UK/Euro Financial Market Daily Evening Briefing 05-02-2008

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London shares close near intraday low, NY drops, fresh US recession woes

At 4.35 pm, the FTSE 100 index was 158.2 points lower at 5,868.0, just short of its intraday low of 5,852.8 in late afternoon deals, while the FTSE 250 closed down 306.80 points at 9,955.3. Volume was fairly heavy, with 2.55 bln shares changing hands in 802,489 deals.

Across the pond, Wall Street endured a dismal morning of trade as weaker-than-expected data brought recession fears to the fore, with the Dow Jones down 248.00 points at 12,387.20, the Nasdaq Composite 40.93 lower at 2,341.92 and the S&P 500 falling 29.10 at 1,351.70 at the UK close.

ISM's gauge of non-manufacturing activity, released before the New York open, tumbled more than a dozen index points to 41.9 in January from 54.4 in December -- the worst since October 2001 and raising the chances that a recession has already begun. Economists surveyed by IFR Markets had been expecting the index to fall to 53.0.

In London, the retail sector -- which had already been under pressure following a poor trading statement from Carpetright -- and housebuilders were worst hit as concerns about the likely fall-out of a downturn in the US economy weighed.

Housebuilder Taylor Wimpey led the casualties, down 16-1/4 pence at 184-3/4, with sector peer Persimmon 58 weaker at 732.

Among the retailers, Next lost 109 at 1,413 after disappointing figures from mid-cap retailer Carpetright dented investor confidence in the sector, and was further hit by Panmure Gordon downgrading Next to 'sell' from 'buy'.

On the second tier, shares in Carpetright dropped 39-1/2 at 782 following its full-year trading update. Nick Bubb, analyst at Pali International, said Carpetright's comments about very poor sales and weak footfall in out of town retail parks in the key early January period augur badly for Kingfisher -- the blue-chip shed 12.0 at 141.6 in sympathy.

Sticking with retailers, supermarkets group Morrison fell 12 to 293 pence after Lehman Brothers downgraded the stock to 'equal-weight' from 'overweight' and cut its price target to 334 pence, from 360.

Broker changes hit Schroders, 78 behind at 1,025 after Morgan Stanley cut its stance to 'underweight' from 'equal-weight' as part of a sector review.

And British Airways was also out of favour, extending morning weakness to close 19 behind at 293, after revealing fewer passengers travelled with the UK flag carrier last month than in January 2007, and its aircraft were less full.

BA said it carried 2.33 mln people in January, down 0.8 pct on the 2.35 mln who travelled on its services a year previously. The load factor declined by 0.7 pct points to 69.2 pct.

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Elsewhere, real estate investment trusts also featured on the downside after HSBC downgraded Hammerson and British Land to 'underweight' from 'neutral'. In the same review the broker also downgraded Land Securities and midcaps groups Brixton and Segro to 'underweight' from 'overweight'.

Hammerson fell 78 to 1,067, British Land fell 47 to 951, Land Securities fell 67 to 1,547, Brixton fell 15-1/4 to 333 and Segro lost 24 at 501.

On the upside, only a handful of shares made any headway, among them BP, which took on a penny at 543 as investors overlooked the oil and gas heavyweight's weaker-than-expected full year and fourth-quarter profit figures, and instead celebrated news of a higher-than-anticipated dividend.

Responding to the update, Landsbanki Kepler said BP has provided reassuring news on Reserve Replacement Ratios (RRR) -- above 100 pct -- and welcomed the major shift in its dividend policy. The broker kept its 'buy' stance on the group.

Cadbury Schweppes, which traded higher for much of the session, closed in the red but still outperformed the market with a loss of only 3 pence at 564, helped by a JP Morgan upgrade to 'overweight' from 'neutral'.

Among mid-cap fallers, ARM Holdings dropped over 20 pct, down 23-3/4 at 94-1/4 after the UK microchip designer reported lower-than-expected full-year numbers and issued a cautious outlook, prompting Panmure Gordon to cut its estimates and price target.

CSR was also under pressure, losing 41 at 489.

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Meanwhile, shares in Northern Foods ended 6-3/4 lower at 91-1/4 following reports Marks & Spencer has demanded bigger price discounts from its suppliers despite the unprecedented rises in commodity costs in recent months.

