UK/Euro Financial Market Daily Evening Briefing 07-02-2008

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London shares close sharply lower; Glaxo falls 7.6 pct; Wall Street down

At the close, the FTSE 100 index was 151.3 points, or 2.6 pct, lower at 5,724.1, just up from the day's low of 5,708.8. The FTSE 250 index fell 140.3 points today to close at 9,764.2.

Volume was average with 2.73 bln shares having changed hands in 811,137 deals.

As expected, the Bank of England set aside concerns about rising inflation to cut its benchmark Bank rate by a quarter point to 5.25 pct at midday.

However, it disappointed some investors, who had hoped for a cut of 50 basis points.

Jimmy Yates, dealer at CMC Markets, said: "The Bank of England arguably couldn't win today - consensus was that a quarter point cut would be seen and indeed that's what happened. Some may have been calling for a 50 basis point drop to stimulate the economy but if this had been seen, many would have simply interpreted it as a panic measure and it's difficult to see how equities could have fared much better.

"As a result of this, the FTSE has taken a beating this afternoon, adding to this morning's woes from the generally lacklustre earnings data."

In the US, stocks opened lower as investors, already concerned about technology spending after the Internet networking supplier Cisco Systems' dreary outlook, winced at gloomy sales reports from the nation's major retailers.

Late on Wednesday, Cisco reported quarterly results that met analysts' expectations, but issued a 10 pct sales growth forecast for its current quarter that fell well below the 15 pct Wall Street projected.

Today, Wal-Mart Stores Inc reported a 0.5 pct rise in January same-store sales, or sales at stores open for at least a year, compared with expectations of a rise of 2 pct.

As the London markets were closing, the Dow Jones Industrial Average was 45 points lower at 12,153. The S&P 500 was 2.95 lower at 1,323.5. The Nasdaq Composite was down 10.85 at 2,267.9.

Turning to the UK blue chips, drugs giant GlaxoSmithKline was a major drag on the FTSE 100, down 89 pence, or 7.6 pct, at 1,078. The company lowered its 2008 EPS outlook to a mid-single digit decline, against market hopes of flat to slightly ahead, while announcing its full-year results.

The company reported full year sales of 22.7 bln stg, compared with 23.2 bln last time, with the effect of diabetes treatment Avandia's regulatory problems felt in the fourth quarter.

Yellow Pages publisher Yell was the biggest faller, closing 50-1/4 pence, or 15.2 pct, at 282-1/2 as it warned its revenues will be just short of expectations due to the toughening of UK market conditions.

In reaction, Merrill Lynch downgraded the group to 'neutral' from 'buy'.

Also after earnings news, BT Group was off 25-3/4 at 237 after it reported below-consensus third quarter revenue as its wholesale division was hit by lower transit and premium rate services revenues, although margins at its key growth Global Services division improved.

Jet engine maker Rolls-Royce Group fell 49 to close at 431 after it said it was increasing its payments to shareholders in 2007 by 35 pct as it reported a 13 pct rise in full-year underlying pretax profit to 800 mln stg. Analysts including Cazenove said the rebased dividend was at the low end of expectations.

Knorr soup maker Unilever fell 57 to 1,598 after initial excitement over its results gave way to disappointment on its 1.5 bln eur share buyback programme, which some investors had hoped would be bigger.

Alliance & Leicester tumbled 65, or 10 pct, to close at 588 pence on reports that Banco Santander's chairman Emilio Bolton played down the chances of a bid.

Talk of a bid from the Spanish giant has been a major factor in propping up A&L shares in the last few months and the two companies had discussions in December. Analysts said that, like other banks, A&L may have also been hit by today's rate cut not being bigger. Royal Bank of Scotland fell 13-3/4 to 364-1/4.

In M&A news, Rio Tinto was down 195 at 5,222 and BHP Billiton closed 51 lower at 1,469 as traders took the view that BHP's attempt to take over its smaller rival will be a protracted affair.

The weakness in equity markets saw Alliance Trust mark its debut in the FTSE 100 by falling 8-3/4 to 340-3/4.

Only eight FTSE 100 shares finished in positive territory, and only three rose more than 1 pct. BG Group remained in top spot, up 41 at 1,118 as the gas producer delivered increased earnings in the fourth quarter, ahead of analysts' expectations, prompting Merrill Lynch to reiterate its 'buy' stance.

Clean net profit for the three months to December rose to 558 mln stg from 410 mln a year earlier, ahead of the consensus estimate of 519 mln stg, thanks to increased production and better performance of the group's liquefied natural gas business.

