UK/Euro Financial Market Daily Evening Briefing 07-06-2007

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London shares close lower; NY remains weak; Construction sector down
 
Leading shares closed lower, off highs as Wall Street remained weaker with the UK construction sector down on concerns the Bank of England's decision to keep interest rates unchanged has upped the risk of a further hike by the end of the year, dealers said.
   
By close the FTSE 100 index was 17.6 points lower at 6,505.1 off an early peak of 6,574.9, while the FTSE 250 index ended 156.1 points lower at 11,626.3. Volume was hefty with 3.85 bln shares changing hands in 687,824 deals.
   
Across the pond, Wall Street remained lower as rising bond yields pointed to higher interest rates that may slow economic growth and hurt corporate profits, with a disappointing sales performance from Wal-Mart Stores in May reflecting a generally lacklustre month for retailers.
   
By London's close the Dow Jones Industrial Average index was 65.6 points lower at 13,400.1, while the Nasdaq Composite index was 16.54 weaker at 2,570.64.
   
On the US economic front, the Labor Department reported that first-time claims for US unemployment insurance fell for the second week in a row. For the week ended June 2, seasonally adjusted new claims fell by 1,000 to 309,000.
   
The number came in just about where economists were expecting, the first time that's happened in several weeks. The consensus forecast was for no change at 310,000.
   
Turning to the UK blue chips, home construction stocks were under pressure after news the Bank of England kept its key repo rate unchanged at a six-year high of 5.50 pct.
   
According to the Royal Institute of Chartered Surveyors the decision to keep interest rates unchanged at 5.50 pct has increased the risk that rates will reach 6 pct by the end of the year.
   
Land Securities Group shed 65 or 3.57 pct at 1,757, Persimmon fell back 47 or 3.65 pct at 1,240 and Hammerson lost 39 at 1,473.
   
Elsewhere, Kelda Group was also one of the biggest casualty in blue chip fallers, shedding 8 at 968-1/4 after its full year results failed to excite. Kelda reported full-year pretax profit from continuing operations up to 241.2 mln stg from 224.3 mln stg on revenue up 6.5 pct to 878.9 mln stg, in line with expectations.
   
Fellow utilities Drax Group and International Power fell back in sympathy, 22 lighter at 747-1/2 and 9-1/2 weaker at 429-1/2 respectively. Broadly in-line full year results also engendered some profit-taking in Johnson Matthey, down 5 at 1,595-1/2.

Lafite 1998:  06-07.. +91%  v  House Price Index:  06-07..  +7%
Latour 1996: 06-07.. +72%  v  Dow Jones:  06-07..  +14%
Liv-ex 100:   06-07.. +45%  v  Ftse 100:  06-07..  + 9%
CGT - 0% vs CGT- 40%

Source: The Times, December 2006. Free Information Pack Click Here

The UK specialty chemicals and precious metals group reported full year pretax pre-exceptional profit of 242.6 mln stg, a rise of 10 pct over last year, broadly matching consensus forecasts of 242 mln stg.
   
BAE Systems lost 10-1/4 at 428-1/4 after the BBC and the Guardian reported the firm had made regular payments to Saudi Prince Bandar bin Sultan totalling more than 1 bln stg.
   
They said the payment was in connection with Britain's biggest ever arms deal, and cited insider legal sources.
   
In reaction, the defence group issued a statement saying it denied "all allegations of wrongdoing in relation to this important and strategic programme", adding it will "abide by the duty of confidentiality imposed on us by the agreement".
   
Bradford & Bingley shed 10-1/4 at 397-1/4 after FTSE indices confirmed last night that the stock will exit the FTSE 100 index following the latest quarterly review, to be replaced in the top flight by housebuilder Barratt Developments.
  
On the upside, there were only a handful of blue chips risers at close.
   
Vodafone was the top riser, up 3.3 pence at 158.5 after it confirmed it has received a letter from Efficient Capital Structures -- an activist investment group backed by Beehive Capital -- asking the company to submit a number of resolutions about potential restructuring options at its AGM on July 24. News of the request added weight to recent speculation the group may sell assets or be taken over.
   
Cazenove said Vodafone's size makes a takeover difficult to envisage, but recent talk highlighted the significant valuation attractions of Vodafone. The telecoms giant said it will review Efficient Capital Structures' request and make a further announcement in due course.    
   
Elsewhere, GlaxoSmithKline continued yesterday's rally after recent sharp falls, caused by worries about its diabetes treatment Avandia. Shares in Glaxo were up 27 at 1,299 today, with Collins Stewart repeating its 'buy' stance again.
   
Commodity stocks also added muscle to blue-chip gains, recovering after a recent sell-off, helped by slightly firmer commodity prices and vague M&A speculation.
   
BHP Billiton added 23 at 1,286 amid talk of bid interest from a Chinese company, while peer Vedanta Resources was 13 better at 1,503 and Royal Dutch Shell took on 21 at 1,972.
  
