UK/Euro Financial Market Daily Evening Briefing 16-08-2007

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London shares close sharply down; New York tumbles on credit concerns
 
London shares dived at today's close, reflecting a fresh credit-fear-induced tumble on Wall Street, with UK miners and financials leading the blue-chip fallers.
   
At the close, the FTSE 100 index shouldered a triple-digit loss, down 250.4 points at 5,858.9, with all of its components in the red, while the FTSE 250 index was 426.8 points lower at 10,462.6. The broader FTSE indices were all down. Volume was solid, with 3.73 bln shares changing hands in 849,657 deals.
   
"Until the extent of the market (turmoil) is known, there will continue to be a great deal of uncertainty," said Richard Hunter, head of UK equities at Hargreaves Lansdown, adding the next few weeks could be a difficult and volatile time.
   
On Wall Street, by London's close, the DJIA dropped 184.4 points to 12,677, while the Nasdaq composite index fell 32.42 points to 2,426.41.
   
Investors' confidence was badly hit by Countrywide Financial, the US's largest mortgage lender, which confirmed fears of widening problems with some mortgages and tighter access to credit.
   
Sentiment took a drubbing yesterday on concerns about potential trouble at Countrywide. The company, referring again to tightening credit conditions, said early today it was forced to draw on an 11.5 bln usd credit line to fund operations.
   
Also contributing to the Dow's losses was news US housing starts fell last month to their lowest level since Jan 1997 and builders' future construction permits were at their lowest level in more than 11 years.
   
The Commerce Department reported a 6.1 pct decline in July housing starts to a 1.381 mln unit annual rate. That was the lowest rate of new home construction since the 1.355 mln unit rate in Jan 1997.
  
Building permits fell 2.8 pct to 1.373 mln, their lowest level since the 1.358 mln unit rate in Oct 1996.
   
Back in London, losses in heavyweight miners helped drag the blue chips lower, as falling metals prices and a weak market brought about a sector sell-off.

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Antofagasta led the casualties, falling 75 pence to close at 608, while Lonmin dropped 290 pence to finish at 2,792, Anglo American slipped 255 points to 2,470, Vedanta Resources was 137 points weaker at 1,498, BHP Billiton was down 93 pence at 1,183, Kazakhmys tumbled 99 pence to 1,071, Rio Tinto fell back 220 pence to 2,929 and Xstrata fell 175 pence to 2,509.
   
Alongside miners, financials remained one of the hardest hit sectors, as fears grow banks will be left sitting on mountains of debt as traditional buyers avoid the collatorised loan/debt obligation markets.
   
Northern Rock closed 28-1/2 pence lower at 659-1/4, as brokers continued to fret that higher borrowing costs could force the the bank to miss already scaled-back profit growth targets. JP Morgan reduced its target to 690 pence from 830, while Shore Capital reiterated its 'sell' stance.
   
Other financials also finished down, with Standard Chartered 118 pence lower at 1,444-1/2, Bradford & Bingley down 15-1/2 pence down at 376 and Alliance & Leicester 40 pence lower at 1,000-1/2.
   
Fund management groups also felt the heat with Invesco finishing down 38-1/2 pence at 565-3/4 and hedge fund Man Group ending the session 40-1/2 pence lighter at 446-1/2.
   
In broker-generated news, shares in Cadbury Schweppes ended 17 pence weaker at 534-3/4, helped down by a target cut from Citigroup to 550 pence from 685, as the broker feels it is time to go back to valuing the confectionary group on fundamentals.
   
Elsewhere, British Energy fell back 36-1/4 pence to 417-3/4, after the nuclear power station operator said it expects the remainder of the year to be easier after its first-quarter operating profit suffered as a result of
prolonged outages at its Hinkley Point and Hunterston power plants this morning.
   
And finally, turning to the midcaps, IMI closed 50 pence lighter at 517-1/4, after news this morning it is investigating possible irregular payments related to certain contracts entered into by its severe service business.
   
Evolution Securities, however, remained positive on the group, highlighting the key issue is whether the announcement affects core trading. The broker said it believes it does not, as it appears to be more an issue of business process than fraudulent accounting.

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

UK Diary of Events

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Milan

Milan shares slump below important support levels as Wall Street weighs

The Mibtel slumped 3.45 pct to end at 29,542. The S&P/Mib fell to its lowest level since Sept 2006 at 37,921 before finishing down 3.38 pct at 37,925 on volume of some 8.084 bln eur.
      
Selling pressure was widespread, with no shares on the blue-chip S&P/Mib index ending positive territory. Leading the fall were oil-related stocks such as Tenaris, ending down 8.52 pct at 16.26 eur, and Saipem, finishing 7.34 pct lower at 24.00.
   
Eni fell 3.60 to end at 23.31 even if dealers consider it a safe-haven in times of extreme turbulence even though they note that the share could suffer from the decline in oil prices.
       
