UK/Euro Financial Market Daily Evening Briefing 14-08-2007

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London shares close lower on US hedge Sentinel woes; financials lower

UK blue chips closed lower, as Wall Street fell back as US hedge fund Sentinel has asked the Commodity Futures Trading Commission whether it can stop allowing withdrawals, with UK financial stocks falling back on credit concerns.
   
By close, the FTSE 100 index was 75.5 points lower at 6,143.5, falling back from the session peak of 6,246.9, with all the broader indices also lower. Volume was average, with 3.04 mln shares changing hands in 627,399 deals.
   
"It is difficult to decide if the worst is over, and the market remains nervous about the extent to which banks have been impacted by the credit problems. However, I can say central banks are aware they must help loosen liquidity to prevent the situation from getting worse," said Ed Menashy, economist and strategist at Charles Stanley.
   
Across the pond, Wall Street was lower at London's close on the news the US hedge fund Sentinel was in trouble prompting a new round of rumours that other funds are sitting on substantial losses.
   
The Dow Jones Industrial Average index was down 82.1 at 13,154.4 while the Nasdaq Composite index was 15.47 lower at 2,526.77. The core US Producer Price Index rate rose only 0.1 pct, alleviating fears that rising factory activity this spring would push up wholesale inflation.
   
Meanwhile, in domestic economic news, UK inflation fell by the biggest amount in over five years during July, pushed down below the Bank of England's target rate.
   
The Office for National Statistics said CPI dropped to 1.9 pct on an annualised basis in July, down from 2.4 pct in June, well below analysts' forecasts for a decline to 2.2 pct and the steepest drop since May 2002.
   
The news is likely to diminish expectations for a further interest rate rise in the autumn, particularly in the light of the recent turmoil on financial markets, and helped keep London shares in positive territory.
   
On the corporate front in London, the financial sector fell back on credit concerns fear, Man Group was down 17-1/2 at 494-1/2, Barclays was 21-1/2 weaker at 637, and Standard Chartered fell back 42 at 1,598.
   
Elsewhere, commodity stocks fell back from earlier gains as oil and metal prices turned lower. BHP Billiton fell back 50 at 1,298, Kazakhmys lost 28 at 1,167, Antofagasta was 2 lower at 683 and Xstrata was 69 weaker at 2,725.

Anglo American was 37 lower at 2,7779 despite an upgrade in its rating by HSBC to 'overweight' from 'neutral'. The broker also raised its price target for Anglo American to 3,350 pence from 3,200 in the wake of the recent company's first-half results.

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Bucking the trend was Lonmin, the top gainer up 58 pence at 3,114 after the group announced that International Finance Corp (IFC) is exercising the option to buy 20 mln usd worth of Lonmin shares.
   
Elsewhere, William Morrison shares shed 7-1/2 pence at 258-1/2 after the supermarket firm issued a warning of an e-coli outbreak in the Paisley area of Scotland.
   
The outbreak was linked to sliced cold meat products at the delicatessen counters of its Lonend and Falside Road stores in Paisley and as the public health protection unit at NHS Greater Glasgow and Clyde started an investigation.

The move was precipitated after a 66-year-old woman died as a result of contracting the infection, while her husband remains seriously ill in hospital.
   
Turning to the upside in M&A activity, Scottish & Newcastle gained 7-1/2 at 580 on ongoing vague bid rumours that Carlsberg is to bid 700 pence a share for the group.
   
Elsewhere, Reuters was up 1 at 611 as Seymour Pierce repeated its 'outperform' stance on the group in light of the Thomson Corp deal.
   
Over on the second line, Micro Focus shares shed 14-1/2 pence at 274 after its in-line trading update failed to impress.
   
Micro Focus reiterated its full-year guidance of achieving a similar level of revenue growth to the rate achieved last year with EBITDA margins expected to remain at around 38 pct.
  
In reaction, ABN Amro maintained its 'buy' recommendation but said in current markets, the stock may well need upgrades to drive outperformance.
   
Elsewhere, Stagecoach shares lost 10-1/2 pence at 196 with Panmure Gordon downgrading the stock to 'hold' from 'buy'.
   
Its peer National Express were 9 pence weaker at 1,138, falling back from early gains after the group announced it had won the race for the UK's prestigious East Coast inter-city rail franchise, with a pledge to pay the government 1.4 bln stg over the life of the seven-year deal.
   
In reaction to the news, Panmure Gordon raised its price target for National Express to 1,365 pence from 1,275 pence while maintaining its 'hold' stance.

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On the upside, in earnings news, WH Smith gained 1 pence at 387 after the retailer said it expects its full-year results to be at the top end of expectations, prompting Seymour Pierce to upgrade the stock to 'outperform' from 'hold'.
   
