UK/Euro Financial Market Daily Evening Briefing 04-09-2007

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London shares close higher; oils strong on crude price; Wall Street up

UK blue chips closed higher for the 11th session in the last 12, with oil companies gaining on strong crude prices and Wall Street reacting calmly to US economic data. 
   
At the close, the FTSE 100 index was up 61.6 points at 6,376.8, near a high for the session, and up from a low of 6,274.9. It was the highest close since August 8. The FTSE 250 index closed 152.4 points ahead at 11,510.8.
   
Volume was average, with 2.6 bln shares having changed hands in 492,411  trades.
   
The US Purchasing Managers Index from the Institute of Supply Management showed a reading of 52.9 for August, down from 53.8 in July, and the lowest since March. The consensus from IFR Markets' weekly economist survey called for a decline to 53.0. Details of the index show a healthier factory sector than the dip in the headline suggests.
   
July construction spending was down 0.4 pct, weaker than expected though June was revised higher to +0.1 pct from -0.3 pct.
   
With US markets closed yesterday for the Labor Day holiday, this was the first reading of US markets since Friday, when they had surged following indications the government may help homeowners who cannot pay their mortgages.
   
As the London markets were closing, the Dow Jones Industrial Average was up 38.9 at 13,396.6. Standard & Poor's 500 index was up 9.52 at 1,483.51.
   
Jeremy Batstone-Carr, head of private client research at Charles Stanley, said: "The ISM data was Goldilocks (indicating the economy is neither too hot, nor too cold). The economy is still growing, but the Federal Reserve will still cut rates on September 18. But I would caution against being too euphoric about equities. We're not out of the woods yet."
 
The heavyweight oil sector helped buoy the FTSE 100. Brent crude for October delivery was trading at 73.82 usd a barrel this afternoon, up on speculation inventory levels are continuing to fall in the US. 
   
Royal Dutch Shell was the biggest FTSE 100 gainer, rising 56 pence to 1,985 after UBS upgraded its stance on the group to 'buy' from 'neutral' on valuation grounds with an unchanged target of 2,300 pence. BG Group rose 19 pence to 800-1/2, and BP took on 10-1/2 to 561.
   
Elsewhere, ongoing M&A talk boosted Scottish & Newcastle, up 7-1/2 at 632-1/2, after it was revealed Carlsberg has 70 bln dkr available for acquisitions.

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Electricity generator Drax ended the day 11 pence higher at 676-1/2, after Citigroup upgraded it to 'hold' from 'sell' with a price target of 652 pence. The group reports interims on Thursday. 
    
Copper producer Kazakhmys was up 34 pence at 1,333, after the group posted a better-than-expected 22 pct rise in interim profits, helped by higher metal prices.
   
The copper producer also said it plans to return cash to shareholders by way of a special dividend of 0.50 usd, in addition to an interim dividend of 0.136 usd, and a share buyback programme of as much as 400 mln usd.
   
Higher precious metal prices boosted other miners. Gold was stronger, hitting its highest intraday level since July 25, as positive demand data attracted investors back to the market and US manufacturing data eased fears the recent turmoil in the financial markets would spill over into the wider economy. Miners to gain included Anglo American, up 30 pence at 2,871, Rio Tinto, up 65 pence at 3,528, and BHP Billiton, up 18 pence at 1,448 pence.
   
But it was not all good news in the mining sector. Antofagasta fell 5 pence to 712-1/2, and had been down as low as 695 at one point, on concerns a 5.1-magnitude earthquake at Tocopilla, in the northern region of Antofagasta in Chile, may have affected the group's copper operations.
   
A spokesman for the company confirmed there was an earthquake in the area, about 145 kilometres north of the Antofagasta region, but said the quake was probably too far North to have affected Los Pelambres, the company's biggest mine.
   
Liberty International closed 14 pence at 1,183 after JP Morgan cut its rating to 'underweight' from 'neutral' and said it remained cautious on the UK property sector on which it retains its 'underweight' rating.
   
The broker lowered its target for British Land to 1,400 pence from 1,700, Great Portland to 725 from 870, Land Securities to 1,970 from 2,275, Liberty to 1,150 from 1,375, and Shaftesbury to 630p from 775.
   
It cut the target on Hammerson to 1,400 pence from 1,600, and the group closed 7 pence lower at 1,327, after it issued a cautious outlook amid a decline in first-half profits.
   
The group said pretax profit came in at 367.8 mln stg for the six months to June 30, against 384.8 mln a year earlier due to the impact of revaluation on the portfolio.
   
Citigroup cut its target to 1,400 pence from 1,800 to account for a lack of M&A premium and sector-wide assumption changes.   

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Oils were also some of the star performers in the FTSE 250. Soco International headed the leader board, taking on 148 pence to 2,165, after first-half profit rose to 28.9 mln usd from 25.1 mln last time. It assured the market it is on track to start pumping oil in Vietnam in the first half of next year.
   
