UK/Euro Financial Market Daily Evening Briefing 10-07-2007

London shares close lower as US futures weaken on US sub-prime worries

Leading shares closed lower, as US futures weakened on US sub-prime worries that dragged the US dollar to its lowest recorded level against the euro.
   
At the close, the FTSE 100 index was 81.8 points lower at 6,630.9, with the FTSE 250 index 127.5 points weaker 11,732.1. All the broader FTSE indices traded lower.
   
On Wall Street, by London's close, the DJIA was down 38.0 points lower at 13,612.0, with the Nasdaq composite index down 10.21 points at 2,659.81.
   
Wall Street's losses were largely brought on by news the dollar has slumped to a fresh low against the euro - of 1.3738 usd against a previous low of 1.3682 hit in April this year, - after ratings agency Standards & Poors said it may cut the ratings of 12 bln usd worth of US sub-prime bonds.
   
Further weighing on US sentiment was a spate of negative company news, including a warning from Home Depot that its earnings will decline more than previously thought because of weak conditions in the US housing market, weak guidance from Sears and lacklustre results from Alcoa.
   
"I think the Home Depot news in the US spooked all the Euro markets. There was a bit of a rise early on, on the back of M&S and retail sales, but then it reversed. But I would see this as a small setback, and it wouldn't surprise me if it's back up there in the next few days," said David Jones, Head of Research at CMC Markets.
   
In London this afternoon, the miners helped drag the blue-chips down.  "A lot of miners slipped 3 to 4 pct this afternoon on profit taking after good runs, maybe a little prematurely, in my opinion, but I don't think it'll be the start of a correction," said Ben Timms from Blue Index CFDs.
   
BHP Billiton closed at the top of the FTSE 100 leaderboard, up 60 pence at 1,483, while Lonmin finished 157 pence ahead at 4,154, Antofagasta was 16-1/2 pence lower at 665-1/4, Xstrata lost 112 pence to 3,248, Anglo American was 120 pence weaker at 3,225, and Rio Tinto fell 115 pence to 3,905.
   
These losses follow a bullish sector review from UBS this morning, in which it lifted its targets across the sector, but cut its rating for Kazakhmys -- down 25 pence at 1,336 -- to 'neutral' from 'buy'.

Elsewhere, Wolseley, which distributes plumbing and central heating equipment, closed 26 pence lighter at 1,154, ahead of its trading update on July 16 amid US housing market concerns - Wolseley's US business accounts for about 60 pct of group turnover.
   
Turning to the gainers, Marks & Spencer closed 9 pence higher at 641-1/2 after the release of eagerly awaited first-quarter sales that confirmed the expected slowdown in underlying sales growth for the past 13 weeks, but were not as dismal as some analysts had feared.
   
As it was, M&S said total UK sales on a like-for-like basis, which strips out the impact of new and closed space, increased 2.0 pct, and within this, non-food like-for-like sales were up 2.9 pct -- slightly better than analyst hopes of growth of 0-1 pct, with a consensus of 1 pct.
   
Citigroup reiterated its 'buy' stance on the stock and 7.80 stg target, while Seymour Pierce retained its 'outperform' recommendation.
   
Midcap peer Woolworths Group also reacted positively, taking on 0-3/4 pence to 27-1/2.
   
Sainsbury, meanwhile, finished 6 pence higher to 577-3/4 ahead of its AGM tomorrow, in which the company is likely to be questioned over the intentions of recent investors Delta Two and Robert Tchenguiz.
   
In M&A news, the food sector got a lift following news Groupe Danone will pay 55 eur per share for its Dutch peer Numico, valuing the baby food producer at 12.3 bln eur.
   
In the read across, Unilever topped the FTSE 100 gainers, rising 31 pence to 1,647. Shares were also boosted by talk financier Nelson Peltz could be tempted to buy into the Anglo-Dutch group.
   
In broker generated news, Drax Group gained 3-1/2 pence to 740-1/4 after Goldman Sachs upgraded the group to 'buy' from 'neutral' and increased its target to 827 pence from 796, with the broker saying the shares are trading at a material discount to the price of oil.

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

SABMiller added 5 pence to 1,278-1/2 pence as Lehman Brothers raised its target on the brewing group to 1,500 pence from 1,230. The broker reiterated its 'overweight' stance on SABMiller and said it views potential future M&A positively, noting that activity in beer stocks should be good for buyers and sellers.
   
Turning to the midcaps, Arriva was the top gainer, up 56-1/2 pence at 769-3/4, after winning the new Cross Country rail franchise from the Department for Transport. The group expects annual revenue to exceed 600 mln stg in its first full year, including franchise support payments.
   