On the upside, Northern Rock recovered some of the losses it suffered late yesterday, adding 2 pence to 90 on reports Olivant could return to the auction for the stricken mortgage-lender. "That's the only explanation. It's a very sensitive stock," said Mike Trippitt, bank analyst at Oriel Securities.

Sports Direct topped the mid-cap leaderboard, however, up 6-1/2 at 112-1/4, as the group said it has signed a strategic alliance in China with ITAT Group, to supply merchandise to ITAT's larger stores. Sentiment in the shares was also helped by Oriel Securities upgrading its investment stance to 'buy' from 'hold'.

Finally, Expro International was 24 higher at 1,008 by the end of trade after the oilfield services provider said it has signed a deal with Aker Oilfield Services to jointly market and operate light well intervention services.

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UK Small Cap Report:
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Paris shares close sharply lower amid profit taking and Wall St's decline

The CAC-40 index ended down 196.78 points or 3.96 pct at 4,776.86, with the drop accelerating after Wall Street opened.

All 40 shares in the index declined, with 22 of them showing losses of more than 4 pct. The SBF-120 index was down 3.94 pct at 3,464.40.

On the Matif, February CAC-40 futures were trading at 4.785.50. The euro was trading at 1.4648 usd, against 1.4825 late yesterday.

Shares of tyre-maker Michelin led the blue chips downward, falling 5.77 eur or 8.41 pct to close at 62.85. Renault plunged 5.74 eur or 7.41 pct to end at 71.68.

Peugeot fared slightly better, closing down 3.16 eur or 6.05 pct at 49.06, as JP Morgan raised its recommendation to 'neutral' from 'underweight'.

But the investment bank was generally sour on the European car industry overall, keeping its 'underweight' stance and saying that autos are re-entering an investment cycle that has previously been negatively correlated with the sector's performance.

Besides JP Morgan's report, US-based car rental company Dollar Thrifty issued a weaker-than-expected earnings outlook for 2007. Car rental companies are among the largest buyers of new autos.

Companies elsewhere in the transport sector, construction firms and financial institutions were also among the day's biggest decliners.

Aircraft maker EADS closed down 1.17 eur or 6.66 pct at 16.40. It signed a development agreement today with Greek aeronautics group Hellenic Aerospace Industry.

Air France-KLM ended down 1.07 eur or 5.63 pct at 17.94. Building materials producer Saint-Gobain dropped 3.43 eur or 6.17 pct to 52.16, after recent gains tied to talk of a potential stake buildup by Wendel and last week's positive sales from infrastructure builder Vinci.

Vinci ended down 2.22 eur or 4.63 pct at 45.72, and peer Bouygues closed down 2.48 eur or 4.78 pct at 49.35.

The main banks all were hit by profit-taking. BNP Paribas closed 3.76 eur or 5.77 pct lower at 61.44, and Societe Generale finished down 4.41 eur or 5.27 pct at 79.20. Rumours circulated earlier today that BNP Paribas and BBVA of Spain could be preparing a joint offer for SocGen, while Merrill Lynch analysts touted the idea of a three-way bid from BNP Paribas, Credit Agricole and Intesa Sanpaolo.

Meanwhile, investors remained cautious about SocGen's impending capital hike, which is expected to have a dilutive impact on its shares.

Dexia slipped 0.81 eur or 4.81 pct to 16.04, and Credit Agricole slipped 0.97 eur or 4.69 pct to 19.72. Insurer Axa fell 1.20 eur or 5.08 pct to close at 22.42.

The smallest decline among the blue chips was steel pipe maker Vallourec, which closed down 1.07 eur or 0.75 pct at 141.70 before reporting a 13.1 pct rise in fourth quarter sales. The company predicted sales on a comparable basis will be flat in 2008 from 2007.

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German shares close lower, tracing lower Wall Street opening

The DAX was down 235.24 points or 3.36 pct at 6,765.25 points at the close, having traded between a low of 6,744.17 points and a high of 7,000.05 points.

The MDAX lost 417.77 points or 4.59 pct to 8,685.33 points, while the TecDAX dropped 40.84 points or 4.89 pct to 794.35 points.

DAX futures declined 201.50 points or 2.87 pct, to 6,815.50 points, while bund futures gained 0.75 points or 0.64 pct to 117.31. The euro was trading at 1.4628 usd, compared with 1.4644 usd in London afternoon deals.