However, Terna finished down 3.26 pct at 2.3875 while Snam Rete Gas fell 3.33 pct to end at 4.07. Among other utilities, Enel finished down 1.31 pct at 7.175 and AEM slumped 2.31 pct at 2.365.
   
Cement sector companies were penalised by the weak outlook for the US housing market after the US Commerce Department reported a 6.1 pct drop in July housing starts to the lowest rate since Jan 1997.
   
"Both Italcementi and Buzzi are trading at a strong discount compared with European peers. At these levels they could be interesting, even though I prefer Italcementi to Buzzi for its lower exposure to the US market," said the dealer.
   
Buzzi Unicem finished down 3.95 pct at 19.95, Cementir fell 3.23 pct to 8.475 and Italcementi slumped 5.14 pct at 17.09.
   
Finmeccanica ended down 3.29 pct at 19.43 despite reports it has already received 71 orders for the Superjet 100 regional plane it produces with Russia's Sukhoi.
   
In the financial sector, Unicredito fell 3.69 pct to 5.865, touching new lows for the year, while merger partner Capitalia slumped 4.45 pct at 6.485.
   
Intesa Sanpaolo fell 2.91 to end at 5.43 while some of the smaller banks fared better with Banca Popolare di Milano finishing down 1.75 pct at 9.89, Banca Monte dei Paschi di Siena finishing down 1.67 pct at 4.59 and UBI Banca ending 1.81 pct lower at 18.20.
   
Among insurers, Assicurazioni Generali dropped 3.2 pct to 29.00 while its life insurance unit, Alleanza, fell 2.97 pct to end at 9.30. Fondiaria-SAI was down 2.51 pct at 33.08 and Unipol slumped 5.53 pct to 2.2275.

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Swiss shares closes sharply lower in line with European markets

The Swiss Market Index was 2.8 pct or 239.31 points lower at 8,422.28, while the Swiss Performance Index was 3 pct or 211.24 points lower at 6,850.07.
   
Focus was on Ciba, which fell 8.4 pct or 5.80 sfr to close at 63.25, after the Swiss specialty chemicals group's second-quarter results came in significantly below expectations. Earlier, Ciba reported second-quarter net profit from continued operations of 33 mln sfr, down from 60 mln sfr a year ago and falling sharply below analyst consensus forecasts of 67 mln sfr. Peer Clariant also dropped 4 pct, or 0.65 sfr to close at 15.55.
   
Zurich Financial was a relative outperformer, easing 2 sfr to close at 323, after reporting a forecast-beating net profit.The group earlier released first-half net profit of 2.684 bln usd compared with 2.011 bln in the corresponding period of last year and 2.462 bln usd anticipated by analysts. But its combined ratio was down at 96.5 pct, a deterioration of 2 pct, primarily hit by UK storms and floods in August.
   
In other financials, Swiss Re dropped 3 pct or 3.05 sfr to close at 96.25 and Swiss Life was 2.1 pct or 5.75 sfr lower, closing at 266.50.
   
Julius Baer lost 6.4 pct or 5.05 sfr to close at 73.25, and Credit Suisse fell 2.1 pct or 1.75 sfr, closing at 77.15. UBS dropped 2.3 pct or 1.45 sfr to close at 61.80.
   
In pharmaceuticals, Novartis retreated 2.1 pct or 1.35 sfr to close at 62.75 and Roche dropped 1.7 pct or 3.50 sfr to close at 205.20.
   
Elsewhere in healthcare, Nobel Biocare plunged 7.6 pct or 25 sfr to close at 302 after a German court found it is infringing a Materialise Dental patent for producing drilling guides for dental implant surgery.
   
Nestle surrendered some of yesterday's gains its strong first-half results, dropping 2.7 pct, or 13.50 sfr to close at 481.00.
   
Outside the SMI, Siegfried fell 3 pct, or 6 sfr to close at 194. Earlier, the Swiss chemicals company reported a much-improved first-half net profit of 45.5 mln sfr, up from 12.5 mln last year, driven by improved demand and one-off effects from the sale of the Sidroga Division and other divestments.

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German shares closer lower tracking Wall Street, credit fears weigh

The DAX closed down 175.83 points or 2.36 pct at 7,270.07, after trading in the 7,240.78-7,360.28 range. The MDAX was down 446.49 points or 4.49 pct at 9,508.13, while the TecDAX eased 39.22 or 4.50 pct to 833.10.
   
DAX futures were down 41.00 points or 0.56 pct at 7,308.00, while bund futures added 0.47 or 0.42 pct to 113.64 points.
  
Today saw no blue chip gainers, with TUI leading large caps lower, declining 1.58 eur or 8.28 pct to 17.51 after M.M. Warburg lowered its target on the stock to 20 eur from 21 and reiterated its 'hold' stance. Deutsche Boerse followed, dropping 5.76 eur or 7.16 pct to 74.73.
   
