-month low of $1,539.70 hit last week, analysts said. June gold futures were down 0.2 percent at $1,572.70 an ounce.

THE DAY AHEAD

For April 9, 2013

TOP NEWS
GE to buy oil pump maker Lufkin for nearly $3 billion General Electric is buying oilfield pump maker Lufkin Industries for $2.98 billion, sharply increasing its presence in the fastgrowing market to extract oil and natural gas from shale rock, the conglomerate said. The deal values Lufkin at $88.50 per share, a premium of more than 38 percent to the stock's Friday close. "This deal is really going to round out our portfolio," Daniel Heintzelman, head of GE Oil & Gas, said in an interview. GE expects the oil pump market to grow at 12 percent to 13 percent per year for at least the next decade, said Heintzelman, citing statistics that at least 94 percent of oil wells will need pumps or lifts at least once in their lifetime. GE has not decided whether it will keep the Lufkin brand name or retain the company's executives, but it is inclined to keep staff members, Heintzelman said. Macy's, J.C. Penney resume Martha Stewart courtroom tussle Macy's and J.C. Penney were back in court in their fight over Martha Stewart, with Macy's claiming that some of the items Penney has begun selling on its website infringe on its exclusive deal with the home goods guru. After a month-long mediation effort failed to yield a settlement, the trial resumed in New York state court over whether Macy's has an exclusive right to sell certain Martha Stewart home goods products. "The basic shapes and designs are the same," Macy's lawyer Ted Grossman told the judge. "They compete directly against each other." Ericsson to buy Microsoft IPTV business Telecom equipment maker Ericsson said it had struck a deal to buy Microsoft's Mediaroom IPTV business, which makes software used by phone companies to deliver television over the Internet. Ericsson said it expected to close the deal for the business during the second half of 2013. It did not disclose a purchase price, though a company official provided a ballpark figure. "This deal is within range where we previously bought a company called Optimi for $99 million and where we also bought LG Nortel for $234 million," said Ove Anebygd, Vice President and Head of TV at Ericsson. "So this is somewhere in between the two." EU regulators to approve $15.8 bln Liberty, Virgin deal John Malone's Liberty Global will get unconditional EU clearance for its $15.8 billion bid for Virgin Media, two people familiar with the matter said, in a move which pits the U.S. billionaire against rival Rupert Murdoch. "The European Commission does not have any competition concerns about the deal," one of the sources said. Merz Pharma drops out of race for Obagi Medical Germany's Merz Pharma Group withdrew its offer for U.S. cosmetic products maker Obagi Medical Products, after rival bidder Canada's Valeant Pharmaceuticals International raised its offer last week. "Merz is a disciplined buyer and at this level the economics of such a transaction do not meet our requirements," Merz CEO Philip Burchard said in a statement. Curbing asset buys could reduce risks -Fed's Pianalto A top Federal Reserve official known for her centrist views detailed the potential risks posed by the U.S. central bank's quantitative easing program and argued they could be reduced by simply slowing the pace of asset purchases. Still, Cleveland Fed President Sandra Pianalto said the unprecedented monetary policies have worked to boost economic growth and jobs and stabilize prices, and she repeated the Fed could begin slowing the pace of purchases if the labor-market outlook were to improve "sufficiently." Click on the chart for full-size image

Airbus seen close to BA deal, adding pressure for Boeing revamp A potential $7 billion order from British Airways for Airbus A350 jets is set to hand Boeing its next major challenge as it nears the end of a three-month crisis over the grounding of the 787 Dreamliner, analysts said. Industry sources said on Sunday that International Airlines Group, which owns both BA and Spain's Iberia, appeared close to ordering approximately 20 Airbus A350-1000 aircraft worth $332 million apiece at list prices. Avon plans to cut over 400 jobs, exit Ireland Avon Products said it will slash more than 400 jobs and exit the Irish market, the latest moves in the new chief executive's plan to return the beauty products company to profitability in the next two years. Staff will be cut across all regions and functions and will include the restructuring or closing of smaller, underperforming markets, primarily in Europe, the Middle East and Africa, Avon said. The cuts, which will be completed by the end of the year, are expected to generate $45 million to $50 million in annual savings. Total charges are expected to range from $35 million to $40 million, with about $20 million coming in the first quarter of 2013, the company said. SandRidge names new COO, to probe CEO's land deals SandRidge Energy said it named a new chief operating officer and hired a law firm to investigate land deals by Chief Executive Tom Ward and his family, a month after the company ended a proxy battle with activist hedge fund TPG-Axon Capital. SandRidge said it promoted David Lawler to chief operating officer, replacing Matthew Grubb, who resigned at the same time as SandRidge's settlement with the hedge fund. The company said it hired law firm Mayer Brown to review the allegations against the CEO. SandRidge is looking to complete the review by June 15, the company said.