Medical devices mmker Smith & Nephew closed up 9 pence at 634 as full-year sales of 3.4 bln usd beat consensus of 3.31-3.38 bln.

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Thomas Cook rose initially but closed 1-1/4 lower at 268, after being raised to 'buy' from 'hold' at Investec. It said the company's balance sheet is strong and a 375 mln stg cash return should support the shares, which now look under-valued.

It increased its target to 326 pence, from 316.

Peer TUI Travel was down 1-3/4 at 250-1/4 having suffered a downgrade to 'hold' from 'buy' from the same broker.

Of the second-liners, Dimension Data was 3 lower at 50-3/4, in the wake of Cisco's results.

Transport group Arriva was off 46 at 690-1/2, with Morgan Stanley lowering its stance on the group to 'equal-weight' from 'overweight' with a price target cut to 805 pence from 905 pence.

Its peer Stagecoach was down 16-1/4 at 235-1/2.

Switching from buses and trains to cars and bikes, Halfords fell 9 to 270-1/4 after it announced the departure of chief executive Ian McLeod with its trading update, which pointed to slowing underlying sales in the second half, though Merrill Lynch reiterated its 'buy'.

Signet was 2-1/4 lower at 61-1/2 after the Anglo-American jewellery retailer reported a 6.7 pct decline in like-for-like sales in the fourth quarter covering the 13 weeks to Feb 2, and Investec reiterated its 'hold' rating and 60 pence price target.

On the upside, Invensys remained the top riser, up 23-1/4 at 246-1/2 after the company reported what Merrill Lynch called "solid" third quarter results and gave a positive outlook, which prompted the broker to repeat its 'buy' stance.

The engineering and controls company posted a lower third-quarter pretax profit but said it is confident of progress in the final quarter on strong end markets and its efforts to maintain profitability.

Aquarius Platinum Ltd rose 24 to 706, after it said its first-half net profit rose 25 pct on higher precious metal prices.

Net profit grew to 106.6 mln usd in the six months to end December from 85.4 mln in the year-earlier period, as revenue increased 28 pct.

Enodis rose 1-3/4 to 145-1/2 after it said its full-year expectations remain unchanged and reported a 14 pct increase in like-for-like revenues in food equipment, with positive structural changes in the industry continuing to drive demand.

Merrill Lynch reiterated its 'buy' stance and target of 235 pence.

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Northern Rock was 4 higher at 102 on ongoing bid talk. The Telegraph reported the group's plans to cut its 113 bln stg mortgage book in half under its in-house rescue plan to see off a rival proposal from Sir Richard Branson's Virgin Group.

Finally, online gaming company 888 Holdings marked its promotion to the FTSE 250 by rising 2 pence to 122 pence.

UK Diary of Event:
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UK Small Cap Report:
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Paris shares close down as ECB, Wall St offer little comfort

The CAC-40 index finished down 92.63 points or 1.92 pct at 4,723.80.

Among CAC-40 stocks, 1 closed higher and 39 closed lower. On the Matif, February CAC-40 futures were trading at 4,728.

On the broader indices, the SBF-80 index closed down 109.61 or 1.99 pct at 5,398.54 and the the SBF-120 ended down 67.39 or 1.93 pct at 3,421.02.

The euro was quoted at 1.4484 usd compared to 1.4650 usd late yesterday.

In Paris, cyclical stocks bore the brunt of the negative mood. In the auto sector, Michelin gave up 2.63 or 4.23 to 59.56, Renault dropped 3.01 eur or 4.21 pct to 68.45, and Peugeot slipped 1.56 or 3.21 pct to 47.06.

Renault was also hit by Merrill Lynch's decision to remove the car maker from its Europe 1 focus list.

Vallourec shares continued yesterday's heavy losses that had followed its cautious guidance for 2008. The seamless tube maker ended today's session down 5.50 or 4.24 pct at 124.12.

In contrast, France Telecom rose 0.82 or 3.63 pct to 23.42 to end as the sole bluechip in positive territory. The telecoms group had surged just after this morning's open following comments from Bruno Bezard, general manager of the French Government Shareholding Agency (APE), who said a sale of all or part of the state's shares in the telecoms group "is not on the agenda".

Rumours of an impending stake sale had been mounting in recent days, weighing on the share's performance. But with the threat now removed, at least temporarily, investors reacted positively to yesterday's strong full-year earnings publication.

The shares were also lifted by news its Orange mobile telephone unit has won rights to broadcast Saturday French football league games, breaking the monopoly on live games held by Vivendi's Canal Plus.

Despite the competitive threat, Vivendi shares traded ahead of the market as investors welcomed news Canal Plus has paid less than anticipated for its share of the league football rights.

