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This material has been produced by RBS sales and trading staff and should not be considered independent.

The Round Up

18 January 2010

Issue No. 255

The Round Up is a comprehensive daily note produced by the RBS Warrants

team providing an overview of market movements along with quality ideas forwarrant traders and investors.

In todays issue

Global Market Action Scoreboard, commentary

Aussie Market Action SPI Comment, Events & Dividends

NWS (NWSKZJ) MINI Trading Buy Avatar Profits

QAN (QANKZK) MINI Trading Buy Guidance confirms recovery

ASX (ASXKZI) MINI Trading Buy Strong November trading

Round Up Corner December Quarterly review

Equities

Move Last % Move Range Volume

ASX 200 +1.6 4899.6 +0.0% -40 to +7 $4.7 bn(A)

SPI - yesterday -8.0 4871.0 -0.2% -40 to +19 28,253(A)

Dow Jones -100.9 10609.7 -0.9% -149 to -1 Very High

S&P 500 -12.4 1136.0 -1.1% -17 to -1 High

Nasdaq -28.8 2288.0 -1.2% -38 to +6 High

FTSE -42.8 5455.4 -0.8% -48 to +29 Very High

Commodities

Move Last % Today % Past Month

Oil-WTI spot -1.39 78.00 -1.8% +10.3%

Gold Spot -11.92 1130.93 -1.0% +0.5%

Nickel (LME) +13.56 840.38 +1.6% +9.4%

Aluminium (LME) -1.24 103.27 -1.2% +3.6%

Copper (LME) -2.86 335.79 -0.8% +8.0%

Zinc (LME) -1.49 110.76 -1.3% +6.2%

Silver -0.26 18.41 -1.4% +5.7%

Sugar -0.14 27.62 -0.5% +13.9%

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Dual Listed Companies (DLCs)

Move %Move Last AUD Terms Diff to Aus

NWS (US) -0.30 -1.9% 15.53 16.83 -37.1 c

RIO (UK) -34.5 p -1.0% 35.83 63.09 -1553.4 c

BLT (BHP UK) -21.5 p -1.0% 20.445 36.00 -765.2 c

BXB (UK) -8.0 p -2.0% 3.845 6.77 -12.0 c

American Depository Receipts (ADRs)

Move %Move Last AUD Terms Diff to Aus

BHP (US) -1.46 -1.8% 79.25 42.94 -71.0 c

AWC (US) -0.22 -3.2% 6.73 1.82 -3.7 c

TLS (US) -0.30 -1.9% 15.24 3.30 -2.7 c

ANZ (US) -0.26 -1.2% 20.55 22.27 -16.1 c

WBC (US) -1.40 -1.2% 116.50 25.25 -25.1 c

NAB (US) -0.20 -0.8% 25.01 27.10 -19.8 c

LGL (US) -0.85 -2.8% 29.99 3.25 -4.0 c

RMD (US) -0.40 -0.8% 52.16 5.65 -0.8 cJHX (US) -1.05 -2.6% 39.45 8.55 -2.0 c

PDN (CAN) -0.11 -2.8% 3.89 4.10 -1.9 c

Overnight Commentary

United States Commentary

TheDowfell101ptsonFridaydespitebetterthanexpectedresultsfrombothIntelandJPMorganwhileastrongerUSdollaralsosawmaterialstocksretreat.TheS&P500dropped1.1%andtheNasdaqwasoff1.2%.

Financials -JP'swasoff2.2%despite4Qearningsexceedingforecastswithrevenuefromretailservicesdecliningandquestionsoverthequalityofresults.BoA,off3.3%,wastheDow'sworstafterJP'sresultweighedonthesectorwithCiti

andMSbothoff2.6%,WellsFargodown3.1%andGoldmansdropping2%.Tech -IntelwasthesecondworstontheDow,off3%,afteranalystsfearedthismightbethebrightestspotforsometimeaftertheirmostprofitablequarterever.FellowDowcomponentCiscowasoff2.2%whilstontheS&P100Delldropped2%.

