UK/Euro Financial Market Daily Evening Briefing 10-09-2007

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London shares close down as NY slide continues, AB Foods falls over 3pct

UK blue-chips ended the day down, with AB Foods dropping after its trading update, while US stocks fell for a second session in a row as Federal Reserve speeches did little to ease investor concerns over the
outlook for the economy.
   
By the close of play, the FTSE 100 index was down 57.1 at 6,134.1, off a high of 6,232.1, with the FTSE 250 index 132.9 points lower at 10,974. Volume was light, with 2.025 bln shares changing hands in 560,350 deals.
   
In the US, Wall Street turned lower as investors, still anxious over Friday's dismal employment report, digested speeches by Federal Reserve officials about the central bank's interest rate plans.
   
The market advanced in early trading, but the gains weren't broad and were quickly lost. Many banks, retailers and homebuilders fell due to ongoing nervousness about the housing market's drag on the economy.
   
By the London close, the Dow Jones was down 82.30 points to 13,031.50, while the Nasdaq Composite lost 27.43 to 2,538.27 and the S&P 500 index dropped 13.20 to 1,440.35.
  
Back in London, Associated British Foods gave away 28-1/2 to 808-1/2 after saying its full-year operating profits will be hurt by the strength of sterling and the translation impact on its overseas results will be about 19 mln stg.
   
Results largely met analysts forecasts with nothing surprising contained in today's trading update in which it reiterated guidance. In reaction, Merrill Lynch noted that not all divisions of AB Food are performing strongly across the board and reiterated its 'neutral' stance.
   
Merrill Lynch said AB Foods' grocery profits -- particularly wheat and vegetable oils -- have been materially impacted by currency and higher input prices, while it also said it feels that the company has implemented price increases in bread to recover higher wheat costs and is restructuring its US oils business.
   
Elsewhere, REITs issues were under pressure as economic woes hit the sector. Land Securities dipped 46 to 1703, British Land fell 38 to 1,187 and Liberty International was off 18 at 1081.
   
Insurance group Resolution eased back 8-1/2 to 617-1/2 after lowering the shareholder acceptance threshold for its merger with Friends Provident, making it less likely that a widely-rumoured bid for Resolution from privately-owned rival Pearl Group will materialise.
   
Resolution said it is altering the scheme of arrangement underpinning the merger so that it now requires the backing of investors holding a bare majority of its shares, down from 75 pct originally, while the acceptance threshold for Friends Provident shareholders rises to 75 pct from 50 pct.

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Among the risers, ITV was 2.2 pence higher at 111.3, ahead of a strategy statement on Wednesday and boosted by press reports which said advertising revenues on its flagship channel are up by an estimated 4-5 pct this month, as the commercial broadcaster cashes in on the Rugby World Cup.
   
Ahead of Wednesday's strategic review, ABN Amro raised its target to 110 pence from 100 but maintained its 'hold' rating saying that it was not expecting any significant change in strategy.
   
Positive broker comment provided the spur for Kelda, up 13 pence at 852, with Credit Suisse upgrading its rating to 'neutral' from 'underweight', ahead of the sale of sector peer Southern Water.
   
Elsewhere, Smiths Group ticked 6 pence higher at 981, after Morgan Stanley upgraded its rating on the company to 'equal-weight' from 'underweight', and increased its target to 1,100 pence from 1,000, with the broker commenting that the consensus growth forecast for some of the company's businesses are too low.
   
The broker said it expects the market to pay a premium for Smiths' exposure to secular growth markets.
   
Scottish & Newcastle ticked up 4 to 616 after press reports said it was considering telling Carlsberg to "put up or shut up" after becoming frustrated by repeated suggestions from the Danish group that it is considering bidding for its UK peer.
   
Scottish & Southern Energy (SSE) were aided by news this afternoon that it has signed 4 China wind farm deals. Shares were up 8 to 1,386.
   
SSE Energy has signed four agreements with GD Power Development, a subsiduary of China Guodian Corporation, one of China's major energy companies, to support the development of four new wind farms in north east China.
   
Turning to the midcaps, Regus was down 4.65 pct, or 6 pence, at 123 pence, making it one of the heaviest midcap fallers, as KBC Peel Hunt downgraded the stock to 'sell' from 'hold'.
   
In a note that landed on fund manager's desks this morning, KBC Peel Hunt said it has downgraded the stock as it believes there is not enough value left to compensate for the risk.
   