Turning to the second liners, FKI led the fallers, down 17-1/4 at 119-1/2 amid profit-taking following recent bid speculation. The engineering firm today declared it will focus on its energy sector activities going forward and is set to "separate" its Hardware and FKI Logistex arms following a strategic review. However, it did confirm it has been in "active discussions" with a number of parties regarding the sale of the group as a whole.
   
The group made the announcements alongside its full-year results, which saw its pretax profit land in line with market expectations of 65.3 mln stg compared with 70.5 mln last time.

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Elsewhere, shares in interdealer broker Tullett Prebon lost 12-1/2 at 473 after a cautious AGM statement.
   
The firm said the weak dollar will reduce revenue growth in the first half of the year as it confirmed plans to keep investing in its electronic trading platform, Tradeblade.
   
And shares in Premier Foods were 7-1/2 lower at 301-3/4 after UBS downgraded the group to 'neutral' from 'buy' by UBS with a target of 340 pence.
   
UBS pointed out that Premier Foods has a lot of ground yet to cover in terms of executing the Campbell's/RHM integrations and dealing with operating challenges.
   
On the upside, Halfords was the top mid-cap performer, up 22 or 5.96 pct at 391 after posting good full-year results, with Bridgewell Securities upgrading the stock to 'neutral' from 'underweight' in response.
   
The car parts and cycle retailer reported an expected 8.4 pct increase in underlying full-year pretax profit to 83.5 mln stg and a solid start to its new financial year.
   
Bridgewell pointed out that Halfords' full-year results were a touch ahead of both its own and the market's estimates.
   
Wincanton also moved higher after results, adding 8 at 385-1/2.
  
The logistics company reported pretax profits of 32.6 mln stg for the year to end-March against 31.3 mln stg in 2006, after a successful year of new business wins and contract renewals in the UK and Ireland.

UK Diary of Events

For a diary of key financial and corporate events in the UK this week, click here

UK Small Cap Report

For a summary of today's trading on the FTSE 250 and the AIM,  click here

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Paris shares close sharply down as rate worries continue to drive selling

The CAC-40 index finished down 87.38 points or 1.46 pct at 5,890.49. Volume for the day was 8.6 bln eur. Among CAC-40 stocks, 2 closed higher and 37 closed lower.  On the Matif, June CAC-40 futures were trading down 65.0 or 1.09 pct at 5,899.5.
   
On the broader indices, the SBF-80 index closed down 127.14 or 1.74 pct at 7,163.00 and the SBF-120 ended 65.72 or 1.50 pct lower at 4,303.41.
   
The biggest faller in today's market was chemicals group Rhodia which shed up to 13 pct in early deals, before paring losses to close down 0.19 eur or 6.46 pct at 2.75.
   
Observers struggled to explain the severity of the fall but dealers cited a number of factors, including talk of a profit-warning, rumours of G8 comments on carbon emission credits, a negative EC report on carbon emissions, and even a Le Figaro article about the high cost of carbon emissions to heavy polluters.
   
Rhodia issued a statement saying "it has no information in its possession that could justify the rumours behind the movement in its share price this morning," before announcing shortly before close of trading that it has requested an investigation from financial regulator AMF into the share price movements.
   
Nexity gave up 2.31 or 3.55 pct to 62.68, adding to yesterday's heavy losses. A Paris-based dealer attributed the drop to a correction following recent gains in the property sector, partly fuelled by the French government's promise to introduce tax breaks for interest paid on property loans.
   
Elsewhere in the sector, Gecina was also down 3.55 or 2.69 pct at 128.26 while Fonciere des Regions dropped 4.15 or 3.50 pct to 114.40.
   
On the CAC-40, Suez -- down 1.55 or 3.76 pct at 39.71 -- and Gaz de France -- off 0.98 or 2.75 pct at 34.70 -- led the downward movement at the end of the session. Increasing doubts over the likelihood of their merger going ahead has reduced the speculative appeal of Suez and GDF.
       
Alstom, another speculative favourite in recent weeks in view of rumours of a possible tie-up with Areva and Bouygues, fell 3.19 or 2.73 pct to 113.64. Second-liner Areva ended down 21.81 or 2.89 pct at 733.19, while Bouygues outperformed the market to close off 0.45 or 0.70 pct at 64.06.
   
The conglomerate was lifted by the news that JP Morgan and HSBC have become the latets brokers to lift their price targets after the group's strong quarterly results, with both houses cheering the profit margins at the telecoms business.
   
Banking stocks, meanwhile, mostly saw profit-taking as one of the sectors most vulnerable to interest rate rises. Dexia was down 0.52 or 2.21 pct at 22.97, Credit Agricole was off 0.61 or 2.02 pct at 29.59, and BNP Paribas shed 1.11 or 1.28 pct to 85.86.
   
Societe Generale fared better, inching down 0.11 or 0.08 pct to 139.50. Board director Luc Vandevelde was reported as saying that Societe Generale should play a leading role in sector consolidation, reviving speculation over a future tie-up.
   
Total also traded ahead of the market, closing down 0.10 or 0.18 pct at 55.50, as oil prices rose on news that refinery production in the US fell last week just as the peak driving season is starting.
   