THE DAY AHEAD

For April 9, 2013

TOP NEWS (continued)

TNT Express says UPS appeal is not a renewal of offer United Parcel Services' appeal of the European Union regulator's decision to block its bid for TNT Express was not a renewal of the offer, the Dutch delivery company said. UPS said on Sunday it had decided to challenge the EU's decision because it wanted "to ensure a more accurate assessment of the EU competitive landscape and that no precedent is established by the EC that would limit international growth opportunities". TNT Express said in a statement the appeal was intended to clarify the EC's legal assessment of the dynamics of the European express market.
PIC OF THE DAY

Flowers left by mourners are seen outside the home of former British prime minister Margaret Thatcher after her death was announced in London.

ON THE RADAR
ECON INDICATOR WED: Mortgage index for w/e 05/04 Refinancing index for w/e 05/04 Federal budget for Mar FOMC minutes March 19-20 meeting ET/GMT 0700/1100 0700/1100 1400/1800 1400/1800 REUTERS POLL ---$112.5 bln -PRIOR 790.7 4189.0 -$204 bln -Federal Open Market Committee SOURCE Mortgage Bankers Association (MBA)

THU: Import prices for Mar Export prices for Mar Initial claims for w/e 06/04 4 week average for w/e 06/04 Continuing claims for w/e 30/03 ICSC monthly chain for Mar FRI: PPI mm for Mar PPI yy for Mar PPI ExFood/Ener mm for Mar PPI ExFood/Ener yy for Mar Retail sales mm for Mar Retail sales Ex-auto mm for Mar ExAuto/gas/bldg for Mar Reuters/UMich prelim for Apr Current conditions prelim for Apr Expectations prelim for Apr Business inventories for Feb ECRI weekly index for w/e 05/04

0830/1230 0830/1230 0830/1230 0830/1230 0830/1230 TIME:TBA 0830/1230 0830/1230 0830/1230 0830/1230 0830/1230 0830/1230 0830/1230 0955/1355 0955/1355 0955/1355 1000/1400 1030/1430

-0.5 pct 0.1 pct 365,000 -3.070 mln --0.2 pct 1.4 pct 0.2 pct 1.7 pct 0.0 pct 0.0 pct 0.2 pct 78.5 89.5 70.0 0.4 pct --

1.1 pct 0.8 pct 385,000 354,250 3.063 mln 1.7 pct 0.7 pct 1.7 pct 0.2 pct 1.7 pct 1.1 pct 1.0 pct 0.4 pct 78.6 90.7 70.8 1.0 pct 129.2

Bureau of Labor Statistics

Labor Department

International Council of Shopping Centers Labor Department

Census Bureau

Reuters/University of Michigan

Commerce Department Economic Cycle Research Institute

THE DAY AHEAD - CANADA

COMING UP
Agrium will hold its annual meeting at which results of a
shareholder vote are expected on the board of directors, possibly including candidates proposed by activist hedge fund Jana Partners. Jana is proposing five candidates for the 12member board, who want a review of possibly breaking up the company and to make operating improvements to the retail arm in the meantime. This is the biggest proxy battle in Canada, since a slate put forward by activist investor Bill Ackman and his firm Pershing Square defeated incumbents at Canadian Pacific Railway a year ago.
BIG MOVERS Transcontinental Gran Tierra Energy Centerra Gold Winstar Resources Price 11.79 5.85 5.63 1.91 C$ 0.45 0.15 -0.25 -0.08 % Change 3.97 2.63 -4.25 -4.02

For April 9, 2013

MARKET MONITOR
Canada's main stock index snapped a five-day losing streak on Monday as strength in the industrials and telecoms sectors offset declines in gold producers. The Toronto Stock Exchange's S&P/TSX composite index was up 0.10 percent at 12,344.56. Shares of Agrium rose 1.63 percent. Bombardier shares were up 1.78 percent. Royal Bank of Canada slipped 0.30 percent. The Canadian dollar was up 0.04 percent at $1.0174.