Seymour Pierce also increased its full-year earnings estimate to 64 mln stg from 61.5 mln and for the following year to 71 mln stg against a previous estimate of 69.6 mln.
   
And finally Galliford Try was up 1-3/4 at 140-3/4 after the group said it achieved financial close for 100 mln stg on a 25-year framework agreement with South East Essex partnership as part of the gbprimarycare Ltd consortium with Assura Property.
   
The construction and house building group said the first tranche is estimated to be worth 26 mln stg with the potential to fund and develop up to 100 mln stg of health and social care facilities across the South East Essex region. 

  
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Paris shares close sharply lower; banks plunge on SocGen fund loss fears

Share prices closed sharply lower as bank shares plunged in late trading amid expectations that Societe Generale will announce a loss in a Lyxor index-tracking fund. The CAC-40 index ended down 90.62 points or 1.63 pct at 5,478.66. There were 36 decliners and four gainers.
  
SocGen was the biggest decliner among blue chips but ended above its lows, dropping 5.37 eur or 4.59 pct to 119.00. A trader said his worst-case scenario is that Lyxor will lose 200-330 mln usd from its equity derivatives fund activity, which earned 400 mln usd last year. He said that amount is "not big in the scheme of things."
   
Lyxor Asset Management is 100 pct owned by SocGen and has 1,563 structured funds, index tracking funds and alternative investment funds with a total of 70 bln eur under management. It describes itself as using "new techniques." The trader said it makes money by pricing aggressively.
   
Other banks were dragged sharply lower by SocGen's fall but also ended above their lows. BNP Paribas finished down 2.82 eur or 3.48 pct at 78.18, and Credit Agricole closed down 0.77 eur or 2.77 pct at 27.03.
   
Dexia ended down 0.43 eur or 2.15 pct at 19.55, performing better than the other big banks after reassuring investors again yesterday about its subprime exposure.
   
Other decliners included Suez, down 0.92 eur or 2.42 pct at 37.09, after SocGen named it as a potential suitor for Spain's Gas Natural. Yesterday, a Belgian paper reported that state competition authorities will continue to probe possible predatory pricing by Suez' Electrabel unit. Essilor closed down 1.05 eur or 2.38 pct at 43.16.
   
Consumer goods and retail shares also underperformed, with Carrefour closing down 1.10 eur or 2.15 pct at 50.11, and L'Oreal down 1.73 eur or 2.01 pct at 84.28.
   
Accor was the largest of the four gainers in the CAC-40, ending up 0.41 eur or 0.69 pct at 59.44. Dealers said it benefited from bargain-hunting.
   
France Telecom rose 0.09 eur or 0.44 pct to close at 20.64, after Lehman Brothers upgraded its shares to 'overweight' from 'equal-weight' and raised its target to 25.00 eur from 21.50. The broker said move follows strong earnings that led to raised EPS estimates for 2007 and 2008.
   
STMicroelectronics closed up 0.02 eur or 0.16 pct at 12.60, as analysts dismissed US rumours yesterday that the chipmaker is mulling a 12.50 eur a share bid for German rival Infineon Technologies AG.
   
Outside the CAC-40, Sopra Group closed up 2.50 eur or 3.90 pct at 66.60, after the IT services company announced second-quarter sales of 244.1 mln eur, up 11.2 pct from a year earlier, amid buoyant market conditions and a large number of new contracts.
   
Ubisoft Entertainment extended early losses from profit-taking to close down 2.29 eur or 5.03 pct at 43.27. Its shares jumped 8.76 pct yesterday amid speculation about the intentions of shareholder Electronic Arts, which has a 25 pct stake in Ubisoft.

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German shares close lower; financials the main drag

The DAX was down 49.26 points or 0.66 pct at 7,425.07, having traded between 7,383.32 and 7,492.76. The MDAX was down 82.34 or 0.81 pct at 10,103.22, while the TecDAX lost 4.92 or 0.55 pct at 883.59.
   
DAX futures were 17.50 points higher or 0.23 pct at 7,471.50, and bund futures were up 0.01 or 0.01 pct at 112.73.
  
Traders said although comments from ECB President Jean-Claude Trichet and Governing Council member and Bundesbank President Axel Weber that the ECB would continue to monitor the situation, many were still nervous and preferred to remain on the sidelines.
   
The ECB earlier today intervened for the fourth day in a row by holding a quick one-day tender to offset a liquidity shortage even though it said the euro area money market is now returning "close to normal".
   
