UK/Euro Financial Market Daily Evening Briefing 08-06-2007

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London shares close absolutely flat after volatile session; NY rallies

Leading shares closed absolutely flat today after a pretty volatile session, taking a breather following sharp falls over the week with Wall Street registering a moderate rally helped by a narrowing of the US trade gap and soothing comments from a Fed official.
   
At the close, the FTSE 100 index was unchanged on last night's closing level at 6,505.1, off the midafternoon peak of 6,519.4, having hit a low late morning low of 6,451.4. The UK blue chip index dropped 157 points over the week. 
   
The broader FTSE indices all ended lower, with the FTSE 250 index down 42.7 points at 11,583.6 -- registering a 613 point tumble over the week. Volume was strong, with 3.759 bln shares changing hands in 662,553 deals.
   
On Wall Street, by London's close, the DJIA was 26.0 points higher at 13,292.70, rallying albeit after having lost about 410 points in the past three sessions. Meanwhile the Nasdaq composite index also recovered from recent sharp falls, up 11.82 points at 2,553.20.
   
US stocks rebounded, helped by news of a narrowing of the US trade deficit. The Commerce Department reported that the gap narrowed by 6.2 pct to 58.5 bln stg in April, after widening to a six-month high of 63.9 bln stg in March.
   
Comments from Chicago Federal Reserve President Michael Moskow, in an interview with CNBC, also helped to soothe the market. Moskow said inflation expectations are well-contained and the current benchmark interest rate is appropriate for now.
 
In London, strength in the oil majors helped bring UK blue chips back to an even keel today, with easier crude prices shrugged aside and broker comment holding sway.
   
Royal Dutch Shell shares stood out, adding 21 pence at 1,993 after Merrill Lynch upgraded its recommendation to 'buy' from 'neutral' with a price target of 2,150 pence on valuation grounds.
   
Merrill Lynch said that it feels, in the short-term, that Shell shares will be well supported by a strong refining backdrop and potential for positive surprise in the Gas & Power and Downstream segments. Peer BP benefited in sympathy, adding 1 pence at 563.
   
Elsewhere on the upside, positive broker comment also helped shares in Cable & Wireless gain 0.4 pence at 197.4 after JP Morgan initiated the company as 'neutral', with a price target of 217 pence.
   
JP Morgan noted that C&W is 1 year into a 5-year turnaround plan and, while it believes progress to date has been impressive, it feels there is a long way to go and the next milestone might not come until the company's first half results in November.
   
Meanwhile market heavyweight Vodafone extended recent strong gains, adding another 1.5 pence at 159.9 as talk of possible private equity interest in the mobile phone network operator circulated again.

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Retail giant Tesco was also higher, up 3 pence at 438-1/4 as investors assessed the firm's move to acquire Dobbies Garden Centres for 155.6 mln stg cash, with UBS positive on the move.
   
UBS said that while the acquisition is small, returns should exceed the weighted average cost of capital from the deal after year three given operational improvements and synergies. The broker repeated its 'buy' rating and 550 pence price target.
   
And selected banking issues recovered after the recent sell-off on interest rate uncertainties, with Northern Rock gaining 12 pence at 1,027 after being hit be a broker downgrade recently, with HSBC ahead 4 pence at 930-1/2, and Bradford & Bingley up 4-1/4 pence at 401-1/2 having suffered this week on news of imminent demotion from the blue chip index.
   
Royal Bank of Scotland was also a top FTSE 100 riser, up 9-1/2 pence at 657 helped by its recent upbeat trading statement and the ABN Amro bid situation.
   
But Lloyds TSB missed out on the sector rally, shedding 1-1/2 pence to 567-1/2 after its latest trading slightly disappointed investors. Lloyds TSB said that it had benefited so far this year from "good levels" of sales of insurance and investment products, offsetting "subdued" demand for unsecured personal lending.
  
Keefe, Bruyette & Woods said there was little in the Lloyds TSB update to move the share price and pointed out that, of the larger banks, the group has the greatest proportion of pretax profits eroded by unsecured credit. The broker maintained its 'underperform' stance and price target of 500 pence for Lloyds TSB.
   
Among other blue chip fallers, Rexam was the worst performer shedding 14-1/2 pence at 511-1/2 amid uncertainty over the possible equity funding of an acquisition.
   
The consumer packaging company today confirmed it is in talks with Owens Illinois to acquire Owens' plastics division and said the deals is likely to be funded from a combination of its glass disposal proceeds, debt and equity.
   
Blue chip fund managers were also weaker reflecting the likely impact of the equity market slide over the past few session, with Schroders shedding 26 pence at 1,309 and Invesco losing 3-1/2 pence at 579-1/2.
   
