UK/Euro Financial Market Daily Evening Briefing 11-12-2007

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London shares close lower as investors eye Fed rate decision; property cos weigh

At the close, the FTSE 100 index was down 28.5 points at 6536.9, off a low of 6,513.4, and down from a high of 6,597.5, while the FTSE 250 index was up 17.6 points at 10,647.9.

Volume was thin, with 1.97 bln shares changing hands in 632,700 deals. The markets "are apprehensive about the likely outcome this evening when the Federal Reserve announces its rate decision", said Mike Lenhoff from Brewin Dolphin.

He said markets had "come up very rapidly in a short space of time, and today is as good a day as any to pause for breath".

Most economists are expecting a quarter-point cut in the federal funds rate to 4.25 pct, but some are hoping for a half-point cut from what is the Fed's last meeting this year. On Wall Street, by London's close, the Dow Jones Industrial Average was down 18.9 at 13,708.1, with the S&P 500 index down 2.1 at 1,513.85, and the Nasdaq composite index up 2.53 points at 2,721.48.

Back in London, UK property companies weighed heavily on the FTSE 100 index, following yesterday's announcement by New Star Asset Management that the value of its property portfolio has slumped by 17.8 pct since the end of July.

British Land lost 39-1/2 pence to 933-1/2, Hammerson dropped 22 pence to 1,072-1/2, and Liberty International was down 12 pence at 1,146.

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Milan shares down midday; profit taking on Fiat, Finmeccanica still strong

Milan shares were lower midday, led by profit taking in Fiat, although Finmeccanica remained strong after earlier upping its full-year guidance.
   
However, overall focus was on the US Fed decision on interest rates which will be announced after the close of the US market.
   
At 12.15 pm the Mibtel index was 0.41 pct lower at 30,099 while the S&P/Mib index shed 0.40 pct at 39,412 on volumes worth some 2.104 bln eur.
   
"There is less selling pressure than in recent months, but trading is lacklustre ahead of the Fed decision later today," a dealer said noting that the only fresh idea is Finmeccanica after the company hiked its full-year guidance.
   
Finmeccanica added 4.94 pct at 21.05 eur after the company said its sees 2007 EBIT at 1.05-1.10 bln eur compared with its previous guidance of 0.95-1.00 bln eur and that it expects its free operating cash flow to be positive this year against an earlier forecast of reaching break-even.
   
"Finmeccanica is also one of our best picks in the European Defence sector, presenting positive news-flow, potential partnerships/acquisitions and still undemanding multiples," said CA Cheuvreux in a note published after the guidance upgrade.
   
Leading the decline was Fiat, down 2.03 pct at 18.36, retracing after having risen more than 5 pct in afternoon trade yesterday.
   
After the market closed, CEO Sergio Marchionne dismissed earlier comments on a possible spin-off of the auto division as saying that such a move is not on the group's agenda.
   
"After yesterday's 5 pct rise, today's fall is profit taking. Nothing dramatic," a dealer noted.
   
Piaggio fell 0.99 pct at 2.51 as Citigroup cut the target on the stock to 2.93 eur from 3.4 eur while keeping its 'buy' recommendation, as the broker is taking on a more prudent stance on the Italian two-wheel vehicles market in 2008.
   
There was also profit taking on cement stocks, which yesterday rallied on the back of Lafarge's 8.8 bln eur acquisition of Orascom Cement. Buzzi Unicem shed 1.44 pct at 19.58 while Italcementi fell 0.70 pct at 15.40 and Cementir was 1.94 pct lower at 6.51.
   
Financial stocks were generally weaker with Banca Popolare di Milano down 1.29 pct at 9.97, UniCredit shedding 1.38 pct at 5.945 and Intesa Sanpaolo down 0.82 pct at 5.45.

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German shares close lower as ZEW index dampens sentiment

Shares closed lower in quiet trade with sentiment dampened by the ZEW economic expectations index while investors were sidelined ahead of today's US Federal Reserve rate decision.
   
The DAX was off 23.94 points, or 0.30 pct, to 8,009.42 after trading between a high of 8,067.04 and a low of 7,983.41 today.
   
The MDAX eased 11.76 points, or 0.12 pct, to 10,038.54 while the TecDAX was up 3.02 points, or 0.30 pct, at 995.86.
   
DAX futures declined 19.00 points, or 0.24 pct, at 8,024.50 while bund futures added 0.09 eur, or 0.08 pct, to 113.68.
   
The euro was trading at 1.4708 usd against 1.4669 in late afternoon London trade.

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Paris shares close lower on profit-taking ahead of Fed rate decision

The CAC-40 index closed down 26.16 points, or 0.45 pct, at 5,724.76, while the SBF-120 was down 15.97, or 0.38 pct, at 4,147.89. 29 CAC-40 stocks finished lower, 10 were higher and one was unchanged. On the Matif, December CAC-40 futures were trading at 5,715.50. The euro was quoted at 1.4749 usd compared to 1.4682 usd late yesterday.
  