The company said the franchise will run from Nov 11, 2007, to March 31, 2016, with the last two years and five months conditional on achieving performance targets.
   
Merrill Lynch said it estimates the franchise could be worth 63 mln stg, as well as 3.8 pct additional upside. Collins Stewart says it may lift its target to 770 pence.
   
Stagecoach, though, was down 1 pence at 202-1/4 at the close, on profit-taking, as it had been widely expected to win the franchise.

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Paris shares close sharply down as Wall St losses, high euro weigh

The CAC-40 index finished down 85.44 points or 1.40 pct at 6,019.22. Among CAC-40 stocks, 6 closed higher and 34 closed lower.  On the broader indices, the SBF-80 index closed down 43.27 or 0.59 pct at 7,254.34, while the SBF-120 closed 57.34 or 1.29 pct lower at 4,391.66.
   
Peugeot closed down 2.49 eur or 3.81 pct at 62.95, while Renault ended the day at 116.15, down 1.27 or 2.03. Tyre-maker Michelin shed 2.24 or 2.11 pct, closing at 103.88.
   
Elsewhere in the CAC-40, ArcelorMittal tumbled 1.26 or 2.57 pct to end the day at 47.71, as disappointing quarterly results from US peer Alcoa weighed on investor sentiment. The US steel-maker reported a 4 pct decline in net income overnight, blaming the decline on outages at two of its US plants.
   
European aeronautics group EADS finished down 0.61 or 2.50 pct at 23.81, hit by the appreciation of the euro which has already been blamed Airbus' woes. In June, Airbus chief executive Louis Gallois warned that any further rise in the euro could force additional restructuring measures, adding that the current Power8 measures were based on an exchange rate of 1.30 usd against the euro.
   
Retailer Carrefour fell 0.69 or 1.28 pct to 53.41 as investors were shaken by a profit warning from US peer Home Depot. The Atlanta-based company said it now expects its earnings per share to decline by 15 percent to 18 percent for fiscal 2007.
   
Groupe Danone shed 1.05 or 1.77 pct to end at 58.43, extending yesterday's 3.28 pct decline as the market factored in the high premium the company is offering in its 55 eur a share bid for baby food maker Numico.
   
Merrill Lynch downgraded Danone to 'neutral' from 'buy', with a reduced 12-month fair value estimate of 60 eur, against 68 previously, while Lehman Brothers lowered its price target to 58.50 eur from 62.50 with an unchanged and 'equal-weight' rating.
   
Today's losses for Danone shares were limited as investors saw the deal as attractive in terms of the high growth and margins that Numico can bring Danone, which is in the process of selling its less-profitable biscuit business to Kraft Foods.
       
Among the rare CAC-40 risers, Air Liquide added 0.62 or 0.64 pct, ending at 96.84, lifted by renewed speculation that private equity firm KKR is mulling a bid.
       
Another riser was Completel, up 1.12 or 3.59 pct at 32.32 and adding to yesterday's strong gains sparked by rumours the group is to be put up for sale.
   
Separately, Bouygues unit Bouygues Telecom today confirmed it plans to launch a national ADSL service and has launched a tender process inviting bulk operators to submit offers to provide a network.
   
Completel is one of the main bulk providers in the French market, alongside Neuf Cegetel and France Telecom.

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German shares close lower on US inflation jitters, subprime woes
 
The DAX closed 112.63 points or 1.39 pct lower at 7,964.76, after trading between 7,934.85 and 8,109.71. The MDAX was 123.04 points or 1.08 pct lower at 11,254.90, while the TecDAX lost 8.77 points or 0.90 pct to 966.78 points. DAX futures were down 111.50 or 1.37 pct at 8,032.00, while bund futures gained 0.62 or 0.56 pct to 110.63.
   
Leading blue chips lower, TUI fell 0.60 eur or 2.88 pct to 20.20 eur. Automotive stocks were also a weak feature, with BMW down 1.21 eur or 2.45 pct at 48.19 eur, Volkswagen down 2.08 eur or 1.68 pct at 122.04 eur and DaimlerChrysler down 0.51 eur or 0.74 pct at 68.42 eur.
   
Banks declined as investors shuffled out of financial stocks on subprime worries. Deutsche Bank fell 2.36 eur or 2.17 pct to 106.17 eur, Commerzbank declined 0.71 eur or 1.99 pct to 34.95 eur and Hypo Real Estate dropped 0.81 eur or 1.71 pct to 46.65 eur. Deutsche Postbank was down 1.23 eur or 1.91 pct at 63.00 eur.
   
