UK/Euro Financial Market Daily Evening Briefing 01-08-2007

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London shares close lower, Wall St mixed; Cadbury Schweppes falls on H1

Leading shares closed down, albeit well off lows, as Cadbury Schweppes fell over 8 pct after below expected first half earnings today, with Wall Street mixed as investors balanced good earnings news against ongoing credit concerns.
   
At the close, the FTSE 100 index was down 109.5 points at 6,250.6 but off a low of 6,187.2, while the FTSE 250 index closed 148.6 points lower at 11,188. Volume was firm, with 3,157.4 bln shares changing hands in 749,979 deals.
   
"After a significant sell-off at the open, the FTSE has managed to recover some of its early losses as the day has progressed, but concerns over the outlook for the US economy -- and specifically the credit markets -- continue to dominate traders' thoughts", said a trader at CMC Markets.
   
Trading on Wall Street was tentative, as the market tried to balance continued worries about US property loans and the credit market, against stronger-than-expected profit news.
   
By the London close the Dow Jones had edged up 8.30 at 13,220.30, while the Nasdaq Composite lost 11.11 to 2,535.16 and the S&P 500 index lost 1.80 to 1,453.45.
   
Back in London, Cadbury Schweppes was the biggest blue chip casualty, shedding 51 pence to 569 after the firm reported a decline in first half earnings as increased investment and higher input costs impacted margins.
   
Pretax profit before exceptional items came in at 110 mln stg, compared with 123 mln stg the previous year, at the bottom end of market expectations.
   
Merrill Lynch said Cadbury's operating performance was weaker than anticipated, and retained its 'neutral' rating on the stock.
   
Elsewhere, a weak banking sector weighed on the blue-chips, with HBOS underperforming, down 27-1/2 at 942, as concerns about the group's retail business overshadowed the largely in-line performance for the group as a whole in the second quarter.
   
"The figures were not that great, as they were boosted by one-off gains. And the retail bank is under pressure," said a banking analyst who asked not to be named.
   
In an interim results statement this morning, HBOS, the UK's fourth biggest bank, said underlying pretax profit for the six months to June 30 came in at 2.962 bln stg, up from 2.612 bln stg in the same period last year.
   
Analysts had expected a profit of 2.88 bln stg, according to a consensus forecast supplied by the company.

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Other banking issues also stood out on the downside, reflecting the equity market slide, with Northern Rock losing 35-1/2 pence to 781, RBS off 13-1/2 pence at 579 and Barclays down 21-1/2 pence at 677-1/2.
   
Heavyweight miners saw some profit-taking after yesterday's rally, with Rio Tinto falling 161 to 3,445, Antofagasta shedding 28 pence to 700-1/2, Xstrata losing 124 pence to 3,074, Lonmin giving away 128 to close at 3,376 and BHP Billiton down 65 pence at 1,408.
   
Only a handful of blue-chips were on the upside, with Imperial Chemical Industries adding 4-1/2 at 628-1/2 following news Dow Chemical is considering making a counterbid for the group.
   
On the second line, Jardine Lloyd Thompson was the biggest faller, shedding 48-1/2 pence to 374 after accompanying in-line first half results with a warning over the outlook for the second half.
   
The Lloyds' insurer posted a 12.4 pct pct rise in underlying first-half pretax profit to 51.1 mln stg, but said it expects second-half results will be impacted by deteriorating market conditions and a weaker US dollar.
In reaction, Merrill Lynch repeated its 'sell' stance on JLT.
   
Elsewhere, Travis Perkins was 41 lower at 1,855 after the builders merchant and home improvement retailer reported a 17 pct increase in first half pretax profit, but said it was cautious about the outlook due to recent interest rate rises.
   
Merrill Lynch reiterated its 'neutral' rating on the group.
   
On the 250 upside, buyout group Terra Firma Investments said its company Maltby Ltd's offer for EMI Group PLC has received valid acceptances in respect of a total of 732.16 mln EMI shares, representing a stake of about 90.27 pct of EMI's ordinary share capital. The offer is now unconditional.
   
EMI Group's shares were up 9-3/4 at 263-3/4.
   
Elsewhere, Morgan Crucible reversed earlier losses to top the midcap leaderboard by midafternoon, 10-3/4 higher at 299-1/2.
   
Earlier today, the electronic and electrical equipment company reported first half pretax profit of 36.2 mln stg for the six months ending 4th July.

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The figure is some 20 pct up on the 30.1 mln the group posted in the same period last year. The company raised its interim dividend by 50 pct to 2.25 pence and said all three of its divisions are now delivering double digit operating profit margins.
   
