UK/Euro Financial Market Daily Evening Briefing 05-11-2007

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London shares close down; NY drops on subprime contagion fears

Leading shares closed down, as Wall Street trimmed losses following a better-than-expected report on the US services sector but with subprime contagion fears continuing to unnerve investors.
   
At the close, the FTSE 100 index was off 69.2 points at 6,461.4, slipping from a high of 6,530.6, and recovering from a low of 6,420.4, while the FTSE 250 index ended the session down 128.3 points at 11,314.4.
   
In the US, the Dow recovered slightly from an opening fall, but remained in the red, after an unexpected rise in the Institute for Supply Management's (ISM's) non-manufacturing business index.
   
The index climbed to 55.8 in October, against economists' expectations of a drop to 54.0, following a reading of 54.8 in September -- a reading above 50 indicates growth in the sector, while a reading below 50 means contraction.
   
But on the whole, investors were jittery following Sunday's news that Citigroup's chief executive Charles 'Chuck' Prince had agreed to step down in the wake of 11 bln usd in additional writedowns related to problems in the US subprime mortgage sector.
   
On Wall Street, by London's close, the Dow Jones Industrial Average was down 69.8 points at 13,525.3, with the S&P 500 index shedding 7.9 points to 1,501.75, and the Nasdaq composite index, off 15.34 points at 2,795.04.
   
Back in London, banking stocks were under pressure amid the renewed subprime concerns.
   
Barclays ended off 16 pence at 521-1/2 as rumours persist about its need for funding. HSBC downgraded it to 'underweight' from 'neutral', with a target of 540 pence, down from 650.
   
HSBC was even more savage with its target cut on HBOS, down 33 pct to 840, from 1,250. It cut HBOS to 'underweight' from 'overweight'. HBOS shares ended the session 15 pence lower at 809-3/4.
   
In a review of UK banks, HSBC said permanent sea changes in the mortgage revenue dynamic means earnings three or four years out could be about 20 pct lower than originally anticipated. Against this background, recent share price weakness may be too sanguine rather than excessively pessimistic, it said.

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Alliance & Leicester finished down 29 pence at 701 as rumours circulated it had tapped the Bank of England last week for emergency funding thought to be in the region of 5 bln stg.
   
But the UK high-street bank said in a statement: "We do not routinely comment on rumours concerning bodies such as the Bank of England. However, I would point out that each week in recent months, including last week, Alliance & Leicester has successfully raised the funds it requires. We have also continued our share buyback programme, and are buying back shares today."
   
Meanwhile, the credit crisis was blamed by Delta Two for the collapse of its 10.6 bln stg takeover bid of supermarket group Sainsbury.
   
Sainsbury shares dropped 115 pence to 440, with the Qatari-backed investment fund blaming escalating expenses since discussions began back in July for calling off the talks.
   
Also on the backfoot after the Sainsbury bid was scrapped was Mitchells & Butlers, off 28 pence at 631, with some investors commenting that property tycoon Robert Tchenguiz is now less likely to focus his attention on the company.
   
In August, M&B said its joint venture proposal with R20, the investment vehicle of Tchenguiz, was unlikely to be achieved due to conditions in debt markets.
   
The pubs company said it was in final negotiations with banks to finance the transaction but the disruption of the debt markets had resulted in a major widening of credit spreads.
   
Further contributing to the drag on the blue chips were the heavyweight miners, as commodity prices, notably gold and copper, eased on expectations of lower Chinese demand.
   
BHP Billiton closed 55 lower at 1,700, Xstrata finished down 136 to 3,171, and Antofagasta ended 22 lighter at 781.
   
Elsewhere, British Airways closed off 13-1/4 at 405-1/4 against the background of a downgrade to 'sell' from 'hold' from ABN Amro; a report in the Saturday press that BA, alongside a US private equity group, will make a bid for Iberia in the next four to six weeks; and as BA reported traffic figures for October.

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Cargo for the month was down 3.0 pct compared with last year, but traffic was up 2.2 pct, passenger capacity was up 1.3 pct, and load factor was up 0.6 points to 75.9 pct.
   
Turning to the risers, Carphone Warehouse shares extended earlier gains to close up 8-1/4 pence to 353-1/4, as Lehman Brothers raised the group to 'overweight' from 'equal-weight' with a price target of 425 pence, citing core mobile retail and US expansion as the key triggers to the upgrade.
   
Looking at the midcaps, shares in Southern Cross Healthcare ended the day lower, down 7 pence at 591-3/4, after an undercover reporter raised concern over hygiene and treatment of residents in one of its carehomes.
   
Southern Cross Healthcare said it has undertaken a detailed investigation to the allegations made in the article and said it is satisfied that the home -- one of its Ashbourne Senior Living Homes in Solihull, West Midlands -- operates to a good standard, is caring and well-run.
   