Eco -Consumerconfidencefigureswereslightlylowerthanexpected72.8vs74.Thefigureisupfrom72.5inNovbutconcernsaroundemploymentarestillaffectingmindsets.IndustrialProductionwasinlineat+0.6%,the6thstraightmonthsofgains,andCPIfigureswerealsobroadlyinline.

Growth -Caterpillar,off3%andthebiggestpointstaker,wasloweronthebackofthestrongerUSdollar.Alcoadropped1.1%,UnitedTechalsofell1.1%andIBMended0.4%lower.

United Kingdom & Europe Commentary

TheFTSEsuffereditssharpestdeclinein2010shedding43pointswithbanksandretailersaddingthemostpressure.GlaxoSmithKlinecontinuedtosufferasEUcountriesreducedordersfortheSwineFluvaccine.TheFTSEfinished-0.8%,theDAX-1.9%andtheCAC-1.5%.

UK Banks -BanksstruggledtodayonthebackofdisappointingJPMChaseresultsandamidconcernaboutObama'sproposedtaxonfinancialfirms.IfitisapprovedBarclayscouldfaceabillof594mandHSBC484m.Barclaysfell2.3%andHSBCdropped1.7%withthetwostripping12pointscollectively.

Retail -Retailerswereunderpressureastradingupdatessuggestadifficultoutlookfor2010andbrokersdowngradedthesectortounderweight.Marks&Spencerwasdown1.9%,NEXT-2.3%,HomeRetailGroup-1.8%andDebenhams-4.9%.

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Commodites Commentary

Miners -Aslideincommoditypricessawtheminersofftodaywiththesectorfinishing-1.3%.Kazakhmys,Xstrata,RIOandBHPwerethebiggestpointstakersstrippingover7pointsbetweenthem.Energy -Crudecontinuedtoslidetodayfinishing-1.8%anddraggingthemajoroilswithit.RoyalDutch,BPandCairnEnergywereoff0.4%,0.1%and1.3%respectively.

SPI CommentaryThe SPI traded down 6pts or 0.1% to 4871. Open at 4877 with a high of 4899 and a low of 4839. Volume 25,811. Overnight the SPItraded down 29pt to 4842.

SPI Intraday SPI Daily

*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS

Upcoming Economic Events for the Week

Monday AUS Aus TDMI inflation gauge (delayed)

US

Tuesday AUS Aus customs imports

US

Wednesday AUS NZ CPI

US

Thursday AUS Aus new motor-vehicle sales

US US core PPI, US housing starts

Friday AUS Aus export prices, Aus import prices

US US Philadelphia Fed index

*Dates are indicative only and may change

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MINI Trading Buy:

News Corp (NWSKZJ) 2Q result should see higher guidance

We feel News Corp is set to again raise its FY10 guidance when it reports its 2Q10 results on 3 February. This reflectsthe strong box office performance of 'Avatar' and improving advertising markets. We forecast 2Q10 operating profit up17% to US$983m and raise FY10F to US$4137m (20% growth on pcp). NWS remains a key RBS Research convictionbuy.

RBS Research has a $20.50 Target Price on NWS which represents a healthy 18% upside. Get Long NWS withNWSKZJ.

Source: IRESS

We upgrade FY10F operating profit growth to +20% and expect guidance to be raisedRBS Research raise FY10F operating profit by 3% to US$4,137m (from US$4002m). This equates to growth of 20% onthe pcp (previous forecast 16%) and is well ahead of guidance for high single- to low double-digit growth. However, weexpect this guidance will be raised at the 2Q10 result given improved visibility of Avatar profits and the recovering TV admarket (we believe that the company kept guidance conservative in November due to the risk of losses from Avatar).RBS Research have raised FY10F EPS to US$0.88 (from US$0.85).

TWC retransmission deal underpins TV forecastsFox has successfully negotiated a retransmission deal with Time Warner Cable, the secondlargest cable operator in theUS. Whilst details were not disclosed we model initial revenue per sub of just over US$0.50 rising towards News Corpstarget of US$1.00 over an assumed five-year contract life. The TWC deal only relates to the owned and operated Fox

stations (c40% of total subs). If the TWC deal were replicated across all 100m US pay TV customers then we estimaterevenues to Fox of cUS$450m rising to cUS$900m as the fee moves up towards US$1.00 (we model Fox to get 60% ofaffiliate retrans revenue).