TOP NEWS
Jana expects two of its candidates to win Agrium board seats Jana Partners said that it believed two of its five candidates garnered enough votes to join Agriums 12-member board, but the Canadian fertilizer company said it expected to prevail. Jana, Jana said candidates Barry Rosenstein and David Bullock looked to be successful. Agrium plans to release the election results at its annual general meeting in Calgary, Alberta, on Tuesday. Jana, which holds a 7.5 percent stake in Agrium, is pressing it to consider spinning off its farm retail division, make better use of capital and cut retail costs. Bombardier gets 336 million euro order for German rail operator Bombardier said its train unit signed an agreement with German engineering group Siemens AG to supply train components to state-owned rail operator Deutsche Bahn worth about 336 million euros. The order is an extension of a 2011 agreement with Siemens under which Bombardier would supply components for up to 220 high-speed ICx trains for about 2.1 billion euros. Canada to probe report that RBC outsourcing work Canada is investigating a report that Royal Bank of Canada is using temporary foreign workers hired by an outsourcing company to effectively replace existing staff, a situation the government said it would not accept. A Conservative government minister revealed the probe on Saturday after a report from the Canadian Broadcasting Corporation. The CBC story said the bank was planning to eliminate about 50 employees in its investor services division in Toronto and have the work done by outsourcing company iGate Corp. Pharma company Resverlogix to spin off unit The pharmaceutical company Resverlogix, which is exploring a sale, said it would spin off its RVX Therapeutics unit. Shareholders will receive one share in the new company for every share held in Resverlogix, the company said. The spun-off unit will focus on epigenetics, the study of the mechanisms that activate and de-activate genes. The company, which has a market capitalization of about C$242 million, said it will continue the clinical development of RVX-208, an experimental drug for treating hardening of the arteries.