Tullow Oil shares were up 34 pence at 547, a new high, after it reported first-half results. Although pretax profit fell to 66.1 mln stg, from 153.1 mln last time, analysts are upbeat on its exploration prospects. ABN Amro upgraded the target on the shares to 610 pence from 600. Tullow is set for promotion to the FTSE 100 in the quarterly reshuffle this month.
   
Also in earnings news, Premier Foods was up 10-1/2 pence at 251 after the group reported a 49.6 pct fall in its first-half pretax profit, which was was not as bad as feared.
   
Admiral Group ended the day 33 pence stronger at 893, after the group reported a 26 pct rise in its first-half pretax profit, helped by a 16 pct increase in sales and a 16 pct rise in customer numbers. Both Merrill Lynch and Citigroup reiterated their 'buy' advice.
   
Consultancy Axon Group was up 40 pence at 795 after it reported a doubling in its first-half pretax profit on good all-round performance and said it expects a good second half on the back of a strong order book, a good pipeline and excellent operational controls.
   
On the downside, Hays was one of the biggest fallers, down 4 pence at 156-1/2, after full-year 2007 results were in line with expectations, with EBIT of 216 mln stg, against consensus of 214 mln stg.
   
Commenting on Hays' results, UBS said there is some pressure on UK margins and the obvious current economic uncertainty and it intends reviewing its forecasts.
   
Brit Insurance was also among the biggest fallers, losing 10 to close at 344, after the Lloyd's insurer and re-insurer warned second-half profits may not be as good as those posted in the first half. Seymour Pierce repeated its 'hold' stance.

UK Diary of Events

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Paris shares close up, tracking Wall St; Peugeot slips as plan disapoints

The CAC-40 index finished up 21.45 points or 0.38 pct at 5,672.72. Among CAC-40 stocks, 23 closed higher and 17 closed lower. On the broader indices, the SBF-80 index closed up 43.33 or 0.64 pct at 6,842.09 while the SBF-120 ended 17.12 or 0.42 pct higher at 4,139.31.
   
Peugeot was a major news focus as it unveiled targets under a strategic plan for 2010-15, including raising sales to 4 mln vehicles by 2010, versus 3.37 mln last year, and increasing operating margin to between 5.5 pct and 6 pct by 2010, up from 2 pct in 2006.
   
The car group's shares dropped 2.24 eur or 3.63 pct to 59.44 as analysts remained unconvinced the plan will lead to a quick turnaround in the auto maker's ailing fortunes. In a note to clients, broker UBS questioned how the proposals will help Peugeot stand out in a sector "crowded with almost identical plans promising massive structural increases in sector earnings".
       
Fellow car maker Renault was pulled down on the negative sentiment, shedding 0.88 or 0.88 pct to 99.05.
   
Suez and GDF added to yesterday's losses that followed the announcement of their revised merger deal, respectively falling 0.65 or 1.61 pct to 39.71 and 0.81 or 2.26 pct to 35.00.
   
In a note to clients this morning, UBS analysts expressed surprise at the sell-off of GDF and Suez shares, but said they believed the main motives were "(a) perceived lack of clarity on the closure date, deal value (in particular for Suez shareholders), removal of any takeout premium on Suez Environnement and a general strategic uncertainty."
      
Veolia Environnement recovered from a drop earlier in the day to close up 0.26 or 0.47 pct to 55.17.
   
After yesterday's fall linked to fading speculation of a move for Suez's environment business, the stock was pushed down further this morning by Exane BNP Paribas' decision to downgrade it to 'underperform' and lower its target to 58.4 eur from 59 eur. The broker also cited the loss of the hoped-for acquisition of Suez's international environmental activities.   

On the upside, financials enjoyed gains as fears about the fallout from the subprime crisis continued to ease. Societe Generale added 2.53 or 2.12 pct to 121.97 as it was lifted by an upgrade to 'buy' from 'neutral' at Merrill Lynch.
      
Among other financials, Dexia rose 0.58 or 2.86 pct to 20.89, BNP Paribas was up 0.83 or 1.20 pct at 78.30, while insurer Axa gained 0.27 or 0.92 pct to 29.56.
   
Property group Unibail-Rodamco also regained some more of the ground lost during the summer's subprime crisis, on the back of its first-half results last week. The shares rose 8.17 or 4.60 pct to 185.70, ending the day as the biggest bluechip riser. Outside the CAC-40, fellow property stock Klepierre similarly jumped 2.06 or 5.29 pct to 41.03.
   
Index heavyweight Total helped push up the CAC by adding 0.54 or 0.98 pct to 55.37. PPR continued its rally since its strong first-half results last week, adding 3.09 or 2.42 pct to 130.74. The group's FNAC music and books said it would accelerate store openings in the second half to reach a total of 14 for 2007.