Buy retained. Price target raised to A$20.50 (from A$19.92)RBS Research price target increases to A$20.50 on forecast upgrades. In our view the stock remains cheap on both apeer multiple and sum-of-the-parts basis and we see guidance upgrades and potential capital management as keycatalysts. Buy retained.

RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description

NWSKZJ 1167.76 1281 Long 1 1 MINI Long

NWSKZI 790.29 867 Long 1 1 MINI Long

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MINI Trading Buy:

Qantas (QANKZK) Guidance confirms recovery story

We called QAN a buy using QANKZK on the second dip to $2.55 in early December and have since seen the market re-rateQAN based on the recovery story. With November traffic strong, and December almost behind us, QAN has guided to 1H10PBT of between A$50m-150m. While operating conditions remain volatile, we believe the recovery in traffic and yields will

gather strength in 2H10. Our FY10F PBT sits at A$466m, with a heavy skew to 2H10. Buy maintained. Buy Long MINIQANKZK

Source: IRESS

QAN gives 1H10 PBT guidance in the range of A$50m-150mWith 1H10 almost complete, QAN has guided to first-half PBT in the range of A$50m-150m (vs no previous guidance).While operating conditions remain volatile, this gives us confidence in our full-year forecast PBT of A$466m (vsBloomberg consensus of A$434m), which implies a heavy skew towards 2H10 as the recovery in traffic and yields gaintraction. Upside risks to our forecasts include strengthening demand and quicker yield improvement..Traffic levels and yields showing improvementGroup load factor continued to improve in November, up 4.0pts to 82.3%, as Domestic loads increased 4.5pts (to 82.1%)and International loads increased 3.7pts (to 82.4%). Yields are also continuing their pattern of recovery. RBS Researchestimate that domestic yields in November declined 3.3% on pcp, versus -5.1% in October and -8.9% ytd. This recoveryreflects both improving demand and price increases over the past 8-10 weeks, and expect further recovery over

December/January as discount fares continue to wash through the system. International yields are also improving, albeitat a slower rate, due in part to the longer lead times for International travel. RBS Research estimate that Internationalyields declined 19.0% in November, versus -24.2% in October and -23.2% ytd. QAN implemented a 5% increase forInternational fares earlier this month paving the way for further recovery through 2010.

Confirmation of recovery thesis; Buy maintainedStrong load factors and yield improvement remain the key to improved profitability for QAN. With loads continuing to strengthen acrossQAN's operations, discounts washing through the system and price increases gaining traction, we expect to see further yieldimprovement, and hence improved profitability, over coming months. While QAN is now trading on 1.2x FY10F P/NTA (vs 1.3xhistorical average) we still see value in the stock at these levels and RBS Researchs target price of A$3.35 (based on 1.3x FY11FNTA).RBS MINIs over QAN

Security ExPrc Stop Loss CP ConvFac Delta Description

QANKZK 200 220 Long 1 1 MINI Long

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MINI Trading Buy:

Aust Securities Exchange (ASXKZI) Strong November trading

RBS Research have a Buy recommendation on ASX with a 12mth Target Price of $40. Yesterday ASX releasedNovember trading activity showing a surprisingly strong rebound to trading volumes in cash and deriviativeproducts. Cash equity volumes were in line with RBS Researchs forecast at 541k/day (up 31% on the pcp), while

futures & options volumes were up a sizeable 47% on an average daily basis. Furthermore, both primary andsecondary issuances remained healthy.

Get long ASX with ASXKZI for a valuation uplift to Target Price of $40.

Source: IRESS

Cash equities value traded up 19% on the pcp at A$5.1bnTotal average daily volume traded was 541k in November, up 31% on the pcp. The daily average value traded was up19% on the pcp to A$5.1bn (although this is down on the A$5.4bn in October). Overall we view these as strong numbersand remain confident that our forecast of A$6.0bn in average value traded for FY10 remains intact.