In reaction to the results, Arbuthnot upgraded its recommendation to 'buy' from 'neutral', saying Morgan's interim results were comfortably ahead of its estimates.
   
Meanwhile, JKX Oil & Gas was up 13-1/4 at 368-3/4 on speculative spur as well as the record high oil price.
   
In economic news today, the UK manufacturing sector saw growth unexpectedly accelerate to a three-year high in July, sources said of a key survey.
   
They said the purchasing managers' index on UK manufacturing activity from the Chartered Institute of Purchasing and Supply jumped to 55.7 in July from 54.7 in June, revised up from the previous estimate of 54.3.
   
The reading is well above the consensus forecast of analysts polled by Thomson Financial News, who had predicted a fall to 53.8.

UK Diary of Events

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UK Small Cap Report

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Paris shares close sharply down, US credit jitters offset good Q2 results

The CAC-40 index closed down 96.78 points or 1.68 pct at 5,654.30, but came off an intraday low of 5,561.87, reflecting more modest declines in the US. Thirty-eight CAC-40 stocks closed lower and two higher.
   
Bouygues led CAC-40 losses, off 2.44 eur or 4.13 pct at 56.70 after two consecutive sessions of sharp gains, followed by Sanofi-Aventis, down 2.06 or 3.35 pct at 59.44 after reporting a 4.3 pct decline in first half adjusted net profit this morning, due to competition from generic drugs.
   
BNP Paribas dropped 1.08 or 1.32 pct at 80.65, outperforming the market after beating analyst forecasts this morning with a 20 pct rise in second quarter net profit.
   
Dealers pointed out that the banking group has little exposure to the sub-prime market, with one adding that "on a better day, the shares would probably have been up around 2 pct."
   
TF1 lost 3.30 or 13.36 pct at 21.40 after reporting a disappointing second quarter performance last night and slashing its forecasts for full-year revenue growth.
   
In a statement yesterday, TF1 said the downturn in the second quarter advertising market and the "high volatility of ... demand" now leads it to expect only "slight growth" in revenues at the TF1 core channel compared with 6 pct previously.
   
Analysts at Cheuvreux said both prospects and first half results, were a "massive disappointment" and said it downgraded its results expectations by 15 pct from 2007. M6 gave away 1.03 or 4.60 pct at 21.35.
   
Back in the CAC-40, Air Liquide was down 2.50 or 2.61 pct at 93.21, after broker Exane BNP Paribas downgraded the industrial gases company to 'neutral' from 'outperform,' citing valuation grounds and 'stalled momentum.'
   
Exane said Air Liquide's shares do not offer sufficient upside, as the potential for surprise and earnings upgrades out of its half-year and full-year results is quite limited. They are also trading close to the broker's 12-month fair value target of 100 eur.
   
Schneider Electric outperformed, down 0.64 or 0.65 pct at 98.50, after the company's first half results came in at the higher end of the estimates.
   
One of the only two risers in the CAC-40 were ArcelorMittal, up 1.01 or 2.21 pct at 46.74 after reporting much better than expected second quarter numbers.
   
Vallourec added 3.04 or 1.57 pct at 196.12 after its second quarter results released yesterday evening came in above expectations.
   
Goldman Sachs said sales and EBITDA came in 4 and 6 pct ahead of its forecasts. It also noted that the company's disclosure to the market has improved and said it believes a "possible US market recovery" may enable Vallourec to exceed its full year guidance. The broker maintained its 'neutral' rating and target of 255 eur a share.

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German shares close lower as blue-chip earnings, oil weigh

The DAX closed at 7,473.93 points, down 110.21 points or 1.45 pct, having traded between 7,396.36 and 7,544.70. The MDAX shed 162.32 points or 1.51 pct to 10,585.10 points, while the TecDAX lost 16.03 poitns or 1.74 pct to 904.32 points. DAX futures were up 35.00 or 0.46 pct to 7,503.50, while bund futures lost 0.35 or 0.31 pct to 112.77.
   
Deutsche Boerse led blue-chip stocks lower, dropping 4.41 eur or 5.16 pct to 81.06 eur, after the market decided that second-quarter numbers released last evening were below expectations.
       
BMW shed 2.30 eur or 5.02 pct to 43.53 eur after the automaker released second-quarter figures that were lower than expectations, disappointing investors who were already in a selling mood.
   
