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

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London shares close higher; banks enjoy bounce; Wall Street stronger

Leading shares finished up, but off earlier highs, with financial shares enjoying a bounce after recent weakness, and Wall Street picking up even on quiet trading due to Veterans Day.
   
At the close, the FTSE 100 index was up 33 points at 6,337.9, compared with an earlier high of 6,365.2. The index went as low as 6,268.6 at 12.27 pm, around the time a fire at the Olympic site in east London led to worries about terrorism. However, the market subsequently decided there was no cause for concern.
   
The FTSE 250 index closed 35.2 points higher at 10,894.3. Volume was average, with 2.38 bln shares having changed hands in 707,127 deals.
   
As the London market was closing, the Dow Jones Industrial Average was up 92.3 points at 13,135.0. 
    
As in the UK, US banking stocks rebounded after last week's sell-off though investors appeared to remain cautious, expecting more fallout from the ongoing credit crisis.
   
The market was waiting to see if there would be more announcements from financial companies of write-downs of mortgage-backed securities and other debt instruments that have plunged in value since the summer.
  
US bond markets were closed for Veterans Day. Although economic and corporate news was thin on the ground today, investors were bracing themselves for a raft of economic releases scheduled for later in the week, with Wednesday's retail sales reading and Thursday's wholesale and consumer inflation reports high on the agenda.
   
Jimmy Yates, trader at CMC Markets, said: he release of the UK CPI data tomorrow morning should ensure traders find further direction in the near term, "not least given the better than expected PPI data (showing headline annual output prices at a 12-year high) that was released this morning".
   
He also pointed to a raft of high profile earnings data due for release tomorrow including interims from Vodafone, Cable & Wireless and British Energy. He said: "Although it may have been a rather muted start to the week, there's little to suggest that this theme will last for long."
   
Turning to share movements today, Edinburgh-based insurer Standard Life finished 15-3/4 higher at 259-1/2, after pulling out of its bid for Resolution, leaving Pearl's 720 pence offer as the only deal left on the table.
   
Standard Life, which has been vying with unlisted rival Pearl Group to buy Resolution for the last two months, said yesterday that it had decided not to raise its 4.9 bln bid, as to do so "would not create sufficient value for Standard Life shareholders".
   
Standard Life was bouncing from near 12-month lows. Similarly, banking stocks enjoyed a bounce, as investors looked past fears of credit contagion to snap up stock at levels not seen since 2003.

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Northern Rock was up 9.4 at 154.4, Barclays rose 38-1/2 to close at 513, HBOS was 44 higher at 796-1/2 and Royal Bank of Scotland gained 37, or 9.2 pct, to close at 439-3/4, making it the biggest FTSE 100 riser. 
    
Standard Chartered finished 55 pence higher at 1,730, boosted by ABN Amro hiking its price target to 1,800 pence, from 1,700, while maintaining its 'hold' rating. 
   
Even HSBC rose, despite press speculation it ill soon unveil writdowns due to its exposure to subprimne lending in the US. The index heavyweight climbed 8-1/2 pence to close at 849.
   
Friends Provident, which had also hoped to merge with Resolution, rose 6.9 pence to 155.6.   
   
Also on the rise were real estate investment trusts, after UBS maintained its 'buy' stance on Land Securities and British Land and said on a 12-month view, the shares are attractive. The two groups closed up 43 at 1,547 and 11 higher at 943, respectively.
   
M&A talk in the mining sector pushed both Rio Tinto up 34 to 5,658, having touched another record high of 5,930 earlier in the session.
   
Earlier, BHP Billiton, the world's largest miner, said its proposed 350 bln usd merger with Rio Tinto will unlock value for shareholders of both companies by generating 3.7 bln usd per year in enhanced earnings and cost-saving synergies.
   