And finally, Xchanging ended higher, up 12-1/2 at 282, after it said it raised the size of its secondary placing by 3 mln shares as a result of significant institutional demand. The outsourcing group raised 51 mln stg in a secondary placing of 18.23 mln shares, or about 8.5 pct of its share capital, at 280 pence each.
   
The share sellers are funds advised by General Atlantic LLC, which now holds 39.09 mln shares or about 18.2 pct of Xchanging following the placing.

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Paris shares end lower in line with US; banks down on Citigroup woes

The CAC-40 index finished down 35.80 points or 0.63 pct at 5,684.62. Among CAC-40 stocks, 8 closed higher and 32 closed lower. On the Matif, November CAC-40 futures were trading at 5,658. On the broader indices, the SBF-80 index closed down 71.58 or 1.05 pct at 6,745.44 and the SBF-120 ended 28.57 or 0.69 pct lower at 4,138.96.
  
In Paris, shares throughout the financial sector came under pressure in view of Citigroup's difficulties, with Dexia down 0.71 eur or 3.58 pct at 19.13, Societe Generale shedding 2.31 or 2.13 pct to 106.34, BNP Paribas dropping 1.17 or 1.64 pct to 70.35, and insurer AXA off 0.52 or 1.73 pct at 29.52.
   
The cautious mood was exacerbated by a number of downbeat broker notes, notably from Bear Sterns in the US, which cut its earnings estimates for all French banks.
   
The broker also cut its stance on Societe Generale to 'peer perform' from 'outperform', citing "rising investor risk aversion and a less favourable long-term growth outlook."
   
Separately, Deutsche Bank cut its target for Dexia to 22.0 eur from 23.5 previously, highlighting an increased risk on costs at the bank's US credit-enhancing subsidiary FSA.
       
Cyclical stocks also suffered amid the renewed fears about the full impact of the summer's troubles on the credit markets. In the auto sector, Peugeot SA fell 2.04 or 3.26 pct to 60.48, Renault SA slipped 2.40 or 2.17 pct to 107.97 and Michelin gave up 1.00 or 1.12 pct to 87.90. Peugeot-owned car parts maker Faurecia, meanwhile, plunged 3.13 or 5.32 pct to 55.69.
   
But EADS was the biggest bluechip faller, dropping 0.88 or 3.84 pct to 22.01, after announcing bigger than expected charges of 1.2-1.4 bln eur for its delayed A400M plane.
   
Exane BNP Paribas analysts cut their target on the defence group to 21 eur from 22 eur, noting that "although everyone was expecting supplementary charges, the amount of these charges remains surprisingly high. We were expecting supplementary costs of only 400 mln eur, so that's 1 eur per share more than our forecasts."
   
Air France-KLM was another major faller, giving up 0.56 or 2.26 pct to 24.18, as high oil prices raised concerns about increased fuel costs for airlines.
   
Conversely, steep crude prices helped oil major Total trade ahead of the market, closing down just 0.05 or 0.09 pct at 54.37.
   
On the upside, investors looked to typical defensive stocks given the nervousness about subprime fallout. Utilities Suez, up 0.76 or 1.68 pct at 45.90, Veolia Environnement, 0.77 or 1.24 pct higher at 63.01, and Gaz de France, up 0.17 or 0.43 pct at 39.42, were among the rare bluechip risers.
   
Another CAC-40 gainer was STMicroelectronics, up 0.17 or 1.46 pct at 11.83, after the group announced the finalisation of a 3G chipset deal with Nokia. "Basically, with STMicro, there's very little risk," a Paris-based dealer commented. "The share is already lagging behind sector peers and today's news is another plus."
   
Elsewhere, Klepierre climbed 0.24 or 0.68 pct to 35.64, helped by an upgrade to 'buy' from 'neutral' at UBS. In a note this morning, the broker reiterated its target of 43.50 eur and said Klepierre offers attractive low risk growth.
   
Back in negative territory, Bic fell 0.42 or 2.68 pct to 51.47 after Deutsche Bank cut its stance to 'hold' from 'buy' and lowered the target to 57 eur from 60 eur, citing disappointing third quarter results.

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German shares close lower as credit market woes hit banks, Wall St falls

The DAX was down 41.94 points, or 0.53 pct, at 7,807.55 after trading between 7,779.97 and 7,830.92 today. The MDAX fell 159.99 points or 1.54 pct to 10,259.53, while the TecDAX dropped 7.52 points or 0.74 pct to 1,002.63 points. DAX futures lost 62.50 or 0.79 pct to 7,847.00, while, while bund futures added 0.12 or 0.11 pct to 113.90.
  
Worst hit by the negative financial news, Deutsche Postbank dropped 2.25 eur or 4.77 pct to 44.90 eur as the worst blue-chip performer. Germany's largest pure retail bank is due to release third-quarter earnings on Friday.
   