Deutsche Bank, the worst blue-chip performer, ended lower 2.82 eur or 2.90 pct at 94.33. Fresenius Medical Care closed down 1.08 eur or 2.99 pct at 35.09.
   
Commerzbank was down 0.44 eur or 1.47 pct at 29.45, while Hypo Real Estate shed 0.51 eur or 1.26 pct at 39.99, Munich Re declined 0.32 eur or 0.25 pct at 128.98 and Allianz slipped 1.89 eur or 1.20 pct at 155.50.
   
Thyssenkrupp, however, raced the top of the leaderboard, rising 0.88 eur or 2.22 pct at 40.54 after Credit Suisse upgraded its stance on the steel maker to 'outperform' from 'neutral' and raised its target to 47 eur from 42 eur following strong second-quarter results.
   
Infineon rose 0.05 eur or 0.45 pct at 11.16 on vague rumours of a possible takeover bid from STMicroelectronics or Samsung.
   
DaimlerChrysler gained on speculation it might be planning to pay a special dividend following the sale of its Chrysler unit. It ended up 0.08 eur or 0.13 pct at 62.53.
   
TUI fell 0.07 eur or 0.36 pct at 19.13 amid speculation that Moroccan state-owned investment funds Caisse de Depot et de Gestion Group (CDG) could increase its 5 pct stake in TUI, dealers said.
   
RWE, the third-best performer, added 0.47 or 0.59 pct to 80.27 after Merrill Lynch upgraded its stance on the utility to 'buy' from 'neutral' and set its price target at 90 eur per share.
   
On the MDAX, K&S fell 7.64 eur or 6.76 pct at 105.33 on disappointing second-quarter figures today. Kuka, the biggest riser on the index, gained 1.58 eur or 6.07 pct to 27.60. Premiere rose 0.46 or 2.55 pct at 18.49 amid talk Vivendi SA could attempt to take over the pay-TV group.
   
Nordex was the biggest loser on the TecDAX, shedding 1.34 eur or 4.67 pct at 27.36. United Internet gained 0.45 eur or 3.50 pct at 13.30.

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Amsterdam shares close lower tracking Wall St; KPN gains

The AEX closed 3.51 points or 0.94 pct lower at 508.43, after trading in a range of 507.06-515.34. Government bonds traded higher, while the euro stood at 1.3577 usd, against 1.3631 usd late yesterday.
   
KPN added 4.34 pct to 11.29 eur, leading the few gainers on the AEX after the company announced it will speed up its current share buyback programme, and confirmed it is in talks to possibly acquire Tele2's Belgium operations
   
Financials were lower across the board, after UBS issued a weak second-half outlook. ING dropped 2.65 pct to 29.69 eur. Fortis shed 2.19 pct to 26.77 on news it and the other members of the RBS consortium, which is vying to buy ABN Amro, has bought about 3 pct of ABN Amro shares. ABN Amro itself shed 0.20 pct to 34.41 eur.
   
Aegon lost 1.87 pct to 13.05 eur after it late last night said it bought life insurance units from Merrill Lynch for about 1.3 bln usd.
   
Chemicals ended lower. DSM shed 0.51 pct to 36.72 eur, while Akzo Nobel dropped 0.17 pct to 57.95 amid reports at least one major shareholder will oppose Akzo Nobel's 8 bln stg bid on ICI.
   
Ahold dropped 0.44 pct to 9.05 eur after announcing a timetable for its earlier announced reverse share split and capital repayment.
   
Heineken shed 0.95 pct to 43.38 eur, while small-cap market peer Grolsch added 0.30 pct to 29.39 eur after announcing a sales, marketing and distribution deal with an Australian brewery.
   
Staffing stocks all declined. Randstad dropped 3.31 pct to 44.56 eur and Vedior lost 2.16 pct to 17.62, while USG People shed 3.21 pct to 24.67 eur on the AMX mid-cap index. Corporate Express led blue chip decliners, shedding 3.86 pct to 9.20 eur.
   
Among mid-cap shares, Crucell fell 2.51 pct to 15.90 eur after earlier making gains following well-received second-quarter earnings.
   
Fugro edged 0.06 pct lower at 48.97 eur, CSM dropped 0.36 pct to 27.20 eur ahead of earnings tomorrow and Van der Moolen lost 1.29 pct to 3.80 eur, ahead of earnings expected on Thursday. SNS Reaal dropped 1.80 pct to 15.20 eur, Boskalis lost 1.87 pct to 27.15 and Wereldhave led decliners, dropping 3.29 pct to 89.29 eur.
   
Gainers were few. Aalberts added 0.26 pct to 18.75 eur, ahead of earnings tomorrow, and Univar put on 0.34 pct to 49.17 eur.

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