Vivendi ended down 0.10 or 0.38 pct at 26.55.

Elsewhere on the CAC-40, property group Unibail-Rodamco lost 4.44 or 2.76 pct to 156.59, giving up some of its recent strong gains, as the group's strategic update failed to inspire and a shock impairment charge weighed on the combined group's maiden net profit.

Analysts at Rabo Securities said the 1.335 bln eur impairment charge following the merger was not expected and said group net asset value NAV came out at 169,30 eur per share, slightly below consensus 173.24 eur.

Tech stocks also suffered today, affected by disappointment with Cisco Systems' sales guidance for the current quarter.

Capgemini fell 1.80 or 4.89 pct to 34.99, STMicroelectronics was down 0.37 or 4.42 pct to 8.01, and Alcatel-Lucent shed 0.18 or 4.18 pct to 4.13 on the eve of its full-year results,

Outside the CAC-40, Legrand added 0.10 or 0.50 pct to 20.23, paring earlier gains after the French electrical equipment maker exceeded expectations with its full-year earnings report.

Natixis Securities analysts said they were positively surprised by Legrand's 17.5 pct operating margin, higher than the 17.3 pct forecast.

Luxury goods group Hermes International rose 1.23 or 1.79 pct to 69.90 after topping consensus with its 2007 revenues. The company's organic sales growth of 10.8 pct also comfortably beat its own target range of 8.5-9.5 pct.

On the downside, marine services specialist Bourbon SA plunged 3.28 or 7.92 pct to 38.16 amid concerns over the impact of a weakening dollar, and over the outlook for oil-related stocks in the wake of Vallourec's disappointing comments yesterday.

Today's fourth quarter sales publication revealed a slowdown in growth to 13.9 pct from 35 pct in the previous quarter, due to a substantial negative impact from the weakening dollar. The group also warned business will continue to be affected generally by fluctuations in the euro/dollar parity.

Another sharp faller was Bollore, which dropped 4.35 or 3.49 pct to 120.20 UK advertising trade magazine Campaign reported that the French group is readying a bid for Aegis Group, in which it is the largest shareholder but has yet to win board seats.

Contacted by Thomson Financial News, Bollore declined to comment on the report, which sent Aegis shares higher in London.

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German shares close lower, Deutsche Bank comments add to woes

At the close, the DAX was down 113.79 points or 1.66 pct at 6,733.72 points, having traded in the 6,655.65-6,839.16 range.

The MDAX lost 194.86 points or 2.22 pct to 8,592.43 points, while the TecDAX slipped 32.74 points or 4.12 pct to 761.25 points.

DAX futures fell 42.50 points or 0.62 pct at 6,760.50 points, while bund futures added 0.07 points or 0.06 pct at 117.18 points.

The euro was trading at 1.4490 usd, compared with 1.4533 usd in afternoon deals.

On the Frankfurt trading floor, Infineon led decliners, plummeting 0.91 eur or 13.58 pct to 5.79 eur as dealers said investors were especially worried about the chipmaker's outlook for 2008, specifically at its COM division, after the company released first-quarter numbers showing a loss of 396 mln eur.

"The first-quarter numbers were not bad and the outlook for 2009 is also not a problem; it is the 2008 outlook, and above all, the COM unit portion of this that is troublesome to investors," said Frank Schneider, analyst at Alpha Trading.

Investors were also unsettled by the losses at memory unit Qimonda AG, which continued to burden Infineon's bottom line.

MAN shares were also in the red, dropping 5.91 eur or 6.98 pct to 78.78 eur, erasing yesterday's gains after the heavy truck manufacturer posted strong full-year results which pushed the stock up over 4 pct at close.

Hypo Real Estate was 0.91 eur or 4.81 pct lower at 18.01 eur, while Continental lost 2.41 eur or 3.60 pct at 64.56 eur.

Deutsche Boerse also shed 3.78 eur or 3.33 pct to 109.60 eur, as one of the day's worst underperformers.

At the other end of the DAX, Deutsche Postbank added 0.89 eur or 1.56 pct at 57.89 eur, extending yesterday's gains due to renewed merger speculation after Deutsche Bank AG's chief executive Josef Ackermann confirmed that his bank is interested in working together with Germany's largest retail bank.

Ackermann's statement came one day after Financial Times Deutschland said Postbank's parent company Deutsche Post World Net AG has held talks about merging the bank with another major European bank, which sent the share price soaring.

Deutsche Bank was 0.27 eur or 0.36 pct stronger at 75.27 eur, going on a bit of a roller-coaster ride today after Germany's largest bank posted full-year figures which came in better than expected.