THE DAY AHEAD

For April 9, 2013

ANALYSIS AND INSIGHT

FX COLUMN No end in sight to yen weakness By Neal Kimberley The Bank of Japan's unleashing, on Thursday, of the world's most intense burst of monetary stimulus should force broader adjustments across asset classes that feed into even more yen weakness. The psychologically important rate of 100 yen to the dollar is within touching distance. The direction of the move was emphasised on Monday with the breach of an option barrier at 99.00. With the Bank of Japan (BOJ) aiming to buy 6.2 trillion yen of Japanese government bonds (JGBs) in April alone, no one can doubt their commitment. That "shock and awe" approach will force corporates, foreign exchange speculators and longer-term investors to react as the likelihood is that such BOJ monetary largesse, as a side effect, lends weakness to the yen. Japanese importers, natural buyers of dollars to pay for imported products, cannot assume they will see a meaningful rise in the yen that will enable them to buy cheaper greenbacks, and so are forced to pay up, adding to the pressure on the yen. Japanese exporters, natural buyers of yen against the dollar to translate overseas earnings into their home currency, can sit back and see how the market develops. No one buys something today if they think it will be cheaper tomorrow. Furthermore, traders on Monday were citing evidence that some Japanese exporters had sold some dollars against yen on the move above 98.00, and consequently would be inclined to keep their powder dry in expectation of even better levels. These two issues, combined with the extent of the BOJ programme - it plans to inject $1.4 trillion into the economy in less than two years -- might alone justify the interbank foreign exchange market and the hedge fund community speculating the yen would weaken further. But there is even more to factor in. With the Bank of Japan absorbing such an immense volume of JGBs, the BOJ will hope the liquidity this produces will flow into other assets. The central bank's actions should help to keep bond yields artificially low. That, it is hoped, will trigger economic activity and the price rises Japan needs to escape deflation. Much of that BOJ-supplied liquidity should find its way into Japanese equities, as low yields would ordinarily spur rises in share prices. Offshore investors buying Japanese equities are likely to hedge their currency exposure by selling the yen against their home currency, anticipating further falls in Japan's currency. There is no point making gains on Japanese equities denominated in yen if those gains are cancelled out by a loss in the value of the currency itself. In contrast, Japanese investors in JGBs may venture into overseas government debt markets in search of yields marginally better than those on offer in Japan. That would entail selling yen for foreign currency to buy the bonds, trades that might arguably be left unhedged on a currency basis in expectation of BOJ policy resulting in the Japanese currency going even lower. IRRESISTIBLE Finally, foreign holders of Japanese government bonds might consider the BOJ's bids for JGBs irresistible given that the prices on offer would in no way reflect the lower prices and higher yields to be expected if the central bank achieves its 2 percent inflation target. While the vast majority of Japanese government bonds are held domestically, if foreign holders do sell and then do not re-invest the proceeds in Japan, the yen would probably be sold and converted into the investors' home currency. In the very worst case, if the Bank of Japan's policies fail, Japan might be considered to be in an even worse state, and that might make the yen even less alluring. The outlook for the yen remains one of continued weakness. (Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own) COLUMN Rio Tinto's asset sales may show bearish commodity outlook By Clyde Russell The lengthening list of assets being put up for sale by Rio Tinto shows the world's second-largest miner is serious about cutting costs and exiting non-core businesses, but what does it say about the state of commodity markets? Coal and copper assets in Australia and iron ore in Canada have reportedly been added to the for-sale list, joining diamonds in Canada and aluminium smelters around the Pacific. So far the company is winning praise from analysts for the focus of new Chief Executive Sam Walsh on increasing returns to shareholders through a relentless focus on containing costs, paring back capital expenditure and asset sales. While the first two present challenges, they are likely to produce far more tangible results than the planned sale of a grab-bag of high-cost mines and aluminium smelters. The logic here is simple: if Rio, with all its deep experience of developing and running such assets, can't make them work, why would anybody else take them on? Also, it would be very unusual for a company to sell strongly performing assets in markets it thought held great long-term potential, even if they were high cost. Among the assets said to be for sale is a chunk of Rio's 80percent controlling stake in Coal & Allied, which produces mainly thermal coal in Australia. While it may well be a high-cost miner compared to rivals, would Rio be keen to sell down its stake if it believed thermal coal was going to be a top performer in coming years? Certainly thermal coal has been a poor performer in recent years, with the benchmark spot price at Australia's Newcastle port, at $87.01 a tonne, some 36 percent lower than the post2008 recession peak of $136.30 reached in January 2011. The price decline has come even as China and India import record amounts of the fuel and can mainly be attributed to a surge in exports from the United States and increasing supply from traditional producers such as Indonesia. CHINA MODERATING It would appear that Rio is taking a view that thermal coal isn't likely to be a strong performer over the longer term, which may be a reflection of the likelihood of slowing demand growth in China as its economic growth matures and pressure mounts for cleaner-burning fuels to combat pollution. The potential sale of the majority stake in the Northparkes copper mine in Australia is probably more a reflection of that operation's high costs than the overall outlook for the copper market, although even here it's becoming apparent that the global balance is shifting to surplus after years of deficit. Again, costs and strategic fit are probably behind the plan to divest Rio's 59-percent stake in Iron Ore Company of Canada, given Rio's overall dependence on the steel-making ingredient. Last year about 90 percent of Rio's earnings came from the iron ore operations centred in Western Australia state, and much of the rest from copper in Chile and the United States. The trick in both iron ore and copper is to be the lowest cost producer around, as both these commodities may suffer struc-

THE DAY AHEAD

For April 9, 2013

ANALYSIS AND INSIGHT (continued)