And weakness in mining issues also weighed on blue-chips, with the sector tracking fresh falls in base metals prices after a recovery yesterday -- Vedanta Resources lost 38 pence at 1,465, BHP Billiton dropped 18 pence at 1,268, and Kazakhmys shed 17 pence at 1,243.
   
On the second line, Renishaw was the biggest mid cap casualty, shedding 50-1/2 pence at 679-1/2 amid talk that Arden Partners has cut its estimates for the group following a meeting.
   
Elsewhere Northumbrian Water Group shed 10-3/4 pence at 313 after UBS cut the group to 'neutral' from 'buy' on valuation grounds in the wake of yesterday's full year results. UBS lifted its target on the company to 365 pence from 340.    

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Among the FTSE 250 gainers, HMV Group was a top performer, 4-3/4 pence higher at 110-1/4 on speculation that the firm could be closer to a disposal of its Japanese subsidiary, with Merrill Lynch noting talk of bids up to 163 mln stg.  

Merrill Lynch pointed out that a possible price tag of up to 163 mln stg or 40 bln yen would represent 39 pct of HMV's current market capitalisation.  The broker repeated its 'neutral' stance on the group.
   
FKI shares rallied 2-1/4 pence higher to 121-3/4 as rumours circulated that a bid for the firm from US giant General Electric could come as early as this weekend.
   
FKI confirmed yesterday, with its full year results and the outcome of a strategic review, that it had been in "active discussions" with a number of parties regarding the sale of the group as a whole.
   
FKI was also supported by Citigroup raising its price target to 130 pence from 110.
   
And SSL International shares took on 7-1/2 pence at 416-1/2 after Goldman Sachs upgraded its stance to 'neutral' from 'buy', with an increased price target of 432 pence from 260 following the company's full year results last month and a broker meeting with SSL management.

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Paris shares close down slightly; Wall St rise, M&A talk limit losses

The CAC-40 index finished down 7.20 points, or 0.12 pct, at 5,883.29. Volume for the day was 8.0 bln eur. Among CAC-40 stocks, 16 closed higher and 23 closed lower.  On the Matif, June CAC-40 futures were trading down 10.0, or 0.17 pct, at 5,899.5. On the broader indices, the SBF-80 index closed down 33.41, or 0.47 pct, at 7,129.59, and the SBF-120 ended 7.47 or 0.17 pct lower at 4,295.94.
   
Over the week, the CAC-40 has retreated 284.86 points or 4.62 pct after reaching a fresh six-and-a-half-year high of 6,168.15 last Friday.
   
Like other bourses, Paris was rattled by signs of interest rate rises ahead on both sides of the Atlantic, on top of this week's decision by the ECB to raise its key rate to 4.00 pct from 3.75 pct. But investors took heart today as yields on both US and European treasury bonds retreated after yesterday's sharp increase.
      
BNPP led bluechip gains, closing up 1.30 eur or 1.51 pct at 87.16, while SocGen added 0.75 or 0.54 pct to 140.25. Les Echos reported this morning that SocGen is working with two investment banks on a bid for BNPP and that a hostile approach has not been ruled out. SocGen refused to comment on the claims it is mulling a bid, saying it was just "one more rumour", while dealers and analysts were highly sceptical over the talk.
   
La Lettre de l'Expansion reported, without citing sources, that Capgemini has mandated BNP Paribas to launch an offer for Atos, to be financed by Societe Generale. But analysts were doubtful again and the shares were not significantly affected by the report, with Capgemini closing down 0.07 or 0.13 pct at 52.88, and Atos Origin shedding 0.23 or 0.51 pct to 44.76.
   
A spokeswoman for Capgemini refused to comment on the speculation, but stressed the group has just come out of a period of heavy restructuring and doesn't want to start all over again.
   
Still in negative territory, Vallourec was the biggest bluechip faller -- down 3.69 or 1.62 pct at 223.99 -- as it continued to come off recent highs that were fuelled by rumours of takeover interest in the steel tube maker.
   
In the auto sector, Renault gave up 1.50 or 1.37 pct to 107.64 after its surge of late on the back of high expectations for its new products. Rival car maker Peugeot was up 0.19 or 0.33 pct at 57.05, helped by the news it will sign this weekend an agreement with the Russian government to develop car production in Russia.
   
Other bluechip fallers included Suez -- down 0.24 or 0.60 pct at 39.47 -- and Gaz de France -- off 0.38 or 1.10 pct at 34.32 -- , amid growing doubts that their planned merger will go ahead.
       
Axa, meanwhile, dropped 0.42 or 1.34 pct to 31.00, in line with fellow insurer CNP Assurances, which slipped 1.70 or 1.79 pct to 93.25 following a downgrade by Exane BNP to 'underperform' from 'neutral'. The broker said it expects a slowdown in the French life insurance market.
   
