UK/Euro Financial Market Daily Evening Briefing 15-02-2008

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London shares close sharply lower after weak US economic data

At the close, the FTSE 100 index was off 91.7 points at 5,787.6, having fallen from a high of 5,915.0, and recovered from a low of 5,763.5, with the FTSE 250 index also finishing lower, down 191.3 points at 9,897.9.

Volume was fair, with 2.1 bln shares having changed hands in 685,124 deals.

In the US, Wall Street was down, knocked by weak manufacturing and consumer sentiment data which indicated economic conditions are deteriorating.

The Dow Jones Industrial Average was off 73.7 points at 12,303.3 at the UK close, while the Nasdaq Composite lost 21.24 at 2,311.3, and the S&P slipped 9.0 points to 1,339.85.

Adding to investor woes, Citigroup has reportedly stopped investors withdrawing money from CSO Partners, one of its hedge funds specialised in corporate debt, after investors tried to take out more than 30 pct of the fund's 500 mln usd in assets, according to the online edition of the Wall Street Journal.

Turning to UK equities, banking issues remained under pressure as sector investors continued to fret over credit crunch write-downs, with French bank Natixis last night announcing a surprise 1.2 bln eur write-down and Bank of Ireland today saying market volatility is hitting its full-year performance.

Alliance & Leicester lost 18-1/2 to 525 in sympathy, HBOS fell back 22-1/2 to 608-1/2, Lloyds TSB shed 14-3/4 to 395-3/4 and Barclays slipped 15-1/2 to 427-1/2. Mid-cap Bradford & Bingley, which kicked off the banks reporting season with big writedowns earlier this week, also shed another 10-1/4 pence to 176.

Elsewhere, property group British Land dropped 37 to 932 after being downgraded to 'neutral' from 'buy' by UBS, with a reduced price target of 1,050 pence from 1,135 pence.

The broker said it thinks while the worst may be behind the company, the best is still some way ahead.

Turning to the small number of gainers, Vedanta Resources ended the session as the top FTSE 100 performer, up 68 at 2,072, buoyed by a UBS upgrade to 'buy' from 'neutral' and helped further by ongoing sector consolidation talk.

UBS told clients this morning it believes Vedanta has one of the best growth profiles in the UK sector.

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Meanwhile, pharmaceuticals were in demand after a filing to the US Securities and Exchange Commission revealed US billionaire Warren Buffett has invested significantly in sector major GlaxoSmithKline and peer Sanofi-Aventis. Glaxo shares ended 11 pence firmer at 1,112, while AstraZeneca also benefited, closing 9 higher at 1,954.

Stake-building also boosted shares in Johnson Matthey, 29 ahead at 1,979 after the company revealed investor BlackRock now holds 5.11 pct in the UK speciality chemicals and precious metals group, which has previously been the subject of vague M&A speculation.

Meanwhile, Cadbury Schweppes shares finished 11 higher at 597, ahead of its full-year results next Tuesday, when the world's biggest confectioner is expected to reiterate its target of 4-6 pct top-line growth in 2008, despite facing the challenge of a weakening consumer environment.

Elsewhere, bullish broker comment helped buoy insurers after Goldman Sachs upgraded its stance on the sector to 'neutral' from 'underweight' in a European strategy review published today.

Friends Provident finished up 0.6 at 131.5, also supported by underlying bid speculation, Admiral Group added 12-1/2 to 948 and Prudential gained 1 to 215-1/2.

On the second tier, Go-Ahead Group was still the biggest casualty at the close, having slumped 17.67 pct lower, down 395 pence at 1,840 after reporting below-forecast first-half results and issuing a cautious outlook.

The transport firm's numbers were described as 'weak' by Merrill Lynch, which said its estimates are likely to come down.

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The news knocked other transport groups, with FirstGroup heading the FTSE 100 loserboard, off 40-1/2 pence at 605-1/2, while mid-caps Stagecoach lost 23-3/4 to 222-1/2, National Express slipped 64 at 1,063 and Arriva was off 32-1/2 pence at 664.

Turning to the gainers, a revival vague private equity bid speculation in the press gave Ladbrokes a lift, up 7-3/4 at 329. Tate & Lyle also made progress, 1 higher at 509-3/4 after a reassuring third-quarter trading update.

The sugar refiner and food ingredients maker reiterated its profit guidance for its second half to end-March 2008 and said profit before tax for continuing operations for the four months to Jan 31, 2008 was marginally ahead of internal expectations.

ABN Amro said the update reinforced its confidence in the group and lifted its target to 510 pence, but also downgraded its rating to 'hold' from 'buy' on valuation grounds.

And finally, outsourcing firm Serco was buoyed by a positive initiation from Deutsche Bank, gaining 5-1/4 to 451-1/4, with the broker starting the group as a 'buy' with a 545 pence target.