The broker said investors have focused on a long-term growth scenario, indicating 154 pence fair value, whereas it now thinks a mild downturn at some stage in the next two to three years is a more likely outcome, giving a fair value of 96 pence.
   
Minerva was also among the day's casualties, down 12 pence at 256-1/4, despite saying City of London office and high-end London residential markets remain robust as it unveiled full-year NAV up 5.3 pct to 327.9 pence.

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In UK macro news, house price inflation edged up to its highest level in more than two years in July, despite the continued impact of higher borrowing costs, government figures showed today.
   
The Department for Communities and Local Government revealed that the annual rate of house price inflation in July rose to 12.4 pct, the highest level since March 2005, and following on from June's spike to 12.1 pct.
   
"The DCLG data indicates that the housing market is proving resilient to higher interest rates," said Howard Archer, analyst at Global Insight.
   
Turning to the upside, Sports Direct was 1-1/4 pence higher at 137-1/4, after the discount sports retailer that has issued two profit warnings since floating in February, reiterated its previous full-year guidance, confounding fears it would issue another alert today.
   
IG Group ticked up 15-3/4 to 352-3/4 after Goldman Sachs raised its target to 460 pence from 403, citing strong revenue growth following market volatility. In a note this morning, UBS said it was expecting a more cautious outlook with Premier Farnell reporting second-quarter results tomorrow.
   
Elsewhere, HMV also benefited from a target increase from Citigroup which raised its objective to 135 pence from 125 following the group's AGM. HMV shares were up 3 to 130.
   
Alfred McAlpine lost 20-3/4 to 455-1/2 after Goldman Sachs downgraded its stance to 'neutral' from 'buy' with an unchanged price target of 544 pence, on valuation grounds.
   
This morning, Goldman Sachs noted Alfred McAlpine shares have appreciated to within 12 pct of its 18-month price target of 544 pence. Hence, it believes that the opportunity created by the share price reaction to the accounting issues in its slate business in February has now broadly played out. 

UK Diary of Events

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Paris shares close down, tracking US, construction sector weighs

Shares closed lower, as US stocks reversed opening gains and amid a sell-off of construction stocks prompted by Friday's release of weak US jobs figures and as fears about the housing market's effect on the broader economy continued.
   
The CAC-40 index closed down 43.67 or 0.80 pct at 5,386.43. 32 CAC-40 stocks closed lower and 8 were higher.
      
Bouygues led losses in the CAC-40, closing down 1.69 or 2.97 pct at 55.17 as the construction sector took a hit from the US jobs report, which stoked fears of an economic slowdown and offset a strong showing by French industry in July.
   
Industrial output rose 1.3 pct compared to June according to figures released this morning, much higher than the modest 0.4 pct rebound that economists had forecast.
   
Elsewhere in the sector, Vinci ended down 0.58 or 1.15 pct at 49.69 and Schneider Electric was down 1.37 or 1.47 pct at 91.52.
  
Steel maker ArcelorMittal fell 1.35 or 2.9 pct to 45.13 after being cut to 'hold' from 'buy' at Citigroup.
   
PSA Peugeot Citroen bucked the market and rose 0.35 or 0.63 pct to close at 56.0. In an interview with French daily La Tribune, company chairman Christian Streiff said the French car maker "must become a little bit German," in terms of improved engineering and styling, in order to pull off his turnaround plan.
   
EADS, whose Airbus unit announced an order for 25 single aisle aircraft from US lessor Aviation Capital Group, closed up 0.03 or 0.15 pct at 20.26.
   
Sanofi-Aventis closed up 0.03 or 0.05 pct at 59.69. The group reached an agreement to pay 193 mln usd in a civil settlement with the US Department of Justice over pricing lawsuits related to its predecessor company.

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German shares close lower led by automotive, financial stocks

The DAX was down 61.19 points or 0.82 pct at 7,375.44 after trading between a high of 7,467.45 and a low of 7,369.70. The MDAX fell 170.44 points or 1.70 pct to 9,850.55 while the TecDAX slid 11.17 points or 1.23 pct to 900.24.
   
DAX futures closed down 58.00 points or 0.78 pct at 7,389.50 while bund futures were up 0.44 or 0.38 pct at 114.90.
   
Automotive supplier Continental was the biggest faller, down 2.58 eur or 2.84 pct at 88.22, followed closely by DaimlerChrysler, down 1.76 or 2.68 pct at 63.88. VW was up 0.59 or 0.39 pct at 150.00.
   