However, the fundamentals, notably prices for copper and other metals, were not so good for the miners. Just as the top five performers in the FTSE 100 were all financials, so the bottom five were all miners.  Xstrata fell 165 pence to 3,316. Vedanta Resources was off 108 at at 1,936, and has lsot more than 16 pct in the last month. Antofagasta fell 45 pence, or 6 pct, to close at 700 pence making it the biggest FTSE 100 loser. Anglo American fell 157 pence to 3,329 pence, and Kazakhmys was off 75 pence at 1,316 pence.
   
Jimmy Yates, trader at CMC Markets, said: "London equities have had a rather mixed start to the week with many financial stocks moving back into favour after recent selling, while the reverse has been true for the bulk of the miners where profit taking on the back of sliding metals prices has been very much the order
of the day. "
   
Others on the downside included broadcaster ITV, which fell to yet another record low. It closed 2.9 pence weaker at 86.2 after Morgan Stanley cut its recommendation on the broadcaster to 'underweight' from 'equal-weight' and repeated its 92 pence price target.
   
The broker noted that ITV is by far the most highly rated of the European broadcasters, trading on a 50 pct price/earnings premium to the sector in 2008 and a 32 pct premium in 2009.
   
Talk of a substantial placement -- rumoured to be Citigroup -- knocked Sage Group back 8-1/2 pence to 216-1/2, while ICAP fell back 4-1/2 to 620-1/2 as Credit Suisse downgraded the group to 'neutral' from 'outperform'.

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Elsewhere, oil groups were lower as prices fell by more than a dollar in Asian trade Monday after   OPEC kingpin Saudi Arabia indicated the oil cartel will discuss raising output if the need arises.
   
Brent for December delivery traded at about 91.30 a barrel, retreating further from the record 95.19 usd it recahed last week. BP closed 12 lower at 586-1/2, and Royal Dutch Shell fell 22 to 1,960.
   
On the second line, Premier Foods made good progress, up 7 at 210, after the UK's biggest food manufacturer reported a 3 pct rise in pro forma group and core business sales for the four months to end-October and said it is on course to meet market expectations for the full year.
   
In reaction, Collins Stewart reiterated its 'buy' stance and 250 pence price target this morning, as it believes the shares have been dramatically oversold.
   
Elsewhere, security company G4S rose 9-1/2 to close at 208-1/4 after it said organic growth had risen, boosted by growth in developing markets and cash services and that positive momentum will continue into the full-year.
   
Also among the midacap risers was Dairy Crest, 5-1/2 higher at 613. This followed Citigroup raising its stance to 'buy' from 'hold' this morning, saying it sees the chilled dairy foods company as a safe haven in a sector beset by input price concerns.
   
As with the FTSE 100, many FTSE 250 financial shares that plunged last week recovered some lost ground today. Rathbone Bros rose 77 pence to 1,166 pence. Bradford & Bingley rose 19-1/4 to 282-1/4.
   
On the 250 downside, Aveva Group dropped 49 to 1,099 after results failed to -impress some investors. The group delivered a less buoyant outlook statement, with Altium Securities reiterating its 'hold' stance and Seymour Pierce maintaining its 'buy' stance.
   
United Business Media lost earlier gains to close 19-1/2 lower at 679 after saying it will return between 200-300 mln stg to shareholders by the end of 2009 and increase its dividend as part of a shake-up of its capital structure.
   
In a statement outlining its strategy on acquisitions, capital structure and dividend policy for the period to the end of 2009, UBM said it plans to spend between 150-250 mln stg per year on acquisitions in 2008 and 2009 to expand its business-to-business and news distribution divisions.
   
Engineering group Invensys fell 13-1/4 pence to 267-3/4 after UBS cut its target to 370 pence from 430, while keeping its 'buy' recommendation.

UK Diary of Events

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

Small Cap Report

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

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Paris shares close slightly higher as banks surge; energy stocks decline

The market struggled to get into positive territory, however, as much of the day was dominated by a slump in energy stocks amid speculation that OPEC will soon raise oil production quotas.
   
