UK/Euro Financial Market Daily Evening Briefing 18-09-2007

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London shares close stronger, just off day's peak; banks bounce back

UK blue chips closed stronger today, just off the late afternoon peak lifted by a rally from hard-pressed banking issues, with Wall Street pushing higher in morning deals following better than expected numbers from Lehman Brothers, and ahead of a likely Fed interest rate cut later today.
   
At the close, the FTSE 100 index was 100.5 points higher at 6,283.3, just below the late session peak of 6,298.5 having rallied from an opening low of 6,158.8.
   
The broader FTSE indices all ended higher as well, with the FTSE 250 index recovering from earlier falls, ending up 57.5 points at 10,802.8. Volume was solid, with 3.35 bln shares changing hands in 788,316 deals.
   
On Wall Street, by London's close the DJIA was up 94.60 points at 13,498.00, with the S&P 500 index ahead 11.10 points at 1,487.75, and the Nasdaq composite index up 15.82 at 2,597.48.
   
Investors took heart after Lehman, the US's fourth-largest investment bank, saw its third-quarter profit fall by less than expected, as strength in  trading and investment banking offset losses from the struggling mortgage market. The report provided investors a crucial first glimpse at how Wall Street fared in the fallout from the mortgage crisis, which started when borrowers with poor credit began defaulting at a sharply higher rate earlier this year.
   
The New York-based bank -- the first of four to report results this week -- saw its quarterly profit fall 3.2 pct to 1.54 usd per share, down from 1.57 per share a year earlier, topping Wall Street projections of 1.47 usd a share.
   
US investors were also betting that the Federal Reserve will cut its key interest rate by at least a quarter percentage point following today's latest FOMC meeting in a bid to soothe equity markets and stimulate economic growth after a summer rocked by the crisis in the credit markets.
   
Today's US August producer price index data was also more favourable than the market predicted. Wholesale prices fell 1.4 pct last month, the biggest decline in 10 months and led by a 6.6 pct drop in energy costs.
   
Core PPI inflation, which eliminates volatile food and energy prices, rose by a mild 0.2 pct, as expected.
   
In London, the UK banking sector headed the blue chip rally today, bouncing back after the woes of the past few sessions engendered by the Northern Rock crisis, aided by the good news from US peer Lehman.
   
Shares in Northern Rock, which had lost over half of their value since Friday, rallied 23-1/4 pence, or 8.2 pct, higher to 306 after the Chancellor, Alistair Darling said the government will guarantee all Northern Rock savings, while reassuring the market that no other bank had gone to the BoE for help.

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Alliance & Leicester topped the FTSE 100 leaders board, however, recovering over 32 pct of its recent slide made in sympathy with Northern Rock, adding 193 pence at 7493 after two brokers upgraded ratings and called the falls 'unwarranted'.
   
Cazenove raised its stance for A&L to 'outperform' from 'in line', saying yesterday's 31 pct plunge was unjustified, and Dresdner Kleinwort hiked its rating to 'buy' from 'hold'.
   
Elsewhere among the blue chip banks, Barclays was 26 pence higher at 607, Royal Bank of Scotland added 17-1/2 to 526, and HBOS gained 25-1/2 pence at 838-1/2, while on the second line Bradford & Bingley recovered from a midmorning wobble, adding 16-3/4 pence at 295-3/4.
   
Elsewhere among the financials, insurers also rallied as equity market valuations improved, with Royal & Sun Alliance up 5.3 pence at 142, Prudential ahead 20-1/2 pence at 659, and Aviva ahead 17-1/2 pence 675.
   
Meanwhile peers Resolution added 19-1/2 pence at 655 after it reassured investors it has no exposure to the US subprime mortgage market when it reported its first half results today, while UBS repeated its 'neutral' view and 680 pence price target in reaction.
   
Heavyweight miners also pushed higher amid hopes that a likely Fed rate hike will aid the US economy and boost demand, with Antofagasta up 31-1/2 pence at 737-1/2, BHP Billiton ahead 60 pence at 1,530, and Vedanta Resources up 68 pence at 1,924.
   
But Lonmin missed out on the rally, shedding 119 pence at 3,170 to top the FTSE 100 fallers board after the company's recently reduced production levels prompted Credit Suisse to lower its volume estimates for the company.
   
Credit Suisse said the strike at Lonmin's Marikana mine had prompted it to reduce its volume estimates for the company, adding that given the already strained operations due to various problems, including grade issues at the mine, there was little room for negative surprises.
   
In further broker induced movements, telecom blue chips lost ground after Morgan Stanley cut its stance on the European telecoms sector to 'in-line' from 'attractive' on valuation grounds.
    
