UK/Euro Financial Market Daily Evening Briefing 18-07-2007

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London shares close sharply lower, US subprime woes offset Sainsbury bid

The FTSE 100 closed sharply lower as renewed fears surrounding the US subprime market and its wider implications hit home Wednesday and offset news of a bid for J Sainsbury.
   
The FTSE 100 ended off 92.0 points at 6,567.1, while the broader FTSE 250 closed down 75.0 at 11,726.0. The other indices also finished lower. Volume was strong with 3.3 bln shares trading in 521,319 deals.
   
Meanwhile, over on Wall Street, US stocks retreated Wednesday after Bear Stearns Cos told investors there was little value left in two failed hedge funds, renewing concerns that soured subprime loans will wreak financial havoc on Wall Street.
   
A short while ago, the Dow Jones industrial average fell 55.60, or 0.40 pct, to 13,915.95. The Standard & Poor's 500 index fell 6.82 to 1,542.55, while the Nasdaq composite index dropped 23.25 to 2,689.04.
   
In London today, news of a 610 pence bid for J Sainsbury by Qatari-backed investment group Delta 2 helped deflect subprime concerns early on but it was broader issues surrounding the US economy that dominated today's sentiment.
   
As it was, UK listed miners topped the main index fallers with Lonmin again prominent, finishing 138 pence lower at 3,695 pence, amid falling base metal prices and general economic uncertainty.
   
Peers Anglo American fell 124 to 3,100, Kazakhmys eased 39 to 1,346 and BHP Billiton lost 42 to 1,444.
   
Also under pressure today, Next eased 63 to 1,888 after Societe Generale initiated coverage on the clothing retailer with a 'sell' recommendation, as the broker said its EPS forecasts for the next three years are below consensus.
   
The broker said a recovery should be generated at some point in the future by a rejuvenation of the ranges stocked, increased advertising and store refurbishment, but added that the recent wet weather and rising interest rates could delay the benefits.

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After yesterday's outperformance, Tate & Lyle succeeded in giving back its previous session gains, losing 16-1/2 to 583-1/2 after lowering its full-year profit expectations.
   
The sugar and sweeteners group today said that trading in the current financial year has started in line with its expectations with total operating profit at constant exchange rates for the first three months similar to the prior year. But profit from continuing operations was below the exceptionally strong first quarter of the prior year, the company added.
   
Yesterday Tate's shares surged after Goldman Sachs upped the shares to 'buy' from 'neutral' and its target to 650 pence from 648 arguing the stock is well positioned to outperform over the second half.
   
On the upside, Sainsbury took on 5 to 590 as investors cheered the Delta move but the enthusiasm was tempered by fears the Sainsbury family were still liable to reject the offer as being too low.
   
Seymour Pierce however decided to up its rating in the supermarket operator to 'hold' from 'underperform'.
   
Elsewhere, Kelda Group topped the leaderboard by the close, up 18-1/2 to 889 pence, after both Merrill Lynch and Citigroup upgraded it. Merrill Lynch said the recent fall in the shares wasn't justified.
   
JP Morgan added to the positive sentiment after it raised targets for Kelda to 928 pence from 845, Pennon to 612 pence from 595 and Severn Trent to 1,437 pence from 1,370. Severn Trent ended up 27 at 1,370.
   
Also bucking today's negative trend, UK pub operators got a lift after JD Wetherspoon shrugged aside the poor summer weather and the initial impact of the smoking ban in England to report a much better-than-expected sales performance for the final weeks of 2006-07.

Mitchells & Butlers added 16 to 892 with PunchTaverns taking on 7 to 1,307.

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Turning to the midcaps, on the loser board JJB Sports slid 19 pence to 233, after dealers said Morgan Stanley placed 4.5 mln of its shares at 242p each.
   
UBS also added to the negative sentiment by cutting its price target to 270 pence from 280.
   
And negative broker comment knocked Cobham, down 3 to 203 with SG Securities downgrading the group to 'sell' from 'hold' and cutting its target to 190 pence from 220 pence, as it believes foreign exchange effects and restructuring costs will hurt profits.
   
UK Coal was 24 pence lower at 533-1/2 despite Seymour Pierce upping its price target on the company to 590 pence after today's trading statement. 
   