The CAC-40 index closed up 11.38 points or 0.21 pct at 5,535.56.The euro was quoted at 1.4533 usd, against 1.4664 late Friday. Two blue chip banks posted gains of more than 4 pct - Dexia, which closed up
0.75 eur or 4.08 pct at 19.14, and BNP Paribas, which ended up 2.77 eur or 4.04 pct at 71.36.
   
Credit Agricole, which reports its results Wednesday, finished with a gain of 0.65 eur or 2.78 pct at 24.07, and Societe Generale closed up 2.29 eur or 2.29 pct at 102.29.
   
Third quarter results so far from French banks have shown their subprime crisis exposure to be very limited relative to some major US and other western banks.
   
Airbus maker EADS was also among the big gainers, rising 0.62 eur or 2.78 pct to 22.90, after it reaped tens of billions of euros in new airplane orders from the Dubai Air Show.
   
UAE airline Air Arabia placed a 3.5 bln usd order for 34 planes with an option for 15 more, following Saudi Arabian Airlines' letter of intent to buy 22 planes, leaser Dubai Aerospace's announcement that it will buy 100 planes for 13.5 bln usd, and yesterday's giant 20 bln usd order for 81 planes.
   
Just as important for EADS, many of the planes sold are the newly revamped A350 XWB, confirming that it is meeting client needs. Separately, EADS' defence systems unit won a major contract from the port of
Tangiers, Morocco, for a security system.
   
Vallourec closed 4.05 eur or 2.14 pct higher at 193.65, shrugging off company denials of a report that Russian billionaire Alisher Usmanov was planning a takeover bid after agreeing to buy a stake from French businessman Vincent Bollore.
   
ArcelorMittal was the most prominent decliner among the blue chips, hit by profit-taking as market sources reported a vague rumour that the company's third quarter results, due Wednesday, may be disappointing. The share closed down 1.98 eur or 3.93 pct at 48.44.
   
Energy and utility shares were down amid speculation that OPEC will seek to counter record-high crude oil prices by agreeing to allow member countries to produce more oil.
   
EDF was down 1.92 eur or 2.31 pct at 81.33, and oil giant Total was down 0.77 eur or 1.37 pct at 55.56. Gaz de France closed 0.18 eur or 0.47 pct lower at 37.90, and Suez was down 0.08 eur or 0.18 pct at 44.20.

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German shares close flat as high euro, oil prices offset banking gains

FRANKFURT  - German shares closed flat, as a continued higher oil price as well as a strong euro offset today's gains in the banking sector.
   
The DAX was down 5.56 points or 0.07 pct at 7,806.84 after trading between a high of 7,810.60 and a low of 7,766.07. The MDAX dropped 51.02 points or 0.51 pct to 9,990.14 while the TecDAX was down 6.60 points or 0.65 pct at 1,004.78.
   
DAX futures gained 9.00 points or 0.11 pct to 7,839.00 while bund futures declined 0.16 or 0.14 pct to 114.49. The euro was trading at 1.4535 usd against 1.4541 usd in afternoon London trade. Leading blue chip lower, Deutsche Boerse lost 4.41 eur or 3.68 pct to 115.37, as the stock was hit by a profit taking feed sell-off.
   
Traders pointed out that after shares had recently reached their record high, such a movement is normal.Thyssenkrupp dropped 0.87 eur or 2.02 pct to 42.16. Bayer decreased 0.81 eur or 1.46 pct to 54.75, continuing to fall after it reported results last Tuesday.
   
BASF declined 1.33 eur or 1.43 pct to 91.47, as the company today said it is raising worldwide prices for pharmaceutical excipients, which include binders, disintegrants, coatings and solvents, by as much as 9 pct with immediate effect.
   
RWE was lower, dropping 1.11 eur, or 1.16 pct, to 94.50, after Die Welt reported that its negotiations over an 8 pct wage increase were suspended and are to be resumed tomorrow.
   
On the upside, Deutsche Postbank rose 3.88 eur or 8.13 pct to 51.58, as M&A speculation continued, prompting Goldman Sachs to upgrade the stock to 'buy' from 'neutral'. The group's future is being reconsidered by parent company Deutsche Post AG following the deregulation of the German letter mail market.
   
