UK/Euro Financial Market Daily Evening Briefing 16-07-2007

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London shares close lower; NY firm; UK miners help drag blue-chips down

Leading shares closed lower today, with a firm showing on Wall Street following last week's record-breaking rallies, but with losses from UK heavyweight miners helping to drag the blue chips down.
   
At the close, the FTSE 100 index was 19 points off, with the FTSE 250 5.6 points lower at 11,917.3.
   
"It's quite strange we haven't seen more of a reaction to the US market strength. It has been quite muted, and it may well be the same tomorrow as there's not much on the economics front," said David Jones, Head of Research at CMC markets.
   
On Wall Street, by London's close, the DJIA WAS 66.1 points firmer at 13,973.3, with the Nasdaq composite index up 2.98 points at 2,709.98.
   
US investor sentiment, already buoyed by the market's substantial gains last week, was boosted by renewed talk of acquisition activity, with the Financial Times reporting that Vodafone is weighing a bid for Verizon Communications.
   
In London, the heavyweight mining issues featured on the blue-chip loserboard at the close, with the losses inspired by M&A talk and a broker downgrade.
   
At the close, Lonmin was the biggest FTSE 100 casualty, down 293 pence at 3,985, after it warned of a fall in full-year sales of platinum and related metals due to production problems, and raised its full-year guidance on costs.
   
In swift reaction, Citigroup downgraded its rating to 'hold' from 'buy' and cut its target to 4,000 pence from 4,300.
   
BHP Billiton, meanwhile, lost 18 pence to 1,509, on continuing talk it may make a 50 bln usd takeover bid for Alcoa, with the miner declining to comment on the matter.
   
And Rio Tinto's shares also finished lower, down 13 pence at 3,717-1/2, as Citigroup downgraded its rating to 'hold' from 'buy', with the broker questioning the group's 44 bln usd move on Alcan which, on its calculations, is net present value dilutive and only marginally earnings accretive.
   
Weakness was also apparent in Rolls-Royce at the close, down 5-1/2 pence to 564-1/2, after ABN Amro cut its rating to 'hold' from 'buy', albeit raising its price target to 615 pence from 550, on increasing headwind created by US dollar weakness.

ABN Amro said the long-term Rolls-Royce story remains compelling, but believes forecasts must be tempered by the weaker US dollar, adding that this could become more challenging from 2009/10 onwards.
   
And a broker downgrade also helped send Royal Dutch Shell's shares down, 33 pence off at 2,041, after HSBC cut its rating to 'underweight' from 'neutral', but raised its target to 1,945p from 1,800, on valuation grounds.
   
HSBC said it believes Shell's recent outperformance of the sector has been partly driven by expectations of a strong Q2 US downstream performance.
   
It said US margins have been strong but have already turned down in Q3, and it sees the risk of further seasonal weakness.
   
Also on the back foot, reversing this morning's gains, was Royal Bank of Scotland, 3-1/2 pence lighter at 636-3/4, with Mic Mills, futures trader at tradindex.com, predicting it will win the bidding war against Barclays - 4 pence weaker at 728-1/2 - to buy ABN-Amro.
   
It would appear that RBS, with its shares down, is looking likely to be eventual winner, as Barclays and ABN shares are both up, said Mills.
   
Earlier, the RBS consortium said it is still offering 38.4 eur per share for ABN, unchanged from its previous offer which would have included ABN's subsidiary LaSalle, though with the cash component raised to 93 pct from 79 pct under the previous offer.
   
Elsewhere among the blue-chip gainers, a broker upgrade provided the spur for GlaxoSmithKline shares, 21 pence stronger at 1,310, as JP Morgan raised its rating to 'neutral' from 'underweight'.
   
The broker said while a negative outcome from the FDA's Advisory Committee on its Avandia diabetes drug would almost certainly send shares in Glaxo lower, it has already removed US Avandia sales from its embedded value model.

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And Pearson shares, 9 pence higher at 834, were also lifted by positive broker comment, after Bear Stearns upgraded the group to 'peer perform' from 'underperform' on valuation grounds.

Turning to the midcaps, Tullow Oil closed 12 pence lighter at 523-1/2 after UBS maintained its 'reduce' stance but raised its price target to 500 pence and 400 pence.
   