On the upside, JD Wetherspoon added 64 to 619 after its positive earnings report, with WS Atkins another top riser, up 68 at 1,113 following news that Metronet -- of which it is a backer -- had applied for Public Private Partnership administration, which traders viewed as a positive development for the group.

UK Diary of Events

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

UK Small Cap Report

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

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Paris shares close sharply down on profit-taking after Fed caution

The CAC-40 index ended down 103.24 points or 1.69 pct at 5,995.970, with losses accelerating late-session to effectively erase a 1.7 pct surge last Thursday. 39 CAC-40 stocks closed down and just Pernod Ricard closed higher.
  
Accor added to a string of losses, shedding 2.07 eur or 2.95 pct at 68.10 after investors looked beyond in-line second-quarter sales and instead focused on disappointing organic growth in the period.
    
Dresdner Kleinwort downgraded Accor to 'add' from 'buy' with the target cut to 74 eur from 76 eur.  The broker said that while first-half sales figures were 1.5 pct ahead of its estimate, a strong showing from recently acquired and non-core businesses masked slightly disappointing organic growth in services division and US Economy hotels. The broker added that profit-taking was likely after following a 15 pct rise in the past three weeks
  
Auto stocks were firmly out of favour, with Renault down 3.24 or 2.80 pct at 112.50, Peugeot down 1.94 or 3.05 pct at 61.69 and Michelin falling 2.66 or 2.54 pct at 102.24.
   
A Paris broker said the downward trend was being felt across the entire sector, noting that shares in German peers Volkswagen and Daimler were also trading sharply lower. He added that Renault and Peugeot have both outperformed the indices recently.
   
Index heavyweight Total fell 1.22 or 1.98 pct at 60.40, continuing a recent pullback as investors took profits from the surge at the start of the week. JP Morgan also downgraded the stock to 'neutral' from 'overweight,' saying that the share has "limited short-term catalysts."
       
Pernod-Ricard provided the only drop of cheer in the CAC-40, ending up 0.96 or 0.59 pct at 164.59, ahead of the group's full-year sales, due out July 26.   

Analysts widely expect the group to post an excellent set of figures, although the last quarter of the year may show a slight slowdown in sales growth. Fellow drinks group Remy Cointreau was unchanged at 57.00.
   
On the second line, ADP was another rare gainer, up 0.03 at 86.15, pulling back from yesterday's steep 2 pct decline.
   
Earlier today, the French Finance Ministry said it estimates passenger traffic at Aeroports de Paris will be 23 mln in the July to September season, matching ADP's own traffic figure of 22.97 mln passengers in the same months last year, the peak period for holiday travel.
   
Elsewhere on the second line, Eiffage fell 3.02 or 2.93 pct at 100.08. According to the Spanish press, Sacyr Vallehermoso plans to call on the European Commission to rule on France's market regulator AMF's decision that its bid for Eiffage is unlawful.
   
Gemalto rose 0.51 or 2.90 pct at 18.09. Deutsche Bank re-rated the smart card sector in a note and initiated Gemalto and Ingenico with 'buy' recommendations. The bank said it believes it is time to revisit the smart card sector, which it views as less risky and better oriented than a few quarters ago.
   
But Ingenico lost 1.67 or 7.37 pct at 21.00 as the surprise departure of chief executive Amadeo d'Angelo rattled the market.

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German shares close lower, weighed down by high oil prices, weak dollar

The DAX dropped 144.60 points or 1.80 pct to 7,893.61, after trading between a low of 7,879.14 and a high of 7,990.36 today. The MDAX fell 161.77 points or 1.43 pct to 11,114.43.  The TecDAX, meanwhile, dropped 10.62 points or 1.11 pct to 947.40. DAX futures were down 147.00 points or 1.82 pct at 7,937.50, while bund futures added 0.40 points or 0.36 pct at 111.11.
   
DaimlerChrysler led blue chips lower, losing 2.11 eur or 3.09 pct to 66.19, on a day that saw no risers on the DAX.
   
Dealers noted reports that Cerberus Capital Management raised its interest rates on a package of loans, including 12 bln usd of loans it will use to fund a buyout of DaimlerChrysler's Chrysler unit. "This whole situation might also once again heating up speculation that the whole Chrysler deal may be at risk, as the carmaker is struggling to find lenders to finance the deal," a Frankfurt-based trader said.