Henkel slipped 1.38 eur or 3.46 pct to 38.46 eur after its second-quarter number also missed analyst expectations. Its EBIT fell to 339 mln eur from 359 in the previous year, while analysts polled by Thomson Financial News had an average EBIT forecast of 350 mln eur.
   
Deutsche Bank fell 2.10 eur or 2.08 pct to 98.80 eur, a victim of the poor sentiment on the market, despite releasing figures that trumped expectations.
       
BASF was 2.15 eur or 2.26 pct lower at 93.15 eur after the world's largest chemicals company released solid second-quarter figures this morning that still couldn't excite buying in a negative market.
   
Continental fell 2.01 eur or 1.90 pct to 104.00 eur after its solid second quarter figures could not impress investors, who remained focused on the recent 11.4 bln eur purchase of Siemens AG's automotive unit VDO.
   
Bucking today's negative trend, Volkswagen gained 1.67 eur or 1.26 pct to 134.21 eur. Linde added 1.09 eur or 1.25 pct to 87.95 eur as traders pointed to delayed buying after its consensus-beating second quarter results on Monday.
   
Also helping the shares, Commerzbank raised its price target on the gas specialist to 96.00 eur per share from 92 while reiterating its 'buy' rating.
   
Metro gained 0.37 eur or 0.65 pct to 57.64 eur after the retailer posted second-quarter results that largely pleased investors with strong sales growth and an expected slump in net profit on costs related to the acquisition of Wal-Mart Stores Inc's German outlets.
   
Over on the MDAX, K&S slumped 5.79 eur or 5.31 pct to 103.22 eur as its worst performer. IKB Deutsche Industriebank dropped 0.92 eur or 5.08 pct to 17.18 eur after Commerzbank downgraded its stance on the bank to sell from hold also dropping its price target to 17.00 eur per share from 33.
   
On the other end, Deutz gained 0.53 eur or 5.60 pct to 10.00 eur after it released better-than-expected second quarter figures. QSC fell 0.23 eur or 5.24 pct to 4.16 eur on the TecDAX, while GPC Biotech added 0.67 eur or 6.55 pct to 10.90 eur.

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Amsterdam shares close lower on worried Wall Street

The AEX closed 9.54 points or 1.79 pct lower to 524.45 after opening at 523.46, hitting an early low of 519.04 and a late afternoon high of 528.78. Government bonds were mostly higher and the euro stood at 1.3678 usd versus 1.3694 usd late yesterday.
  
Financial Aegon led decliners, 3.35 pct lower to 12.95, while ING fell 3.26 pct to 30.30 and ABN Amro slid 2.23 pct to 34.60, all in high volume. Fortis closed down 1.98 pct to 28.68, Binckbank lost 2.90 pct to 13.04 and SNS Reaal shed 4.09 pct to 15.73.
   
Unilever was another strong decliners, down 3.22 pct to 21.64 eur in high volume while food and drink-related peer Numico edged up 0.07 pct to 53.60, one of the very few gainers on the market, ahead of results expected later this week. Meanwhile, brewer Heineken declined 2.25 pct to 45.61 and Ahold shed 2.46 pct to 9.11 in relatively high volume also ahead of results expected later this week.
    
Another heavily traded stock, Royal Dutch Shell was off 0.21 pct to 28.33, outperforming the general market amid oil prices hitting a new all time record high in New York after US government data showed a much larger than expected fall in US crude supplies. Peer SBM Offshore lost 2.21 pct to 29.65 and Fugro was off 3.14 pct to 47.58.
   
Hagemeyer traded 3.08 pct lower at 3.77 eur as SNS Securities warned that cautious comments by peer Travis Perkins about the US housing market "do not bode well."
   
Wolters Kluwer slipped 2.22 pct lower to 21.12 after the company's second-quarter earnings met with disappointment with analysts particularly disappointed by sales growth. Wolters Kluwer also made news by announcing the acquisition of a majority stake in a Russian publisher.
   
Akzo Nobel outperformed the market, down 0.68 pct to 60.14 eur as brokers welcomed the first signs of a possible shareholder revolt against the chemicals company's pursuit of UK rival ICI. A report said Dow Chemical was considering making a counter-offer for ICI, while activist shareholder TPG-Axon reportedly described Akzo's 650 pence per share offer as too high.
   
Aalberts Industries led midcap decliners, giving up 4.347 pct to 19.60 eur while BAM lost 3.23 pct to 20.69. 

TomTom ended the day 0.77 pct higher to 48.12, boosted by news sector peer Garmin posted an increase in second quarter profit and upped its full year outlook.

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