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Milan shares close higher, rising on US macro data; BPM among leaders
 
The Mibtel index was up 0.20 pct to 31,451 points and the S&P/Mib up 0.11 pct to 40,324. Volume traded was an estimated 4.647 bln eur.
   
Brokers said the key issue for the market is whether the US FOMC will cut its interest rates later this month. Most in the market expect a 25 basis point, though a 50 point is not ruled out.
   
Another factor today was Deutsche Bank's "confident" comments on the limited damage to its business from the US sub-prime problems, said one broker, adding this supported financial stocks.
   
In the banking sector, BPM was up 1.46 pct to 10.88. Brokers say investors are speculating on the bank's plans ahead of a strategy committee meeting at the bank and approval of results next week.
   
Unipol rose 1.11 pct to 2.6025. The insurer has been cited as a possible partner for BPM, though both parties deny any talks on a tie-up.
   
BMPS lost 0.52 pct to 4.6425. One broker said he was pleased the bank did not bid a high price for Intesa Sanpaolo branches. BMPS lost out on the bidding to a consortium including Banca Carige. Intesa Sanpaolo eased 0.09 pct to 5.545. Carige gained 2.06 pct to 3.5875.
   
Banca Italease was down 0.45 pct to 17.70, giving up earlier gains, ahead of final results and suffering after heavy losses in last months on its derivative exposure. Banco Popolare, Italease's largest shareholder, was down 0.55 pct to 18.09.
   
Utilities were on the downside with the market cautious ahead of Enel results this week. Enel lost 1.25 pct to 7.505 and AEM fell 0.81 pct to 2.6375. One broker said he is concerned about Enel over-reaching itself in its international expansion, putting dividend payments at risk.
   
Impregilo fell 1.73 pct to 5.28. Brokers said the stock fell on profit-taking after recent gains.
   
On the upside was Seat PG, up 3.86 pct to 0.417. The stock reacts to interest rates because of its heavy debt. L'Espresso in the same media sector gained 1.77 pct to 3.79. Lottomatica added 1.94 pct to 26.75.
   
Oil reacted to impact of hurricanes on the oil price. Eni eased 0.08 pct to 25.20. Saipem added 0.15 pct to 27.68.
   
Alitalia was up 1.15 pct to 0.827. Analysts said the stock can only fall in next months on prospects for a heavily-discounted capital increase.   

Telecom Italia rose 0.72 pct to 2.11. One broker said a Brazil regulatory clearance, paving the way for Pirelli to sells its Telecom Italia stake, could see the stock rising to 2.30 eur. Pirelli was up 0.08 pct to 0.8375.

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Amsterdam shares close higher, led by property stocks

The AEX closed 5.64 points or 1.07 pct higher at 531.00, after trading in the range 522.32-531.75. Government bonds traded broadly lower, while the euro stood at 1.3584 usd versus 1.3610 usd late yesterday.
   
Unibail-Rodamco led blue-chip gainers, adding 4.30 pct to 185.40 eur, while midcap peer Wereldhave put on 2.64 pct to 89.14 eur and Corio gained 1.14 pct to 57.43 eur, boosted by a UBS upgrade on French-peer Klepierre this morning.
   
Retailer Ahold rose 3.06 pct to 10.01 eur, with over 21 mln shares changing hands, as the company began its 1 bln eur share buyback programme.
   
Corporate Express gained 2.78 pct to 8.50 eur, while oil giant Shell added 2.63 pct to 29.07 eur. UBS  upgraded its stance on the issue to 'buy' from 'neutral' on valuation grounds, with an unchanged price target of 2,300 pence. Shell also said it signed a binding agreement to supply liquefied natural gas from the giant Gorgon field in Australia to PetroChina International Co Ltd.
   
Fortis added 1.82 pct to 27.35 eur. Earlier, reports suggested the RBS-led consortium -- which includes Fortis -- could invoke a material adverse change (MAC) clause to reduce the price of its 70 bln eur offer for ABN Amro if the markets continue their current downturn, the Times said, without citing sources.
   
Among staffing stocks, Vedior progressed 1.37 pct to 17.02 eur and Randstad gained 0.51 pct to 41.23 eur, shrugging off earlier losses, after Dutch staffing association ABU released a disappointing set of growth numbers in the Dutch temp staffing sector for the 4-week period to mid-August. Midcap peer USG People closed 0.34 pct lower at 23.27 eur.
   
TNT added 0.48 pct to 31.36 eur on news it has acquired a 25.1  pct stake in CitiPOST Ludwigsburg GmbH & Co in Germany for an undisclosed amount. KPN closed flat at 11.74 eur. The stock was downgraded to 'hold' from 'buy' at Citigroup, which also cut its target to 12.3 eur from 13.
   
At the other end of the index, SBM Offshore fell 0.85 pct to 26.93 eur, while brewer Heineken dropped 0.77 pct to 46.24, as investors shrugged off a price target upgrade at ING, focusing instead on some negative comments from the brokerage on earnings expectations, a trader said.
   

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