Electricite de France (EDF) was the biggest riser on the CAC-40, adding 0.60 or 0.90 pct to 67.27. The energy group was lifted by a note from Dexia analysts, who raised their target to 60 eur versus 45.6, saying drivers include the prospect of longer lifetimes for nuclear plants and a phasing out of regulated tariffs.
   
The only other bluechip climber was Renault, which added 0.26 or 0.24 pct to 109.14.

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German shares close lower tracking Wall Street losses

The DAX was down 111.44 points, or 1.44 pct, at 7,618.61, while the MDAX lost 189.79 points, or 1.75 pct, to 10,665.65. The TecDAX shed 11.23 points, or 1.26 pct, to 882.02. DAX futures were down 69.00 points, or 0.90 pct, at 7,635 while bund futures lost 0.36 points, or 0.32 pct, to 111.34.
  
On the Frankfurt trading floor, heavyweight EON fell 3.07 eur or 2.64 pct to 113.34 to lead blue chips lower.  Commerzbank followed, shedding 0.91 eur or 2.50 pct at 35.45.
   
Bayer declined 1.25 eur or 2.35 pct to 51.85. The company's Bayer Schering Pharma unit is planning to end research and development for the so-called "pill for men", a spokesman for Bayer told Thomson Financial News, confirming a report in German newspaper Tagesspiegel.
   
Hypo Real Estate lost 1.11 eur or 2.22 pct to 48.96.
   
Volkswagen was also in negative territory, down 2.45 eur or 2.19 pct at 109.43. The company is denying a report it is likely to acquire a 51 pct stake in a unit holding the assets of Proton Holdings Bhd.
   
Bucking the trend, Deutsche Post added 0.25 eur or 1.05 pct to 23.96, as the only winner on the index today, after the stock was confirmed as 'overweight' by HSBC, dealers said.
   
Adidas also outperformed the market, dropping 0.11 eur or 0.24 pct to 45.27, followed by Infineon, which shed 0.03 eur or 0.26 pct to 11.34.
   
Also among outperformers, DaimlerChrysler dropped 0.28 eur or 0.43 pct to 64.49, while retailer Metro lost 0.32 eur or 0.52 pct to 61.26.
   
On the MDAX, Kloeckner & Co dropped to the bottom of the index, declining 2.75 eur or 5.30 pct to 49.10, while Leoni rose to the top, adding 0.11 eur or 0.33 pct to 33.91.
   
Over on the TecDAX, AT & S declined 1.05 eur or 6.12 pct to 16.10 as the biggest loser of the day. At the other end, Kontron gained 0.15 eur or 1.16 pct to 13.05.

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Amsterdam shares close lower tracking Wall St; Ahold soars 

The AEX ended 2.46 points or 0.46 pct lower at 535.05, after trading in a range of 533.91-540.96. Government bonds traded lower and the euro stood at 1.3461 usd versus 1.3494 usd late yesterday.
   
Ahold soared 7.28 pct to 9.73 eur as US investors in the late afternoon massively bought into the stock, welcoming the supermarket group's first-quarter numbers, with Dutch subsidiary Albert Heijn unit providing a surprise on the upside and making a good showing across all brands. Gainers were few.
   
ASML added 1.72 pct to 18.94 eur after an upgrade to 'outperform' at Sanford Bernstein, and after the company late yesterday announced that it expanded its credit facility by issuing 600 mln eur in bonds.
   
Royal Dutch Shell put on 0.46 pct at 28.45 eur and TomTom added 1.56 pct to 34.60 eur.
   
Financials were lower. Aegon shed 0.87 pct to 14.75 eur after news that its Chinese joint venture has been allowed by Chinese authorities to expand its insurance business in China. ING was down 1.12 pct to 32.60 eur, Fortis shed 1.30 pct to 30.34 and ABN Amro lost 0.17 pct to 35.35 eur.   
   
Heineken dropped 0.95 pct to 42.53 eur after gains earlier in the day on the back of a price target hike at Rabo Securities.
   
KPN dropped 0.73 pct to 12.27 eur amid news that the company may be faced with strikes at its call centres in the Netherlands.
   
Rodamco Europe shed 1.87 pct to 101.87 eur, SBM Offshore lost 1.97 pct to 26.41 and Wolters Kluwer led decliners, shedding 2.61 pct to 22.40 eur.
   
Among midcap shares, Crucell lost 2.21 pct to 16.41 eur, Ordina dropped 2.29 pct to 15.77, CSM shed 2.40 pct to 26.45 eur, while Tele Atlas lost 2.48 pct to 16.50 eur and Heijmans shed 3.23 pct to 44.32 eur, leading decliners.
   
There were few gainers. Getronics added 0.37 pct to 5.39 eur, ASMI added 0.63 pct to 19.04 and Van der Moolen led the pack, adding 1.03 pct to 3.94 eur.
   
On local markets, Pharming added 1.29 pct to 3.13 eur after the company announced that its subsidiary DNage published new findings in Nature magazine that will be applied to the development of ageing treatments.

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