tural price declines in the next few years as supply increases at a time when China's demand growth is moderating. This is why Rio, in common with rivals such as BHP Billiton, is focusing on cutting costs, capex and selling the high-cost operations. The company wants to reap $5 billion in costs savings and asset sales could realise more than $10 billion. But the difficulty is going to be translating planned asset sales into reality, as shown by the fact that the 13 aluminium assets hived off for sale under the Pacific Aluminium unit are still languishing unsold after more than a year on the market. It would seem that commodity assets have gone from the market's darling during the boom years of the 2000s prior to the 2008 financial crisis to the runt of the investment litter. It will be fascinating to see if any investor is brave enough to take a contrarian plunge on the assets up for sale. After all, the big miners have shown that they generally time the buying of assets wrong, shelling out top dollar just as things are about to turn, as shown by Rio's $38 billion purchase of Alcan in 2007. It's many of these Alcan assets that now can't find a buyer and are in danger of being shut down. In the absence of contrarian commodity investors, it's likely that Rio will find selling assets an extremely slow and frustrating experience, and one unlikely to yield the anticipated returns. (Clyde Russell is a Reuters market analyst. The views expressed are his own.) Cyprus is edging towards euro exit By Hugo Dixon Cyprus is no longer centre stage. Nicosia has agreed a 10 billion euro bailout deal with its euro zone partners and the International Monetary Fund. A visible bank run has been averted by stringent capital controls. International markets, which only ever suffered a mild bout of jitters, have calmed down. But it would be foolish to forget about Cyprus. The small Mediterranean island is edging towards euro exit. Quitting the single currency would devastate wealth, fuel inflation, lead to default and leave Cyprus friendless in a troubled neighbourhood. Even so, the longer capital controls continue, the louder the voices calling for bringing back the Cyprus pound will grow. President Nicos Anastasiades is against Cyprus leaving the euro. But the main opposition communist party wants to pull out. A smaller opposition group wants to stay in the euro but kick out the troika the European Commission, the European Central Bank and the IMF. The countrys influential archbishop is also critical of the troika. Anastasiades can hold the line for now. After all, he has just been elected and the constitution gives him huge power. Whats more, there are strong arguments for staying inside the single currency not least the fact that, otherwise, it would lose the 10 billion euros (or nearly 60 percent of GDP) of bailout money. If Nicosia brought back the Cyprus pound, it would plummet in value. Nobody knows how much, but economists guess it might be up to 50 percent. Cypriots are complaining at the massive haircuts suffered by big depositors in their two largest banks: Bank of Cyprus and Laiki. Such a massive devaluation would savage the wealth of all other depositors. Meanwhile, devaluation would fuel inflation. Cyprus is a small open economy. All the oil is imported. Over 80 percent of the textiles, chemicals, electronics, machinery and automotive vehicles are imported too, according to Alexander Apostolides, a lecturer in economics at the University of Cyprus. Cyprus also relies on cheap immigrant labour in its agricultural and tourism industries. Following a devaluation, their cost in local currency would rise. All this would mean that any gain in competitiveness would be eroded. The islands economy would suffer a further shock because it is running a current account deficit of somewhere around 5 percent of GDP. Given that Cyprus has limited access to hard currency reserves, this deficit would have to vanish overnight. Imports would slump. But so would domestic production, given its reliance on imports. In such a scenario, Nicosia would not be able to avoid defaulting on its debts. Following a 50 percent devaluation, these would be double their current value when expressed in local currency. The debts come in two forms: the governments own 15 billion euros of borrowings; and the central banks 10 billion euro emergency liquidity assistance (ELA) to the banks. Default might seem an attractive option because Nicosia would suddenly shrug off a vast debt load. But it wouldnt be that simple. It would face a slew of lawsuits. Whats more, if the central bank defaulted on its provision of ELA, the ECB would take the hit. The euro zone would not be happy and would, at minimum, insist on some sort of staged repayment plan. Cyprus could, of course, refuse to pay point blank. But it is not Argentina. Its small size makes it vulnerable to being pushed around. If it tried to act tough with its euro zone partners, they would probably play hardball in return. They might even find a way to kick Cyprus out of the European Union. Exit from the EU would be another blow for Cyprus. Its best trading opportunities are with the bloc. Most of the rest of the neighbourhood - such as Syria and Egypt - is not in great shape. And Turkey is off bounds until and unless some way can be found of resolving the dispute between Nicosia and Ankara over the latters occupation of the northern part of the island. Cyprus will also struggle to exploit its offshore natural gas reserves if it quits the EU. Turkey, which is already trying to stop it, would find it easier to get its way if Nicosia was friendless. Apart from all this, the country would have to decide how to run monetary policy. A responsible government would want to contain inflation by either linking the Cyprus pound to another currency, such as sterling, or running a tight but independent monetary policy. In either case, Nicosia would have to keep interest rates high and curb its budget deficit. It might also need to maintain capital controls. Such an austerity programme would be worse than that demanded by the troika. It would then be hard to avoid the temptation to print money. But that way lies hyperinflation. So quitting the euro would not be a good choice. But staying is not a great one either. GDP could plunge around 20 percent over the next two years, according to the latest guesstimates. And the longer capital controls are in place, the more the Cypriot people will feel they are not in the single currency anyway - as a euro in Cyprus is not equal to one in the rest of the world. The troika should help lift the controls as soon as possible. Otherwise, Cyprus may well quit the euro and, small though it is, that could destabilise the zone. CONTEXT NEWS "What was wrong with the Cyprus economy doesnt stop being wrong if Cyprus is outside the euro area," Mario Draghi, European Central Bank president, said last week. "The fiscal budget consolidation and the restructuring of the banking system would be needed anyway, whether Cyprus is "in" or "out". Being "out" doesnt mean the country avoids the need for action, but exiting entails many risks, big risks. A country would find itself having to pursue the needed reforms in a much more difficult environment outside." (Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.)

