We expect European markets to fall below the levels of July 24, 2002 (page 1 of 3)

US Markets

• Recommendation update

The Bank of New York Company, Inc. (BK, $32.57, CSFB recommendation: Outperform) is one of the gainer of volatility in the equity and fixed income markets. According to the street, the company should have several potential processing-asset management-related acquisitions in the pipeline, following a recent pattern of healthy acquisition related growth. Stock price may not experience the significant bounce back associated with the more capital markets-driven players, but could nevertheless gain from the company's earnings diversity and stable high growth business model. The company is involved in seven major types of processing businesses including depositary receipts, corporate trust, stock transfer, global custody, securities clearance, securities lending, and unit investment trusts. We stay with our hold recommendation due to current market volatility, but we remain positive in the long term.

Two weeks ago, in the Gabelli Aerospace Supplier conference in New York, the suppliers presented a gloomy outlook for commercial aerospace. Some of them do not expect a recovery until 2004. This would be critical for suppliers without exposure to military related business. While civil aftermarket is expected to be sharply lower for this year, suppliers see some stabilisation in sales, and some signs of a pick-up outside the U.S. The respite comes from the defence sector, where orders from the U.S. military continue to be strong.

Boeing Co. (BA, $35.58, CSFB recommendation: Outperform) narrowly avoided a strike. 62% of machinists rejected the contract from the company and 61% wanted a strike. Nevertheless, under the union's rules, the contract is accepted and the strike is rejected because the limit of 2/3 of the machinists was not reached. This would allow Boeing new job-flexibility rules, which would help the company manage its business in the current weak environment. We believe management would not wait long before cutting jobs due to continuing losses in airlines. We remain cautious for the coming months on the company. High U.S. defence expenses is currently supporting stock price, but it is difficult to say if they would remain as commercial aviation business remains weak. Hold

General Dynamics Corp. (GD, $83.02, CSFB recommendation: Neutral) announced recently the addition of three new aircraft to its business jet line. The new Gulfstream will fill in the gaps between its existing models, and the full line will include seven aircrafts that rage in price from $11.5-44.8 million. It would be able to offer business jets more suitable for its customers. Furthermore, with the new models, the company covers the complete spectrum of business jet market without increasing extremely its costs. The new jets are based on existing Gulfstream models and the company already received a $1.5 billion order for 50 new Gulfstream and an option for 50 more. The company won a $3.17 billion contract from the U.S. Navy to build destroyers. 48% of GD's business is related to the U.S. Army and its allies. In spite of a weak commercial aviation business, we remain positive on the company (target price $100) due to its exposure to military sector.

• The OPEC in the spotlight

On the 19th of September the OPEC will meet in Osaka to decide on their output quotas. So far several members have shown reluctance to increase the output, with the reason that they see the increase more as a result of the tension on Iraq, rather than from the demand side.