"The figures are a bit jumbled: profits and commission and fee income are better than expected, while trading profit and personnel costs were a bit worse," said a local trader.

"The bright spot is that Deutsche Bank wrote off less than 50 mln eur in the fourth quarter and that they plan to increase their dividend by 0.50 eur to 4.50 eur," he added.

Metro lost 0.18 eur or 0.33 pct at 54.59 eur, but outpaced the slumping market after UBS upgraded the German retail giant to 'buy' from 'neutral', leaving its price target unchanged at 65.00 eur per share.

Over on the MDAX, Kuka slumped 1.65 eur or 7.56 pct to 20.18 eur, posting the measure's biggest decline, after investors punished a drop in fourth-quarter sales and new orders at the machinery maker, despite the company's return to profitability.

Premiere slid 0.68 eur or 5.06 pct at 12.75 eur after Unicredit reduced its stance on the pay-TV provider to 'buy' from 'sell' and reduced its price target to 12.80 eur per share from 17.50.

Wacker Chemie dropped 6.97 eur or 5.01 pct to 132.11 eur as an industry-wide underperformance in the solar energy sector hit the chemicals company, which among other things supplies silicon to make solar panels.

At the other end of the index, Norddeutsche Affinerie rose 0.91 eur or 3.11 pct to 30.21 eur on vague rumours that Russian nickel giant JSC MMC Norilsk Nickel might be mulling a 35 eur a share bid.

TecDAX-listed Conergy lost 2.40 eur or 18.24 pct to 10.76 eur as the worst performer in its index after Deutsche Bank cut its stance on the solar energy specialist to 'sell' from 'hold' and lowered its target to 10 eur from 25 eur.

Wirecard, meanwhile, added 0.22 eur or 2.10 pct to 10.72 eur, as one of three gainers on the TecDAX.

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Amsterdam shares close lower on economic worries; Corporate Express gains

The AEX closed down 10.18 points or 2.30 pct at 432.15, after opening at 438.94 and trading in the range 428.94-440.19.

Government bonds traded mainly higher, while the euro stood at 1.4499 usd compared with 1.4632 usd late yesterday.

ING analyst Peter Vanden Houte said that although the ECB kept rates unchanged today, cracks in its hawkish posture have appeared and "we have reasons to believe that the ECB has dropped its underlying tightening bias".

"It has become very clear that the ECB has started to worry about the growth outlook," he added. Out of just three AEX gainers, Corporate Express led the way, putting on 4.80 pct at 35.62 eur after the CEO refused to deny that the company is in takeover talks.

Corporate Express also reported fourth-quarter EBIT at the top of the range of expectations as the North American business resumed year-on-year sales growth.

At the other end of the index, Randstad fell 5.01 pct at 23.15 eur, unhelped by takeover target Vedior which outperformed, losing 1.07 pct at 15.67 after it reported fourth-quarter numbers ahead of forecasts.

DSM fell 3.71 pct at 28.32 eur in profit taking after strong gains yesterday amid speculation about the value of the company's coal mining concessions. It was also upped to 'buy' from 'neutral' at Goldman Sachs.

Peer Akzo Nobel fell 2.58 pct at 47.51 eur as Goldman Sachs cut its price target to 56 eur from 60.

ASML fell 3.58 pct at 16.98 as US stock Cisco issued a 10 pct sales growth forecast for its current quarter that fell well below the 15 pct Wall Street projected.

Anglo-Dutch food and soap maker Unilever fell 2.91 pct at 21.03 as analysts noted some investors would be disappointed about the size of its share buyback after it reported full-year results in line with market expectations.

Unibail-Rodamco fell 2.76 pct at 156.59 eur as a shock impairment charge weighed on the combined group's maiden net profit and as the group's strategic update failed to inspire, market sources said.

Royal Dutch Shell fell 2.53 pct at 23.09 amid news it has secured 275 oil and gas leases offshore Alaska for 2.1 bln usd.

On the midcap, Fugro fell 5.20 pct at 43.61 eur. Smallcap stock Exact fell 1.90 pct at 26.88 after initially gaining as it posted a full-year net profit in-line with expectation and gave a "good" outlook for 2008, analysts said.

Among AEX gainers, TomTom rose 1.71 pct at 35.62 eur after strong fourth-quarter results from Navteq, a US rival to TomTom's takeover target Tele Atlas. Fortis also upped its rating on TomTom to 'buy' from 'hold'.

Local issue Prologis European Properties gained 1.72 pct at 9.44 as it reported a sharp fall in net profit for the fourth quarter, due largely to property revaluations, but said it will be able to outperform the industry going forward.

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