Danone fell 0.21 or 0.37 pct to 55.97. The food manufacturer remains affected by uncertainty over the outcome of a dispute with the former chairman of its Chinese joint venture, although analysts agreed that the departure of Zong Qing Hou, announced yesterday, was broadly positive in the long term.
   
Outside the CAC-40, GFI Informatique inched down 0.04 or 0.43 pct to 9.32 as the stock remained unsettled.

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German shares close lower led by Siemens, insurers

The DAX was ended down 28.11 points, or 0.37 pct, at 7,590.50, after trading between 7499.43 and 7644.96. The MDAX lost 9.35 points, or 0.09 pct, to 10,656.30, while the TecDAX was up 4.56 points, or 0.52 pct, to 886.58. DAX futures were up 58.00 points or 0.77 pct at 7,614.00.
   
Dealers said trading was generally quiet because many investors, who used yesterday's public holiday to take a day off today, would return only on Monday. Siemens was the worst performer, down 1.67 eur or 1.74 pct at 94.18.
   
Insurers as a sector were the biggest loser as they may be confronted with an Atlantic hurricane season that could be worse than usual.
   
"The hurricane season just began so it is perhaps too early to put a lot of faith in these comments, but they are worrying investors that insurers could be in for another year like 2005," said a Frankfurt-based trader.
   
According to media reports, Munich Re chief scientist Peter Hoeppe predicted hurricanes this year may cause damage of more than 20 bln usd to insured properties.
   
Munich Re was down 2.20 or 1.63 pct at 132.45 while Allianz was off 2.63 or 1.59 pct at 163.10.
   
Other financial issues were also easier, with Hypo Real Estate down 0.76 eur at 48.20, Deutsche Postbank, off 0.69 at 63.66, Deutsche Bank off 0.73 at 106.46 while Commerzbank was down 0.21 at 35.24.
   
EON, up 1.75 eur or 1.54 pct at 115.09, was the best performer after Goldman Sachs included EON in its 'Conviction Buy List' with a price target of 130 eur a share. The broker said it sees the utility offering some of the most attractive value.
   
SAP added 0.37 at 36.25 after comments from chief executive Henning Kagermann suggested there is no solid basis for peer Oracle to take SAP to court over allegations of stealing software code.
   
Bayer improved 0.06 at 51.91 after Morgan Stanley lifted its price target by 19 pct to 64 eur a share and reiterated its 'overweight' stance on the stock, reflecting its increased forecasts and belief market consensus underestimates the stock's growth potential.
   
On the MDAX, Heidelberger Druck led losers, falling 1.05 eur or 2.79 pct at 26.60 while Kloeckner & Co added 2.15 or 4.38 pct at 51.25. Tele Atlas, down 0.39 or 2.37 pct at 16.07 was the biggest loser while AT & S gained 1.10 or 6.83 pct at 17.20.

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Amsterdam shares close slightly lower, tracking Wall St; Ahold falls

The AEX ended 0.36 points or 0.07 pct lower at 534.69, after trading in a range of 530.80-535.99. Government bonds traded lower while the euro stood at 1.3350 usd versus 1.3461 usd late yesterday.
   
Ahold led decliners, shedding 3.91 pct to 9.35 eur amid profit taking following yesterday's strong gains in late trading, while Rodamco Europe shed 1.52 pct to 100.32 and TNT lost 1.32 pct to 31.50 eur.
   
Vedior lost 0.95 pct to 20.80 eur and Hagemeyer lost 0.85 pct to 3.48.
   
Financials were also lower. Fortis lost 0.46 pct to 30.20 eur, ING also dropped 0.46 pct, to 32.45 eur, and Aegon ended 0.34 pct lighter at 14.70 eur while ABN Amro lost 0.34 pct to 35.23 eur.
   
Heineken shed 0.21 pct to 42.44 eur after a downgrade at Lehman Brothers and SBM Offshore ended 0.19 pct lower at 26.36 eur.
   
One of the few gainers was Philips, which added 1.57 pct to 31.01 eur amid unconfirmed reports that the company may sell a 14 pct stake in joint venture LG Philips LCD to Toshiba.
   
Among midcap shares, Tele Atlas dopped 3.03 pct to 16 eur, Vopak lost 1.06 pct to 44.69 and USG People lost 1.03 pct to 32.65 eur.
   
SNS Reaal added 0.88 pct to 17.29 eur, Heijmans gained 0.97 pct to 44.75, Van der Moolen added 1.78 pct to 4.01 and Crucell led gainers, adding 1.89 pct to 16.72 eur

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