UK Diary of Event:
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UK Small Cap Report:
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Paris shares end lower on weak US data, bank fears after Natixis warning

The CAC-40 index finished down 86.86 points or 1.79 pct at 4,771.79. Among CAC-40 stocks, 6 closed higher and 34 closed lower. On the Matif, February CAC-40 futures were trading at 4,766.

On the broader indices, the SBF-80 index closed down 70.12 or 1.26 pct at 5,506.96 and the SBF-120 ended down 60.49 or 1.72 pct at 3,460.21.

The euro was quoted at 1.4678 usd compared to 1.4622 usd late yesterday. After an erratic week, today's losses left the CAC-40 up 62.14 or 1.32 pct on last Friday's closing level of 4,709.65.

In Paris, meanwhile, Natixis led financial stocks lower, plunging 1.18 eur or 10.71 pct to 9.84, after warning last night that its full year net profit will drop sharply to an estimated 1 bln eur, reflecting an 817 mln eur writedown on assets indirectly exposed to subprimes, and 380 mln eur for exposure to US monoline insurers.

Societe Generale analysts cut their price target on Natixis to 9.8 eur from 11.7, saying the shareholder dividend should now be cut to around 0.42 eur, from 0.86 eur previously, and could even be paid in shares, creating a 2.6 pct dilutive effect.

The Natixis announcement came in the wake of yesterday's news that Moody's has downgraded another bond insurer, Financial Guaranty Insurance, to A3 from AAA, as well as a first-ever loss from Swiss bank UBS. To add to the gloom, Citigroup today published a note predicting an additional 18 bln eur of writedowns at UBS.

On the CAC-40, Credit Agricole ended as the biggest faller, down 0.99 or 5.34 pct at 17.56. According to a Paris-based dealer, rumours are intensifying that Credit Agricole may reveal heavy credit-related writedowns, in the wake of Societe Generale and now Natixis.

Among other banks, BNP Paribas fell 2.04 or 3.34 pct to 59.11, Dexia dropped 0.46 or 2.87 pct to 15.55, and Societe Generale shed 1.78 or 2.28 pct to 76.22.

Among other heavy bluechip fallers, STMicroelectronics slipped 0.32 or 3.74 pct to 8.24. The chip maker was affected by negative analyst comments. Goldman Sachs downgrading the technology sector to 'underweight' from 'neutral', while Sanford Bernstein also downgraded the sector to 'market weight' from 'overweight', at the same time cutting STMicro to 'underperform'.

Elsewhere in the sector, Atos Origin fell 0.88 or 2.48 pct to 34.61 as investors took profits from yesterday's surge in the wake of broadly in-line earnings figures published this morning.

The group said it was confident about 2008, but cut its 2009 operating margin target, citing the sale of its Italian activities and stake in Atos Euronext Market Solutions.

Thomson SA tumbled 0.78 or 11.24 pct to 6.16, extending its slump since the publication of full year results yesterday morning.

Among other fallers, tyre manufacturer Michelin lost dropped 1.74 or 2.84 pct to 59.46, hit by disappointment over today's below-consensus full-year figures and concerns over the outlook for the group.

On the upside, Air Liquide addd 0.74 or 0.80 pct to 92.74 after the industrial gases group published solid full-year results this morning and gave an upbeat outlook.

Food group Danone rose 0.59 or 1.13 pct to 52.69 after profit-taking yesterday following its full-year results.

Safran jumped 0.77 or 6.19 pct to 13.20, buoyed by a recommendation upgrade to 'outperform' from Exane BNP Paribas.

In the wake of yesterday's full-year earnings, the broker pointed to the likelihood of a solution for the handset business in 2008 and "achievable guidance" for the year.

Among other midcaps, Ipsos climbed 0.97 or 5.76 pct to 17.81 after full-year sales last night which showed a marked improvement in growth in the fourth quarter.

Sopra, meanwhile, rose 2.30 or 5.47 pct to 44.35 after the IT services group met its full year growth targets and said it post more organic growth above the industry average this year, arguing it is not vulnerable to a cyclical downturn.

Credit insurer Euler Hermes ended unchanged at 74.00 after reporting during the session  a 24.8 pct rise in full year net profit, in line with its guidance for a "significant increase".

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German shares close lower on growing concerns about US economic growth

The DAX closed 129.85 points or 1.87 pct lower at 6,832.43, having traded in the 7,012.63-6,797.76 range. The MDAX lost 136.80 points or 1.51 pct to 8.945.36, while the TecDAX fell 20.18 points or 2.46 pct to 801.23.

DAX futures lost 95.00 points or 1.37 pct to 6,762.50, while bund futures won 116.46 points or 0.41 pct to 116.46. The euro was trading at 1.4677 usd, compared with 1.4690 usd in London afternoon deals.

On the Frankfurt trading floor, Hypo Real Estate led German blue chips lower, losing 0.98 eur or 5.32 pct to 17.44.

Bayer fell 2.15 eur or 3.72 pct to 55.66 after a downgrade to 'equalweight' by Lehman Brothers and negative media reports on its anti-bleeding drug Trasylol, sales of which Bayer halted last November.