Financial stocks remained the focus of selling interest, with Hypo Real Estate off 0.89 at 37.86, Commerzbank down 0.39 at 28.22, Deutsche Bank lower 0.88 at 88.82, Allianz down 1.06 at 150.80, Postbank down 0.26 at 50.72 while Munich Re was off 0.51 at 125.49.
   
On the upside, Metro led with a gain of 0.37 or 0.61 pct to 60.69.
   
Infineon added 0.05 to 12.05 on rumours that US peer AMD might be launching a 16.95 usd per share bid for the German chipmaker's DRAM unit, Qimonda.
   
Among pharmas Bayer gave up its earlier gains to close down 0.24 or 0.44 pct at 54.67. Deutsche Bank reiterated its 'buy' stance on the company along with Linde and BASF.
   
Linde was down 0.82 at 81.42 while BASF fell 1.49 to 92.01.
   
MAN finished 1.46 lower at 99.21 even though it disclosed unit sales of its commercial vehicles business in January-August this year totaled 61,700 units, up 17 pct year-on-year. New orders were at 90,000 units, or up 38 pct from the same period last year.
   
Stada was the best performer on the MDAX, adding 0.96 or 2.12 pct to 46.25 on rumours Wyeth is mulling a 65 eur per share bid for the pharmaceutical group.   

Patrizia Immobilien was down 0.56 or 5.42 pct at 9.77.    

On the TecDAX, FJH was up 0.10 or 3.91 pct at 2.66 while GPC Biotech was down 0.74 or 7.05 pct at 9.75.

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Amsterdam shares close down, tracking lower Wall Street; ABN Amro slumps

The AEX closed 4.53 points or 0.88 pct lower at 512.90 after opening at 517.48 and trading in a range of 512.42-520.05. Government bonds were higher and the euro stood at 1.3784 usd versus 1.3765 usd late Friday.
   
Staffing stock Vedior was the lead blue chip decliner, losing 3.75 pct to 15.40 eur, while AEX peer Randstad lost 2.55 pct to 36.36. Midcapper USG People dropped 4.52 pct to 20.06.
   
Arcelor Mittal fell 2.95 pct to 45.13. The steel giant said this morning it has taken a 51 pct stake in Turkey's steel stockholding company Rozak.
   
All heavyweight financials traded lower, led down by Fortis which shed 2.41 pct to 25.54, while ING lost 1.02 pct to 29.12 and Aegon shed 0.61 pct to 13.04.
   
Shares in ABN Amro slumped 2.19 pct to 33.09 after earlier slipping under 33 eur amid renewed uncertainty over the takeover bid from the Royal Bank of Scotland-led group and speculation that shareholders are pressuring the bank to lower its bid, while a broker's note suggested there is an increased chance the bid might be lowered or even abandoned.
      
TNT, meanwhile, closed 2.37 pct lower at 30.07 eur as the CNV union dismissed as "powerplay" a renewed warning from the Dutch postal company that it might cut 11,000 jobs instead of the targeted 6,500-7,000 ahead of workplace discussions next week.
   
On the midcap, CSM closed 5.86 pct lower at 22.35, followed by Aalberts Industries which lost 5.19 pct to 16.26. BAM fell 1.27 pct to 19.48 amid news it has won a 45 mln eur contract to upgrade the rail network in three Dutch provinces. Peer builder Heijmans shed 4.34 pct to 33.50.
   
Fugro fell 0.15 pct to 52.70 while SNS Securities raised its rating to 'buy' from 'accumulate' and also upped its price target to 61.00 eur from 52.50.
   
Locally, Ten Cate slipped 2.90 pct to 29.76, showing sharp losses after Wall Street opened, having earlier been upped to 'buy' from 'hold' at ABN Amro with a price target of 37 eur. Laurus lost 6.71 pct to 3.75.
   
Philips outshone blue chips, gaining 3.10 pct to 29.25 as analysts welcomed as "inspiring" a new plan in which it expects to more than double EBITA per share by 2010 and simplify its organisational structure into three sectors to boost profitability.
   
Brewer Heineken was the next best AEX performer, putting on 1.87 pct to 46.37 eur, while supermarket retailer Ahold gained 1.20 pct to 10.14.
   
On the midcap, Nutreco outperformed, gaining 1.77 pct to 49.41 eur after Goldman Sachs upgraded it to 'buy' from 'neutral' with a raised target of 55.7 eur from 54.5 previously. Oce put on 1.38 pct to 15.40 as investors welcomed news that it is launching two new colour printing systems.
   
Local issue Grolsch gained 0.33 pct to 27.59 ahead of its first half earnings tomorrow.

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