TUI followed, declining 0.63 eur or 2.98 pct to 20.53, as dealers said that recent vague M&A rumours had largely dissipated.
   
Deutsche Postbank dropped 1.63 eur or 2.58 pct to 61.47, as investors reacted coldly to the company's announcement it will sell its life insurer BHW Leben and other smaller assets to Talanx for 550 mln eur.
   
Meanwhile, Linde was down 2.22 eur or 2.48 pct to 87.20, while Fresenius Medical Care lost 0.74 eur or 2.19 pct to 33.05.
   
Among outperformers, Metro saw the smallest decline today, dropping 0.28 eur or 0.46 pct to 60.69, after rumours emerged that US retailer Wal-Mart has taken a 3 pct stake in the company.
   
Traders were treating the rumour with caution, questioning the rationale behind such a move after Wal-Mart sold its German activities to Metro last year.
   
SAP also outperformed the market, losing 0.33 eur or 0.87 pct to 37.77, after speculation arose the software company might release its second-quarter figures today, one day ahead of their scheduled release.
       
Over on the MDAX, Patrizia Immobilien declined 0.85 eur or 6.45 pct to 12.32 as today's worst performer.
   
Premiere surged to the top, adding 0.68 eur or 3.55 pct to 19.86, after Germany's Federal Cartel Office said it approved a deal allowing Arena to sublicense the rights to broadcast Bundesliga soccer matches to Premiere.
   
TecDAX-listed Solon lost 2.11 eur or 4.33 pct to 46.60, while Adva rose 0.37 eur or 5.23 pct to 7.44. 
   

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Amsterdam shares close lower; Getronics tumbles, Heineken outperforms

The AEX closed 5.16 points or 0.92 pct lower at 555.63, its lowest point of the day, after trading in the range 555.63-559.83. Government bonds traded higher while the euro stood at 1.3815 usd versus 1.3783 usd late yesterday.
   
Midcapper Getronics led the day's decliners, down 18.53 pct at 5.32 eur after the company said takeover talks with a US company have been terminated. Analysts were divided on over whether or not another suitor for the ICT-services company is likely to step forward anytime soon, although most agreed solid first-half figures at next month's release could well act as the catalyst for interested parties.
   
At the other end of the spectrum, Heineken gained 7.56 pct to 46.07 eur, leading bluechips, after the brewer doubled its forecast for organic net profit for the full-year of 2007. A number of brokers immediately upped their price targets on the issue.
   
TomTom led bluechip decliners, off 2.85 pct to 40.84 eur, while among financials, Aegon slipped 2.04 pct to 13.91 eur, Fortis dropped 1.26 pct to 29.70, ING fell 1.26 pct to 32.81 and ABN Amro was 0.30 pct lower at 36.89 eur.
   
Earlier, ABN Amro said it will discuss with Barclays the implications of the revised takeover offer by the RBS consortium, while reports suggested that Barclays won't raise its merger offer in the short-term despite CEO John Varley saying it has the flexibility to do so.
   
SNS Reaal was off 0.06 pct at 16.71 eur on news it has successfully issued a 350 mln eur issue of hybrid capital securities.
   
Back on the AEX, ASML lost 0.71 pct to 21.05 eur after the group reported second quarter sales and orders towards the lower end of forecasts. Sector peer ASMI added 0.10 pct to 20.49 eur.
   
LogicaCMG gained 2.68 pct to 2.30 eur after the Anglo-Dutch computer services company said IT services revenues increased 3.3 pct for the half year, with strong growth in the Nordic region, Netherlands, Germany and France compensating for a decline in UK sales.
   
Crucell added 1.07 pct to 17.03 eur after announcing the establishment of two business units for vaccines and proteins as well as the appointment of managers for those units.
   
Vedior gained 0.64 pct to 22.18 eur. Yesterday, brokerage ING raised its target on the issue to 27 eur from 23, saying it thinks the company's strong first quarter reflects the start of a recovery within its France and UK markets.
   
Local issue Grolsch benefited from Heineken's upbeat forecast, adding 1.76 pct to 32.90 eur.
   
Meanwhile Laurus added 0.24 pct to 4.21 eur, adding to yesterday's gains, on reports that yesterday's surge was down to market rumours that France's Casino group was preparing to up its stake in the company.

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