Car and car parts stocks were mostly lower with MAN down 6.53 eur or 6.38 pct to 95.77, Continental declining 4.70 eur or 4.99 pct to 89.55, and DaimlerChrysler falling 2.91 eur or 4.65 pct to 59.70.
   
Bucking the trend, Volkswagen outperformed the market, losing 1.08 eur or 0.74 pct to 145.70.
  
Among outperformers, RWE declined 0.56 eur or 0.69 pct to 80.48 as today's strongest DAX performer.
   
Allianz was today's third strongest performer, dropping 1.31 eur or 0.85 pct to 152.64, as traders said a support level at 150 eur had kept. On the MDAX, Wacker Chemie fell to the bottom, losing 12.91 eur or 8.72 pct to 135.08.
   
Hugo Boss was the sole gainer on the index, rising 0.05 eur or 0.12 pct to 43.15.
   
Aareal Bank was flat at 32.12 after the real estate bank announced it is selling its 66.22 pct stake in Immobilienscout GmbH, one of the leading real estate web sites, for about 357 mln eur. The sale will result in an additional one-off net profit of 140 mln eur, and the bank raised its target of a return on equity after tax to more than 20 pct, compared to its previous target of 13 pct.
   
TecDAX-listed Nordex dropped 2.81 eur or 10.68 pct to 23.50, while Rofin Sinar Technologies gained 2.39 eur or 4.65 pct to 53.81.

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Amsterdam shares close lower, tracking Wall Street amid credit concerns

The AEX closed 18.98 points or 3.75 pct lower at a low of 487.06, after opening at 496.90 and reaching a high of 497.55. Government bonds traded higher, while the euro stood at 1.3422 usd, against 1.3477 usd late yesterday.
   
Among major decliners, personal navigation group TomTom declined 7.94 pct to 42.11 eur while chemicals company Akzo Nobel shed 7.79 pct at 52.56 after earnings disappointment from peers Ciba Speciality Chemicals and Lanxess, while traders dismissed rumours about problems with Akzo Nobel and Henkel's joint bid for Imperial Chemical Industries.
   
Staffing stocks were hit hard by fears about economic growth as a result of the credit crunch, with one trader noting that "they are the first companies to notice a slowing of economic growth". Randstad lost 7.21 pct at 40.56 while Vedior dipped 6.52 pct to 16.62 and midcap sector peer USG People declined 4.80 pct to 22.99.
   
Arcelor Mittal lost 6.35 pct at 39.52 eur amid news of strike threats in Algeria and a court case in Rotterdam next week to deal with minority shareholders' objections to the merger of Arcelor with Mittal.
    
Hagemeyer, which is due to present its earnings for the first half of 2007 tomorrow morning, lost 5.68 pct at 3.32 while Corporate Express lost 5.04 pct at 8.47 eur amid news that hedge funds are pulling out of the group on fading takeover hopes.
   
Takeover target ABN Amro meanwhile sunk 5.96 pct to 31.85, leading financial decliners while Fortis was more fortunate, closing only 2.08 pct lower at 25.92. Fortis is part of a consortium that has bid for ABN Amro and made news today with its expanded ABN Amro stake and the European Commission's announcement of a September 19 deadline for its inquiry into that bid.
   
Among other financials, ING lost 2.81 pct at 28.35 and Aegon shed 2.23 pct at 12.74.
   
With oil also feeling the effects of the credit situation, Royal Dutch Shell was off by 4.16 pct at 26.24 and oil services group SBM Offshore slid 4.02 pct to 26.27 while midcap peer Fugro lost 5.52 pct at 46.25.
   
Philips closed 2.76 pct lower at 27.11 after making the news for gaining anti-trust approval in the US and Germany for its purchase of Color Kinetics and for announcing it has bought XIMIS, a US company specialising in web-based radiology information systems, for an undisclosed sum.
   
There were no gainers on the AEX at close.
   
Aalberts Industries led midcap gainers at closing, ending 7.29 pct lower at 16.78 eur while Wereldhave lost 6.36 pct at 83.39 and Van der Moolen gave up 5.56 pct at 3.57 eur on disappointing second-quarter results.
   
Builder BAM was down 5.46 pct at 19.06 while peer Heijmans lost 2.60 pct at 38.19 eur and dredger Boskalis lost 5.59 pct at 25.18.
   
Engineering group Stork NV also declined, closing 3.96 pct lower at 46.36, reaching a level below Candover's 47 eur per share offer for the first time in weeks.
   
Performing somewhat better than the rest of the midcap, SNS Reaal closed just 1.69 pct lower at 14.51 as investors welcomed the bancassurer's better-than-expected results for the first half of the year.
   
Getronics was off by 0.33 pct at 6.09 at closing, while Univar was nearly flat, losing 0.06 pct at 48.77.

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