After the release of the group's third-quarter numbers, the broker said it thinks its estimates, at 7 pct below 2008 guidance, are now stable and unlikely to go lower, adding mergers and acquisition speculation has also been re-ignited following comments from Deutsche Post.
   
Shares in Deutsche Post rose 0.84 eur, or 3.89 pct, to 22.41 after Goldman Sachs removed the stock from its 'conviction sell list' and raised its target to 21.5 eur per share from 18.
   
Lufthansa was up 0.56 eur or 3.10 pct at 18.62. Commerzbank was up 0.68 eur or 2.61 pct at 26.77 while Deutsche Bank gained 1.79 eur or 2.17 pct to 84.38, also benefiting from upbeat in the banking
sector.
   
Over on the MDAX, K+S lost 14.17 eur or 9.66 pct at 132.51 as Deutsche Bank reiterated its 'Hold' rating for the company. Arques Industries dropped 2.06 eur or 8.10 pct to 23.37.On the upside, ProSiebenSat.1 rose 1.50 eur or 8.96 pct at 18.25 as the company said it is planning further acquisitions in the online segment.
   
Deutz added 0.39 eur or 4.88 pct to 8.38. TecDAX-listed Bechtle was down 3.96 eur or 11.39 pct at 30.82, while Conergy added 2.96 eur or 10.87 pct to 30.20.

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The AEX closed down 2.33 points or 0.46 pct at 508.32, after opening at 506.61 and trading in a range of 502.92-509.03. Government bonds were mixed while the euro stood at 1.453 usd, from 1.4654
usd late Friday.
   
ArcelorMittal led AEX decliners, falling 3.92 pct at 48.45 eur amid talk that the steel group may disappoint with its earnings, due on Wednesday, market sources said.
   
Royal Dutch Shell also weighed heavily, closing 1.40 pct lower at 28.05 as oil prices fell on the the prospect of a fresh hike in OPEC output. Oil services group SBM Offshore shed 0.68 pct at 27.55.
   
Akzo Nobel fell 2.02 pct at 52.84, while Reed Elsevier shed 1.90 pct at 12.34 and DSM lost 0.52 pct at 35.83.
   
Among gainers, Corporate Express led the way, rising 2.51 pct at 6.94 after it said the sale of its ASAP Software division has been finalised, resulting in a book profit of 70 mln eur in the fourth quarter.
   
TomTom added 2.21 pct at 55.30 pct following news that it is launching a highly anticipated new personal navigation device, including a real-time traffic data service.
   
Publisher Wolters Kluwer gained 1.80 pct at 21.43, while postal services group TNT gained 1.58 pct at 27.48.
   
Financial stocks initially traded broadly lower amid ongoing credit crisis fears, but rallied later in the day, led by Fortis which closed 1.82 pct higher at 17.86 amid news of an upgrade to 'add' from 'hold' at Petercam, which said the recent fall in the Belgo-Dutch bancassurer's share price has been overdone.
   
Aegon ended in positive territory, up 0.69 pct at 13.00 while ING closed 0.14 pct lower at 27.19 but off intraday lows. Sentiment was less positive for Aalberts Industries which led midcap decliners, falling 3.12 pct at 14.56, while LogicaCMG fell 2.94 pct and Ordina closed 2.27 pct lower at 11.59.
   
Among midcap gainers, Crucell surged 3.85 pct at 12.92 as the Dutch biotech company's announced distribution deal with Dutch blood supply company Sanquin sparked a surge in bargain hunting deals, trading sources said. Crucell will report its third-quarter results tomorrow morning.
   
Staffer USG People added 2.63 pct at 18.31, and Tele Atlas gained 1.80 pct at 32.78. Small cap stock Draka lost 4.27 pct, while local issue Blue Fox surged 11.55 pct at 2.80 after a nine-month trading update.

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