Shares in Germany's largest bank, Deutsche Bank, slipped 1.84 eur or 2.11 pct to 85.16 eur, while Hypo Real Estate shares were down 1.14 eur or 2.91 pct at 38.10 eur. Commerzbank, meanwhile eased 0.32 eur or 1.16 pct to 27.19 eur.
   
Shares in Volkswagen dropped 4.08 eur or 2.14 pct to 187.01 eur after a report in Der Spiegel said that Porsche AG plans to delay increasing its stake in Europe's largest automaker to over 50 pct because of the resistance from workers' councils and the current strength of Volkswagen's share price.
   
Munich Re shed 2.40 eur or 1.84 pct to 128.23 eur after the world's second-largest reinsurer released third-quarter figures this morning which came in very close to expectations, but offered no big surprises.
   
Metro shares were 0.49 eur or 0.77 pct to 63.03 eur after Euro am Sonntag reported that the retailer is not in talks to sell its Kaufhof unit to MDAX-listed Arcandor.
   
At the other end of the DAX, BMW rose 0.56 eur or 1.27 pct to 44.80 eur ahead of earnings expected tomorrow. Third-quarter pretax profit is seen at 881-984 mln eur, compared with 720 mln in the year-earlier quarter, according to analysts. Net profit likely rose to 628 mln eur from 452 mln.
   
Siemens added 0.56 eur or 1.27 pct to 44.80 eur on speculation that the electronic giant's fourth-quarter numbers will be strong and that it might widen its margin targets in key segments for the coming business year.
   
In addition, traders said investors were turning to traditionally more solid stocks, like Siemens, due to renewed pressure on the banking sector.
   
Also benefiting as investors fled the banking sector to safer territory, Bayer added 0.36 eur or 0.64 pct to 57.01 eur, and BASF gained 0.56 eur or 1.27 pct to 44.80 eur.
   
Traders also attributed Bayer's climb to a media report that the pharmaceutical and chemicals giant is planning a massive cost-cutting programme in its material science unit aimed at saving up to 400 mln eur in costs.
       
Over on the MDAX, Lanxess fell 1.89 eur or 5.69 pct to 31.30 eur. EADS declined 0.87 eur or 3.80 pct to 22.02 eur after the group announced higher-than-expected charges related to delays in its A400M military aircraft programme and scrapped its 2007 guidance for earnings before interest and tax (EBIT).
   
Arcandor was 0.49 eur or 2.27 pct lower at 21.06 eur as traders pointed to rumours that the retailer may be hit by slumping pre-Christmas sales. Arcandor said it expects to report third-quarter operating profit that rose "significantly" from year-earlier figures, denying earlier speculation the company may issue a profit warnings.
       
Over on the TecDAX, Solarworld fell 2.04 eur or 4.40 pct to 44.37 eur as the worst performer on the index after analysts said sales for the third-quarter released today came in under expectations.

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Amsterdam shares close lower; pressured by financials Fortis and Aegon

The AEX closed down 3.23 points or 0.60 pct at 534.02 after opening at 534.26 and trading in a range of 531.48-535.79. Government bonds traded mixed and the euro stood at 1.4465 usd versus 1.4496 usd late Friday.
   
All financials traded lower, led down by Fortis which fell 2.45 pct to 19.87 eur, while Aegon shed 1.52 pct to 13.65 and ING slipped 0.77 pct to 29.62. All three are due to report third quarter results this week.
   
But it was Corporate Express which led AEX decliners, falling 3.83 pct to 8.03 ahead of its third quarter results due tomorrow.
   
TNT fell 2.76 pct to 27.81 amid news late Friday the company and trade unions were considering the extension of the present workplace accord. Collective Labour Agreement until April 2008. In Germany, coalition parties continued to debate minimum wages for postal workers, a proposal which could lower cost advantages currently enjoyed by TNT in the German market.
   
TomTom closed 2.39 pct lower at 53.00 eur amid uncertainty on whether it will raise its takeover bid for Tele Atlas and reports it had not bought Tele Atlas shares on the market due to its takeover agreement with the digital map maker.
   
Akzo Nobel fell 0.93 pct to 56.72 as shareholders voted in favour of its acquisition of ICI. DSM slipped 0.39 pct lower to 38.25 amid news the company's Venturing unit invested in US probiotics company Ganeden Biotech.
   
Philips bucked the trend, however, gaining 1.93 pct to 29.52, while Randstad put on 0.77 pct to 36.88 and ASML gained 0.71 pct to 24.00.
   
Among midcap gainers, BinckBank led the way up, gaining 3.09 pct to 16.31 eur. Nutreco -- which was hosting an investor day in the US -- closed 1.80 pct higher at 46.31 after it said it has signed a letter-of-intent to buy the feed and meat assets of Spain's Copaga.
   
But midcap IT company Ordina fell sharply, losing 4.63 pct to 12.95 amid reports it is having trouble meeting its full-year 2007 targets. Ordina later issued a statement reiterating its outlook.

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