BT Group shares lost 1-1/4 pence at 315-1/2, Cable & Wireless shed 0.1 pence at 171.9, and Vodafone slipped 0.1 pence lower to 166.4. 
   
Elsewhere William Morrison shares were also easier, off 0-1/2 pence at 266-1/2 ahead of interims due on Thursday and after data from TNS Worldpanel showed the food retailer saw its market share fall in the 12 weeks to Sept 9, while peers Tesco, Wal-Mart-owned Asda and J Sainsbury all lifted their shares compared with a year ago.
   
And fellow retailer Marks & Spencer shed 4 pence at 570-1/2 after Evolution Securities reduced its target to 620 pence from 720 and cut its estimates for the firm to reflect a more difficult trading environment.

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Mid cap stores group Debenhams was also a casualty today, topping the FTSE fallers board with a 4 pence drop to 101-1/2 as worries over the maintenance of its full year dividend more than offset its forecast that full year underlying profit will meet market hopes.
   
The department store group has issued three profit warnings since December; prior to today's trading update analysts were forecasting a year to September 1 2007 profit before tax and exceptional items of about 130 mln stg, having cut from about 170 mln stg after the last alert in April.
   
Elsewhere with the second line losers, easyJet shares shed 16 pence at 512 after Numis Securities initiated coverage on the discount airline with a 'reduce' rating and 463 pence price target.
   
The broker said it believes that the financial markets may have become too complacent about the earnings outlook for the airline sector.
   
Among the mid cap gainers, real estate investment trust Assura Group was the top FTSE 250 riser, up 13-1/2 pence to 175-1/4 after well-received results.
   
The firm, which invests in community hospitals and pharmacies across the UK, reported a near doubling in first half pretax profit to 26.6 mln stg, up from 13.4 mln stg in the year-ago period.
   
A jump in full year pretax profit and bullish broker comment also helped Bluebay Asset Management to add 25-1/2 pence at 390.
   
The company reported a 66 pct rise in full-year pretax profit after exceptional items and said current trading has been satisfactory in July and August in a challenging credit environment. In reaction, Citigroup repeated its 'buy' stance and 580 pence price target.
   
And broker Collins Stewart saw its shares recover with the market trend, adding 8 pence at 173.

Diary of Events

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UK Small Cap Report

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Paris shares close higher as banks stage late recovery

The CAC-40 index finished 109.98 points or 2.02 pct higher at 5,549.35. Among CAC-40 stocks, 36 closed higher, 3 closed lower and 1 was unchanged.  On the Matif, September CAC-40 futures were trading at 5,530.00.
   
On the broader indices, the SBF-80 index closed up 83.95 or 1.30 pct at 6,527.46, while the SBF-120 was up 76.18 or 1.92 pct at 4,035.42.
   
Construction and property stocks led the day's gains on the CAC-40, with Vinci ending 2.19 or 4.53 pct higher at 50.54 and Unibail-Rodamco closing 7.38 or 4.38 pct higher at 175.71. Lafarge was close behind, ending the session 3.56 or 3.40 pct higher at 108.33.
   
Banking stocks recovered late in the day from early losses after concerns about the fallout from the bailout of the UK's Northern Rock were eased by the government's intervention to guarantee savers' deposits and the Bank of England's provision of 4.4 bln stg to deal with short-term interbank liquidity problems.

BNP Paribas was up 2.24 or 3.11 pct at 74.19. Credit Agricole rose 0.86 or 3.25 pct to 27.31. Societe Generale closed 2.62 or 2.36 pct higher at 113.50.
   
French finance minister Christine Lagarde also said any talk of a similar case to that of Northern Rock is "totally hypothetical", pointing out that "the French banking system has no institution as specialised and the French mortgage market is "very tightly structured."
   
Elsewhere on the CAC-40 Alcatel-Lucent ended the day up 0.19 or 3.08 pct at 6.35 on on bargain-hunting following recent profit warning-inspired losses. The telecoms infrastructure provider also announced a broadband supply deal with Norway's Telenor.
   
Air Liquide finished the session 2.77 or 3.13 pct higher at 91.37.
   
Air France-KLM underperformed the market, closing 0.43 or 1.70 pct higher at 25.70. Earlier in the day its budget airline Transavia France said it expects to post a loss of 20 mln eur for its full year to March 2008 and does not expect to break even until the 2009-2010 year.
   
Cap Gemini, which fell sharply at the end of last week on talk of a profit warning, and confirmation that the subprime crisis will hit sales growth at one of its units, recovered slightly to end 0.64 or 1.57 pct lower at 40.20.