UBS said that the potential for disappointment is large for Tullow Oil, and it sees the current share price as an attractive opportunity to lock in recent profits.
   
And finally, on a brighter note, shares in AMEC took on 10-1/2 pence to 666-1/2 after the international project management and services company said it has acquired Romanian environmental consultancy Agraro Consult SRL from a consortium of six individuals for 125,000 eur in cash.

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Paris closes higher, led by banks on easing interest rate, subprime fears

The CAC-40 index finished up 7.64 points, or 0.1 pct at 6,125.60. Among CAC-40 stocks, 28 closed higher and 12 closed lower. On the Matif, July CAC-40 futures were trading at 6,130.50. On the broader indices, the SBF-80 index closed down 2.95 points, or 0.04 pct at 7,327.54, while the SBF-120 rose 4.56 points, or 0.1 pct to 4,464.67.
   
With interest rate and subprime fears abating, banks led the gainers with BNP Paribas rising 1.30 eur, or 1.5 pct to 88.67 eur while Societe Generale gained 2.85 eur, or 2.1 pct to 138.75 eur. Credit Agricole, meanwhile, added 0.33 eur, or 1.1 pct to 30.05 eur.
   
Elsewhere shares in Alstom climbed 2.94 eur, or 2.2 pct to 138.55 eur after Exane BNP Paribas lifted its price target on the power plant and transport infrastructure group to 150 eur from 130 eur and its 2008-2009 earnings forecasts.
   
The broker said the company was its "preferred play" on the infrastruture market, citing its "long-term growth prospects, flawless execution and good speculative appeal".
   
Gaz de France was the biggest percentage decliner on the CAC-40 Index, giving up 1.4 pct to trade at 36.47 eur as hopes continued to fade for a rapid conclusion to its delayed merger with Suez.
   
Citing unnamed sources, La Tribune said the government is to give Gaz de France up to six months to study different strategic options as a way out of the current stalemate over Suez.
   
French prime minister Francois Fillon had said on Friday there was "no urgency" to take a decision on the matter, while reiterating that his government is looking at all options.
   
EADS shares rose 0.14 eur, or 0.6 pct to 24.12 eur as a Franco-German summit to discuss changes in the way the company has been run led to the confirmation of Louis Gallois as sole chief executive officer, replacing a dual governance structure.
   
Current co-CEO Thomas Enders is to head the aerospace giant's Airbus unit. EADS also announced that current co-chairman Rudiger Grube will become the group's sole chairman.
   
French President Nicolas Sarkozy and German Chancellor Angela Merkel also said there were no immediate plans to carry out a capital hike for the company.
  
"The question of a capital increase for EADS is some months, even some years away," Sarkozy told journalists at a press conference.
   
Capgemini climbed 1.33 eur, or 2.4 pct to end at 56.60 eur. The stock benefited from a positive note from HSBC on the French IT services sector, in which the broker resumed coverage of Capgemini with an 'overweight' rating and a 70 eur target.
   
HSBC said it does not expect any negative surprises in first-half results while also seeing the second half as more favourable. A Paris dealer, meanwhile, noted that Capgemini remains speculative, particularly following last week's talk of a bid from Indian peer Infosys.

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German shares close slightly higher, led up by BMW

German shares closed slightly higher led up by BMW on a day of low volume trade, with investors waiting for several companies to release their second-quarter results in the coming days.
   
The DAX closed 12.92 points or 0.16 pct higher at 8,105.69, after trading between 8,074.97 and 8,130.72 today. The MDAX was up 8.75 points or 0.08 pct at 11,365.19, while the TecDAX dropped 4.86 points or 0.50 pct to 962.12.
   
DAX futures rose 7.50 points or 0.09 pct to 8,167.00 and bund futures added 0.28 points or 0.25 pct at 110.75.
   
BMW was the strongest blue chip riser, adding 0.90 eur or 1.84 pct to 49.79, on rumours that Arabian and Chinese investors are in talks with the Quandt family regarding a takeover of their holding in the company. The rumours persisted despite a denial from the Quandt family, which holds 46.6 pct in BMW.
   
Bayer added 0.76 eur or 1.35 pct at 57.15, after JP Morgan raised its price target to 70 eur per share from 63 and reiterated its 'overweight' rating on the pharma giant. In a note to clients, the brokerage said new data supports the assumption that Bayer's Rivaroxaban drug will have global sales of 6 bln eur by 2016.
   