Recent outperformers fell back on profit-taking. Air France-KLM shed 0.54, or 2.09 pct, at 25.25, after surging close to 12 pct in the last week. Unibail-Rodamco also shed some of its recent gains, falling 2.92, or 1.82 pct, at 157.94.
   
Elsewhere individual stocks were hit by negative newsflow, with Danone falling 1.73, or 2.85 pct, at 59.02 and extending yesterday's drop amid ongoing concerns over its legal dispute with Wahaha.
   
After confirming yesterday that a Chinese arbitration commission ruled against it in a trademark dispute with Wahaha, Danone's lawyer said today that the food group will appeal the ruling in a Chinese court.
   
STMicroelectronics was off 0.07, or 0.66 pct, at 10.58, as the market voiced disappointment over its acquisition of US firm Genesis Microchip which does nothing to allay fears over the chip-maker's dollar exposure.
   
According to an Oddo analyst, Genesis has no dollar-zone production factories which could potentially reduce STMicro's production costs.
   
Moreover, "Genesis is small and in decline," he added. "Its gross margins are falling, it's losing clients and suffering from strong downward pressure on prices," he said, noting that the trend is now getting worse.
   
Also down, Theolia shed 0.94, or 4.08 pct, at 22.11, after Societe Generale Securities reinitiated coverage of the stock with a 'sell' rating and 19 eur price target.
   
According to the French broker, the share's speculative appeal has already been priced in, while short-term risks remain.
   
On the upside, Lafarge felt the ongoing benefit of yesterday's acquisition of Orascom, rising 1.52, or 1.25 pct, at 123.27, as the deal prompted a number of price target upgrades from analysts.
   
Societe Generale raised its price to 165 eur from 158, reiterating its 'buy' rating, saying the acquisition should lead to a consensus upgrade, and also reduces Lafarge's exposure to an economic slowdown in Europe.
   
Capgemini rose 0.74, or 1.87 pct, at 40.34, adding to a string of recent gains.
   
JP Morgan, which rates the stock 'overweight', yesterday named it as one that display earnings visibility and that can pass on high input cost pressures for 2008.
   
Outside the blue-chip index, Arkema surged 2.47, or 5.61 pct, at 46.50 as Merrill Lynch resumed coverage of the chemical products group with a 'buy' rating and 54 eur target, predicting "healthy" 14 pct EBITDA growth in 2008.

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Amsterdam shares close down on German ZEW data

The AEX closed down 1.35 point, or 0.26 pct, at 515.49, after opening at 518.69, reaching an early high of 518.82 to then hit a late morning low of 513.45. Government bonds traded mainly higher, while the euro stood at 1.4703 usd, versus 1.4717 usd late yesterday.

Temping issues were strong decliners. Vedior lost 2.32 pct to 17.67 and Randstad slipped 1.95 pct to 28.68 on fresh speculation an investigation might be started into Vedior's sharp share price rise on Nov 30, when the companies announced they were in friendly takeover talks, traders said.

Among publishers, Reed Elsevier went 2.30 pct lower to 12.74 while Wolters Kluwer rose 0.71 pct to 22.60. Unibail-Rodamco was down 1.98 pct at 157.82.

Financials recorded the highest trading volume, with Fortis sliding 165 pct to 19.02 after the back cut 14 staff at its structured credit division in New York, due to "turbulence in the financial markets". Aegon was off 0.80 pct at 12.38 and SNS Reaal slid 2.10 pct to 15.42 while ING edged 0.11 pct lower to 27.40. Midcapper Binckbank put on 2.72 pct to 10.58 eur after the company reported a 91 pct take-up of its new share issue.

Ahold closed down 1.40 pct at 9.98. TNT fell 1.38 pct to 28.54 as the company and investors await the German parliament's final decision on a minimum wage for postal workers. Analysts believe approval is certain.

Among oils, SBM Offshore was down 1.32 pct at 22.48, still suffering from statements late Friday that some analysts have called a profit warning, namely that it expects "modest 2008 earnings growth" due to high input prices. Royal Dutch Shell meanwhile traded up 0.14 pct at 27.76 and Fugro put on 1.80 pct to 54.22.

Tech related issue ASML was off 1.08 pct at 23.74 amid Morgan Stanley cutting its outlook for the semiconductor industry, citing concerns over tightening liquidity, a decelerating global economy, and expectations of a mild US recession. Philips however led AEX gainers, advancing 0.98 pct to 29.78, ASMI rose 4.99 pct to 16.63, Oce went 2.48 pct higher to 12.81 and Ordina strengthened 2.59 pct to 13.49.

Midcapper decliners were led by Aalberts, down 4.45 pct at 14.60. Among AEX gainers, Heineken lifted 0.98 pct to 45.32 after the Dutch brewer and Carlsberg confirmed that while the consortium has no plans to raise its bid for Scottish & Newcastle, it reserves the right to do so.

TomTom rose 0.60 pct to 60.15, recovering from recent falls. ArcelorMittal rose 0.41 pct to 50.89 eur after the company bought Argentina's MT Majdalani y Cia. Local issue Spyker Cars soared 5.33 pct to 3.95 after the financially troubled company said it entered into exclusive refinancing talks with Lithuania's Snoras Group.

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