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German shares close higher on Lehman Brothers Q3

The DAX closed up 95.36 points or 1.26 pct at 7,575.21, after having traded between a low of 7452.00 and a high of 7588.42. The MDAX rose 181.47 points or 1.85 pct to 10,013.47, while the TecDAX increased 14.50 points or 1.64 pct to 901.20.
   
DAX futures were up 92.00 points or 1.23 pct at 7,577.00, while bund futures declined 0.61 points or 0.53 pct to 113.66. The euro traded at 1.3868 usd, compared to 1.3880 usd in afternoon London trade.
   
ThyssenKrupp gained 1.47 eur, or 3.67 pct, at 41.48, on technical trading grounds with the positive developments on the market giving an additional boost, according to traders.
   
MAN rose 3.41 eur, or 3.41 pct, at 103.51 also on technical trading grounds after it passed a key resistance level at 100 eur per share.
   
Siemens added 2.25 eur, or 2.61 pct, at 88.54, with traders pointing to bullish remarks made by peer General Electric's management at the group's security analyst meeting.
   
Deutsche Bank was up 2.18 eur, or 2.47 pct, at 90.31, as the bank benefited from news that New York-based investment bank Lehman Brothers reported strong third quarter profit, which came in higher than expectations.
   
Deutsche Post gained 1.15 eur, or 2.39 pct, at 49.29.
   
On the downside, EON declined 0.92 eur, or 0.73 pct, to 125.81, after Goldman Sachs removed the stock from its 'Conviction Buy List' largely on valuation grounds. Fresenius lost 0.06 eur or 0.73 pct at 37.57.
   
SAP fell 0.04 eur, or 0.10 pct, at 41.25, after Societe Generale downgraded its stance to 'sell' from 'hold' and lowered its price target to 35 eur per share from 39 in a global software sector review. Metro slipped 0.03 eur or 0.05 pct to 61.50.
   
On the MDAX, Wacker Chemie rose 9.34 eur or 6.08 pct to 162.99. Stada plunged 1.33 eur or 2.87 pct to 45.00 as traders note that the contracts it won with AOK insurance yesterday only account for 23 out of 83 substances, and was much less positive than earlier thought.
   
Wincor Nixdorf declined 0.29 eur or 0.51 pct to 57.10, after Merrill Lynch added the company to its 'least preferred' list.
   
On the TecDAX, Morphosys gained 2.71 eur or 6.64 pct to 43.55 making it the best performer. QSC lost 0.08 eur or 2.25 pct at 3.47 at the other end.

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Amsterdam shares close higher, boosted by Wall Street confidence

The AEX closed 8.01 points or 1.53 pct higher at 531.00, after opening at 522.03 and trading in the range 521.56-531.35. Government bonds were lower while the euro stood at 1.3868 usd versus 1.3866 usd late yesterday.
   
ABN Amro gained 3.30 pct to 36.27 eur in heavy volume, with over 46 mln shares traded, on the back of last night's announcement that the Dutch ministry of finance has no objection to a takeover and break-up of the bank by a consortium led by the Royal Bank of Scotland and on news that consortium member Banco Santander expects the bid to close within 20 days.
   
Property stock Unibail-Rodamco gained 4.38 pct to 175.71 eur, while midcap peer Corio put on 4.17 pct to close at 54.95 eur.
   
Retailer Ahold added 2.97 pct to 10.41 eur, while steel giant ArcelorMittal closed the day 2.86 pct up at 49.30 eur.
   
Staffing group Randstad gained 2.32 pct to 36.18 eur, while peer Vedior put on 0.34 pct to 14.94 eur. Earlier, brokerage Deutsche Bank cut its price target on Randstad to 46 eur from 49 while maintaining its 'hold' rating, and on Vedior to 18 eur from 19 while reiterating its 'hold' recommendation, saying that it currently sees too much downside risk in staffing generalists.
   
ASML closed the day 2.30 pct to the good at 21.79 eur as Exane BNP Paribas kept the stock at 'outperform' with a price target of 27 eur after the Dutch semiconductor company confirmed at a road show that it will increase its market share this year to 65-67 pct from 62 pct.
   
Oil giant Shell added 0.76 pct to 29.34 eur on rising oil prices and news that the process of restoring operations at the 285,000-barrel a day Port Arthur oil refinery in Texas has started.
   
On the midcap, Vopak put on 1.74 pct to 40.42 eur after an upgrade to 'add' from 'hold' at Petercam, which reiterated its 50 eur price target.
   
KPN was one of only two blue-chip decliners, off 0.75 pct at 11.91 eur, while SBM Offshore was down 0.19 pct at 26.20 eur.
   
Ordina slipped 0.98 pct to 13.17 eur on the midcap, while Oce was off 0.40 pct at 15.04 eur.

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