On a DAX with no gainers, TUI led German large caps lower, plummeting 1.35 eur or 8.54 pct to 15.00, largely erasing the past two days' gains.

MAN lost 7.24 eur or 8.17 pct to 81.40. Dealers said concerns about a possible prolonged takeover of Swedish peer Scania AB and profit-taking outweighed Man's strong full-year results this morning.

During a post-results conference, MAN chief executive Hakan Samuelsson said his company now holds 17 pct of the voting rights in Scania, up from 15.6 pct.

He played down the move, saying the increase does not have any "major strategic" significance. A speedy merger of the two companies, possibly along with the heavy truck operations at Volkswagen AG, does not look likely, traders said.

Hypo Real Estate declined 1.60 eur or 7.74 pct to 19.06, as they continued yesterday's losses after a media report said the real estate bank could run into some difficulties buying a 65 pct stake in Quandra Realty Trust Inc.

Investors in Quandra are asking for more than the 179 mln eur the bank has offered, the report said. Shares in BMW were down 2.30 eur or 5.99 pct to 36.12, after the car maker yesterday reported weak US unit sales for January.

The company said its US unit sales fell to 16,935 in January, down 22.4 pct compared with last year. The company said sales were impacted by lower-than-normal inventory levels due to a very strong retail performance in December and high demand for all-wheel drive models.

Deutsche Postbank retreated 3.19 eur or 5.83 pct to 51.49. Over on the MDAX, Heidelberger Druckmaschinen led German mid-caps lower, plunging 3.21 eur or 16.34 pct to 16.43.

The printing specialist today issued third-quarter figures showing sales and profits below analysts' estimates. The company also slashed its full-year operating profit and net profit guidance.

In response to the disappointing numbers, Cheuvreux reduced its stance on Heidelberger Druckmaschinen to 'underperform' from 'outperform' and put its target under review.

At the other end, Techem rose 0.30 eur or 0.49 pct to 61.34. Versatel retreated 2.88 eur or 12.72 pct to 19.76 on a TecDAX with no gainers.

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Amsterdam shares close sharply lower, as US recession fears loom large 

The AEX closed down 15.10 points or 3.34 pct at 436.81, after opening at 450.26 and trading in the range 436.32-453.25. Government bonds traded higher, while the euro stood at 1.4648 usd compared with 1.4818 usd late yesterday.

The AEX fell steeply mid-afternoon, with stocks reliant on the US market hit hardest, as an unexpected contraction in the service sector in the US spooked the markets on both sides of the Atlantic.

TomTom closed 8.07 pct lower at 35.98 eur, with investors concerned about the impact a US recession would have on sales. TomTom said this morning it has formed a partnership with mobile operator SFR to bring TomTom High Definition Traffic to France.

Among financials, Fortis fell 5.46 pct to 14.21 eur while ING was off 4.61 pct at 21.29 eur. Aegon closed 3.56 pct down at 9.74 eur.

Staffing group Randstad was hit by recession fears, falling 5.01 pct to 24.66 eur. Takeover target Vedior closed 3.27 pct lower at 15.98 eur. The company is expected to post solid fourth-quarter figures before the market opens Thursday.

On the midcap, Oce slumped 9.46 pct to 12.25 eur as German printing and paper specialist Heidelberger Druck cut its full-year profit guidance.

KPN closed the day slightly lower, off 0.08 pct at 12.35 eur, after spending most of the day in positive territory. The telecoms provider reported in line fourth-quarter results this morning, and surprised the market with a tax benefit in Germany and a 1 bln eur share buyback, as it set new three-year targets, described by analysts as "bullish".

ASML fell 3.58 pct to 17.53 eur as rival chip maker National Semiconductor lowered its revenue outlook for its latest quarter because of lower-than-expected sales of mobile electronics products.

ASMI fell 5.70 pct to 13.39 eur on profit taking, after recent gains following speculation of a takeover approach from two activist shareholders, and ahead of a combined meeting of supervisory and management board tomorrow to discuss the proposed takeover offer.

At the other end of the market, Corporate Express rocketed 15.74 pct to 5.0 eur, off earlier gains of 46 pct, as the market reacted to reports the company is in merger talks with US rival Staples, later denied by Corporate Express.

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