Infineon shares eased 0.21 eur or 3.70 pct to 5.46 as analysts talked of the difficulties which the chipmaker faces in selling its Qimonda DRAM unit and after Goldman Sachs downgraded the semiconductor sector to 'underweight.'

Continental shares lost 1.93 eur or 2.86 pct to 65.58 after peer Michelin reported disappointing full-year figures. Michelin posted a full-year net profit, which surged 34.7 pct to 772 mln eur, but missed a consensus of analysts' forecasts of 828.34 mln eur compiled by Thomson Financial.

Bucking today's negative trend, Deutsche Postbank shares gained 1.67 eur or 2.84 pct to 60.44 after Germany's largest retail bank released fourth-quarter figures, which dealers said were slightly higher than market expectations.

Several analysts highlighted the banks subprime-related writedowns, which most said were less than expected.

Deutsche Post rose 0.25 eur or 1.12 pct to 22.50 after its chief executive Klaus Zumwinkel offered his resignation.

Traders said that his resignation could signal the distinct possibility of an upper-level management change at Deutsche Post, which might result in a speedier sale of the company's Deutsche Postbank AG unit and perhaps better management decisions concerning the company's ailing US-Express division.

Fresenius Medical Care added 0.84 eur or 2.48 pct to 34.69 after Goldman Sachs raised it ratings on the US pharma sector to 'attractive.' The German-based dialysis company is extremely active in the US and uses the US dollar as its currency for accounting purposes.

Over on the MDAX, GEA Group lost 1.30 eur or 6.02 pct to 20.31 as the worst performer on the index.

At the other end, Premiere gained 0.78 eur or 5.78 pct to 14.27 as dealers spoke of vague takeover talk and said rumours that the pay-TV provider would make an important announcement soon were making the circuit.

"Speculation of a takeover from News Corp has been in the market since the company bought Unitymedia's stake in January," said a Frankfurt trader.

QSC led decliners on the TecDAX, down 0.13 eur or 6.13 pct at 1.99, while IDS Scheer added 0.20 eur or 1.93 pct to 10.54 as the top performer.

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Amsterdam shares close lower on techs, financials on negative Wall St

The AEX closed 1.74 pct or 7.72 points lower to 434.81 after opening at 442.71, and trading in the 433.70-445.36 range.

Government bonds traded mainly higher, while the euro stood at 1.4682 usd compared with 1.4637 usd late yesterday.

ASML was the strongest decliner on the AEX, shedding 4.38 pct to 16.80 eur as the semiconductor equipment maker responded to falls in US semiconductor stocks last night amid negative analyst reports on some big chip makers. Tech related Philips closed down 2.72 pct to 25.73.

Heavyweight financials also weighed on the AEX, with Fortis falling 3.33 pct to 13.64, Aegon sliding 2.12 pct to 27.24 and ING down 1.56 pct to 20.16 after a price target cut from Rabo Securities.

Royal Dutch Shell, also a heavyweight on the AEX, closed 2.52 pct lower to 23.61.

Fellow oil stock SBM Offshore closed down 1.16 pct to 21.36 after initially rising in the wake of strong results from Italian oil services rival Saipem and news that a new contract with Petrobras will be worth 1.25 bln eur.

TomTom lost 1.26 pct to 37.60 eur and Tele Atlas 0.60 pct to 26.51 eur amid talk of EU regulatory problems with the agreement for TomTom to acquire its smaller personal navigation devices rival.

Dealers said there is no firm news and the rumours could have been sparked by misunderstanding of the regulatory process for the deal. The European Commission is carrying out a full investigation, but is not scheduled to make a ruling until May.

TNT weakened 1.84 pct to 27.24 eur ahead of results expected Monday, with analysts predicting a sharp jump in profit in the fourth quarter.

Midcapper Van der Moolen led decliners, falling 7.91 pct to 2.56.

Local issue Arcadis fell 1.71 pct to 42.0 with investors unimpressed by news joint venture Arcadis Aqumen FM won a five year facility management contract form Philips worth 50-60 mn eur a year.

DSM was the top gainer on the AEX, up 1.65 pct to 27.75 eur as investors took heart from broker's reiteration of positive ratings after Wednesday's results. ING reduced its target to 32 eur from 44 but kept a 'Buy' recommendation, saying the stock offers "deep value".

KPN put on 0.73 pct to 12.44 eur as investors decided the telecoms group offers good value after a 4 pct drop this week.

Other gainers on the AEX included Ahold, 0.35 pct higher to 8.71, and Wolters Kluwer, adding 0.05 pct at 19.01.

Midcapper Heijmans rose 0.66 pct to 24.25 after the company said its infrastructure division was awarded a 32 mln eur contract by Netherlands Public Works to undertake repairs and associated work on the A7 national motorway.

Local issue Vopak edged 0.09 pct higher to 33.86 after the company said it had sought the Estonian competition board approval for a joint venture the company hopes to set up with Estonian Oil Services (EOS).

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