Fresenius Medical Care rose 0.40 eur or 1.20 pct at 33.61, which traders attributed to largely technical grounds as it rebounded from earlier losses.
   
Deutsche Postbank was 0.74 eur or 1.17 pct higher at 63.84, while peer Commerzbank added 0.34 eur or 0.97 pct at 35.42.
   
At the other end, Adidas was today's worst performer, dropping 0.92 eur or 1.97 pct to 45.85.
   
Siemens declined 1.46 eur or 1.31 pct at 109.65, after Ashok Leyland and Siemens' VDO Automotive AG signed an agreement for a joint venture to develop electronic components and software for commercial vehicles and passenger cars.
   
ThyssenKrupp lost 0.51 eur or 1.12 pct to 44.93. Linde declined 0.70 eur or 0.76 pct to 91.05, while Henkel dropped 0.30 eur or 0.73 pct to 40.91.
   
Over on the MDAX, Wincor Nixdorf rose to the top, adding 1.59 eur or 2.28 pct at 71.33.
   
Meanwhile, Arcandor -- formerly KarstadtQuelle -- lost 0.74 eur or 3.07 pct to 23.33 on speculation the retailer might issue a profit warning. But a spokesman rejected the rumour saying the company does not plan to do this.
   
TecDAX-listed Bechtle gained 0.99 eur or 3.65 pct to 28.13, while United Internet dropped 0.97 eur or 6.26 pct to 14.52 after an article in the Frankfurter Allgemeine Zeitung said the internet provider saw slightly worse customer registrations in three months through June compared to the previous quarter.

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Amsterdam shares close slightly higher on rallying Wall St

The AEX closed 0.97 points or 0.17 pct higher at 561.90 after opening at 563.02 and trading in a range of 560.38-563.66. Government bonds traded mainly higher and the euro was valued at 1.3782 usd versus 1.3786 usd late Friday.
  
ABN Amro led gainers, rising 3.63 pct to 37.15 after the consortium formed by the Royal Bank of Scotland, Fortis and Banco Santander reiterated its 38.40 eur per share offer for ABN Amro with an increased cash component. Fortis, which is currently preparing to raise capital to fund its part of the offer, went down 1.95 pct to 30.61.
   
Aegon added 0.21 pct at 14.33 and ING put on 0.82 pct to 33.19 after the bank said it is still comfortable with the decision it took not to merge with its Dutch rival. Earlier, a report said ING is considering teaming up with BBVA and possibly Citigroup to lodge a counter bid for ABN Amro.
   
Philips closed 1.14 pct lower to 32.04 after the electronics giant came out with an un-exciting set of second-quarter results. The company reiterated its full year guidance as net profit for the quarter came out at the lower and operating profit at the higher end of analyst expectations.

Fellow tech stock ASML closed 0.24 pct higher to 20.87 after the maker of machines that produce computer microchips said its new KrF lithography system significantly reduces operating costs for its customers. Meanwhile, LogicaCMG closed 0.88 down pct to 2.25 in comparatively high volume.
   
AEX gainers included Heineken, advancing 1.54 pct to 42.90, Reed Elsevier, rising 1.17 pct to 14.70 and KPN, climbimg 1.16 pct to 12.21. Ordina led midcap gainers, up 2.37 pct to 15.99 and BAM put on 1.26 pct to 22.58.
   
Local issue Arcadis lifted 4.33 pct to 68.29 after an upgrade to 'buy' from 'hold' at ING Research, on the strength of a recent US acquisition.
   
Hagemeyer led AEX decliners, sliding 2.14 pct to 4.11 as US peer Grainger reported second quarter results that were solid but showed a slowdown in actual market growth.
   
Oils were mainly lower as oil priced approached all-time highs, with Royal Dutch Shell down 1.34 pct to 30.16 and Fugro losing 1.21 pct to 49.91. SBM Offshore closed flat at 29.67.
   
USG People led midcap decliners, dropping more than 5 pct to 33.80; "probably on profit taking...the company's fundamentals remain good," an analyst said. Among local stocks, Pharming dipped 3.14 pct lower to 3.08 on profit taking after recent gains, a trader said.

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