Thyssenkrupp lost 0.99 eur or 2.15 pct to 45.15 eur as it corrected from yesterday's gains spurred on by a bullish Deutsche Bank brokerage note.
   
Bucking today's trend, Infineon rose 0.03 eur or 0.23 pct to 12.95 eur, making it the biggest gainer, with traders citing a persistent rumour that Korea's Hynix could be preparing a bid.
   
Deutsche Post was down 0.15 eur or 0.63 pct at 23.48 eur, but was still outperforming the market as traders noted resurfacing rumours that private equity group Blackstone is mulling a bid for the German logistics and transport company.
   
Deutsche Boerse slipped 0.45 eur or 0.52 pct to 86.52 eur and also outperformed the general market after Morgan Stanley raised the target for the shares by 21 pct to 107 eur and reiterated its 'overweight' stance to reflect buoyant trading on the German stock exchange.
   
SAP lost 0.21 eur or 0.57 pct to 36.75 eur, as dealers pointed to an interview with its chief executive Leo Apotheker in which he said the software manufacturer was on track to meet its German market sales targets this year.
   
Allianz, down 1.35 eur or 0.79 pct at 170.21 eur, was also outpacing the DAX average after UBS upgraded its stance on Allianz SE to 'buy' from 'neutral', while raising its price target to 217 eur per share from 197, the broker saying it expects earnings to improve through cost savings at the insurer.
   
On the MDAX, Patrizia Immobilien slumped 0.53 eur or 3.97 pct to 12.81 eur as the index's biggest decliner.
   
Depfa shares were 0.30 eur or 2.10 pct lower at 14.00 eur after rumours that Franco-Belgian banking group Dexia SA might be preparing a 20.10 eur per share bid for the German bank. On the other end, Premiere gained 0.20 eur or 1.06 pct to 19.14 eur.
   
TecDAX-listed Ersol lost 2.74 eur or 4.02 pct to 65.50 eur, while Jenoptik gained 0.17 eur or 2.24 pct at 7.75 after it tweaked its EBIT margin target up to 10 pct from a previous target of 9-10 pct.

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Amsterdam shares close lower, held back by jittery Wall St

The AEX closed 2.48 points or 0.44 pct lower at 554.95, after trading in the range 553.76-559.95. Government bonds traded higher while the euro stood at 1.3718 usd versus 1.3620 usd late Friday.
   
Numico was the day's lead gainer, adding 20.67 pct to 53.70 eur, down on the the 55-eur-per-share offer price Danone put out on the company yesterday. Brokerages were positive on the Danone offer price, with Rabo Securities saying it expects the deal to go through as the offer reflects a 22.5 times 2007 EBIT multiple which seems difficult to surpass and that Numico's management and board are supporting the tie up with Danone.
   
Unilever added 1.95 pct to 23.49 eur, with the offer on Numico boosting speculation of further sector consolidation, while Univar added 3.04 pct to 54.51 eur.
   
On the midcap, Oce jumped 6.65 pct to 18.13 eur, following an ABN Amro upgrade to 'buy' from 'hold' and increased price target to 20 eur from 12.50, with the brokerage saying it sees several developments which should re-ignite growth and boost profitability.
   
CSM gained 3.30 pct to 26.90 eur after the Dutch ingredients company announced further plans to concentrate its production in the US as part of a broader restructuring programme.
   
ArcelorMittal led blue chip decliners, off 2.43 pct at 47.72 eur, affected by US peer Alcoa's quarterly results, which missed forecasts.
   
Among temporary staffing stocks, Vedior slipped 2.16 pct to 22.67 eur while USG People fell 1.82 pct to 35.54 eur, affected by data which showed market growth at staffing companies in the Netherlands slowed over the most recent 4-week period. Randstad bucked the trend, closing 0.37 pct up at 62.60 eur.
   
Stork closed 0.17 pct firmer at 48.18 eur, on news LME, a holding company owned by Icelandic food systems company Marel HF together with major Marel shareholders Landsbanki Islands HF and Eyir Invest, has expanded its stake in Stork NV to 20.2 pct, causing speculation as to whether or not a compromise can be reached between LME and Candover on the future of Stork's Food Systems division. Candover's indicative 47 eur per share offer presently requires 80 pct acceptance from Stork shareholders in order to become unconditional.
   
Among financials, Fortis added 0.19 pct to 30.93 eur, ING shed 1.07 pct to 32.43 eur, Aegon lost 1.43 pct to 14.46 eur, while ABN Amro was down 0.55 pct at 34.46 eur. Earlier, the Dutch Supreme Court said will announce its ruling on ABN Amro's planned sale of its US unit LaSalle to Bank of America on Friday, July 13 at 10.00 AM CET.

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