Futures & options November volumes up 47% on the pcpNovember was an exceptionally strong month for futures & options with average daily volumes up 47% on the pcp.Management attributed this strength to strong trading in 3-year treasury bond futures, as the contract has become thefocal point of liquidity across the yield curve. The uncertainty around future cash rates contributed to the volumes, as didthe high level of Commonwealth Government bond issuance (A$4.8bn).

ASX last traded $33.33, BUY ASXKZI for 1-for-1 upside towards RBS Target Price of $40.00

RBS SFIs over ASX

Security ExPrc Stop Loss CP ConvFac Delta Description

ASXKZI 2101.11 2415 Call 1 1 MINI Long

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RBS Round Up Corner:

Australian Strategy - December Quarterly

Equity markets continued to rally during the quarterDespite struggling to deliver positive returns during the first part of the quarter, the MSCI World Index finished the quarterin black. With investors adding more risk to their portfolios, the BRIC indices were the clear beneficiaries. Most equity

markets appear to be fully valued with double-digit forward PE multiples. Currently, the Russian equity index remains oneof the cheapest.

Government yield curves steepenWith investors gaining more confidence in the economic recovery, the long end of the treasury yield curve increasedduring the quarter and the lower end of the yield curve remained at near-zero levels. The US yield curve is at the steepestlevel since 2000, at 269bp.

Equity overviewFollowing two quarters of double-digit returns, the MSCI World Index returned 4% in the December quarter. Debt marketworries around Dubai World and Greek government bonds tested investor confidence in the early part of the quarter.However, improving signs for the US economy, the ongoing commitment from the government to maintain the fiscalstimulus and signs of stabilisation in the US housing market helped equity markets finish the quarter on a positive note.

The USD rally in December meant most equity markets had poor returns in USD terms. On a 12-month basis, emerging markets performed better than their developed world counterparts.

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Markets trading at a premiumMost of the major equity markets traded above their five-year historical average 12-month forward PEs in 4Q09. TheFTSE 100 and the European indices are trading at the highest premium to their long-run averages.

Bond overviewWith investors gaining confidence in the economic recovery, the long end of the treasury yield curve increased during thequarter. While the lower end of the yield curve remained at near-zero levels, the current US yield curve is at its steepestlevel since 2000. Chart 8 below shows the US treasury 10yr/2yr curves at their steepest since 2000 at 269bp.

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For further information please do not hesitate to contact us on the details below

Equities Structured Products & Warrants

Toll free 1800 450 005 www.rbs.com.au/warrantsTrading Products Team

Ben Smoker 02 8259 2085 ben.smoker@rbs.com

Ryan Corrigan 02 8259 2425 ryan.corrigan@rbs.com

Investment Products Team

Elizabeth Tian 02 8259 2017 elizabeth.tian@rbs.com

Tania Smyth 02 8259 2023 tania.smyth@rbs.com

Robert Deutsch 02 8259 2065 robert.deutsch@rbs.com

Mark Tisdell 02 8259 6951 mark.tisdell@rbs.com

Disclaimer:

The information contained in this report has been prepared by RBS Equities (Australia) Limited (RBS) (ABN 84 002 768 701) (AFS Licence No

240530) (RBS Equities) and has been taken from sources believed to be reliable. RBS Equities does not make representations that the information is

accurate or complete and it should not be relied on as such. Any opinions, forecasts and estimates contained in this report are the views of RBS

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Copyright 2009. RBS Equities. A Participant of the ASX Group.

Explanation of Warrant Tables:

Security refers to the code ascribed to the warrant, ExDate refers to the date on which the warrant expires or is reset, ExPrc refers to the

exercise price, or second instalment payment, CP tells you whether the warrant is a call or a put, ConvFac the conversion factor of the warrant

which tells you how many warrants you need to exercise in order to take possession of 1 share, Delta tells you how much the warrant will move for a

1c move in the underlying security, Description Tells you the type of warrant.

All charts taken from IRESS unless indicated otherwise

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