THE DAY AHEAD

For April 9, 2013

PREDICTED RESULTS SURPRISES FROM STARMINE

Company Smart Estimate Predicted Surprises Market Cap. Industry

Tesla Motors Partnerre Arch Capital Group Brf-Brasil Foods Xl Group Hanesbrands Onyx Pharmaceuticals Pultegroup Marathon Petroleum Everest Re Group Imperial Oil Phillips 66 Chicago Bridge & Iron Blackstone Group Sandisk Markel Chubb Kraft Foods Group Linkedin Allstate Travelers Cos Westlake Chemical Alleghany Corporation CVR Refining Continental Resources

$0.05 $2.57 $1.04 $0.19 $0.70 $0.47 -$0.44 $0.16 $2.20 $4.37 $0.90 $1.82 $0.81 $0.55 $0.80 $5.42 $1.77 $0.67 $0.32 $1.35 $2.04 $1.28 $7.13 $1.63 $1.14

62.59% 15.05% 12.71% 12.60% 12.42% 11.03% 10.90% 10.10% 9.24% 8.84% 8.61% 7.11% 5.03% 4.33% 3.82% 3.72% 3.66% 3.60% 3.55% 3.45% 3.27% 3.11% 2.58% 2.30% 2.10%

$4,738 $5,323 $6,869 $19,543 $9,071 $4,605 $6,455 $7,413 $27,252 $7,636 $33,436 $38,642 $6,252 $22,314 $13,244 $4,908 $22,838 $30,437 $18,841 $23,548 $31,903 $5,748 $6,414 $4,635 $15,064

Automobiles Insurance Insurance Food Products Insurance Textiles Apparel & Luxury Goods Biotechnology Household Durables Oil, Gas & Consumable Fuels Insurance Oil, Gas & Consumable Fuels Oil, Gas & Consumable Fuels Construction & Engineering Capital Markets Computers & Peripherals Insurance Insurance Food Products Internet Software & Services Insurance Insurance Chemicals Insurance Oil, Gas & Consumable Fuels Oil, Gas & Consumable Fuels

StarMine SmartEstimates predict future earnings more accurately than consensus (or mean) estimates by putting more weight on the recent forecasts of StarMine's toprated analysts. StarMine is a subsidiary of Thomson Reuters. The predicted surprise is the difference between the SmartEstimate and consensus. When a predicted surprise is 2 percent or more, history shows that you can anticipate an earnings surprise in the same direction with an accuracy rate of 70 percent.

ANALYSTS RECOMMENDATIONS
Company Name Best Buy Johnson & Johnson L-3 communications Radware U.S. restaurants Action Bernstein raised target price to $23 from $16 on bullish sentiments for the companys stock following better-than-expected fourth-quarter results and increased confidence in the new management team's plans. JP Morgan cut rating to neutral from overweight, says the company is facing a messy first quarter and a likely downward revision to 2013 outlook. JP Morgan cut rating to underweight from neutral and cut price target to $72 from $80, says the companys bears risk from sequestration due to its relatively shorter-cycle operations and higher financial leverage. Needham cut rating to hold from buy after the company missed first-quarter revenue outlook due to slow re-ordering from existing customers in Europe. Jefferies raised target price on Starbucks to $66 from $60 and raised target on Yum Brands to $65 from $60 citing tangible same-store-sales drivers, real cost-cutting opportunities and strong brand propositions.

THE DAY AHEAD

For April 9, 2013

KEY RESULTS vs. THOMSON REUTERS I/B/E/S ESTIMATES

Company Name Quarter EPS Estimates Year Ago Rev Estimates (mln)

No major companies are scheduled to report. ** Includes companies on S&P 500 index. Estimates may be updated or revised.

The Day Ahead - North American Edition is compiled by Naveen Mutnal, Benny Thomas and Chandrashekhar Modi in Bangalore; Franklin Paul and Meredith Mazzilli in New York. THE DAY AHEAD - North American Edition is produced by Reuters News For questions or comments about this report, email us at: TheDay.Ahead@thomsonreuters.com Or call us at +91 80 4135 5929 Visit the Thomson Reuters Equities Community Site at: http://customers.reuters.com/community/equities/ For more information about our products: http://thomsonreuters.com/products_services Or send us a sales enquiry at: http://thomsonreuters.com/products_services/financial/contactus/ or call us on North America: +1 800 758 5555 2013 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.