UK/Euro Financial Market Daily Evening Briefing 18-10-2007

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London shares close lower off highs; NY down; DSG International falls
 
UK blue chips closed lower off highs as Wall Street remained lower with interest rate sensitive sectors such as retailers bearing the brunt of the falls with a disappointing update from DSG International helping to weigh down the FTSE 100.
   
By close, the FTSE 100 index was down 68.3 points at 6,609.4 off a low of  6,584.9 and a high of 6,722, while the FTSE 250 index lost 126.4 points to 11,411.6.
   
"The market is going through a rethink with investors starting to realise it is not likely central banks are going to cut interest rates quickly with signs the US and UK economy are still growing," said Darren Winder, strategist at Cazenove.
   
"Interest rate sensitive stocks are starting to reverse with retailers and housebuilders falling," added Winder.
   
Looking at Wall Street, stocks fell in early trading after Bank of America missed analysts' earnings expectations and provided investors with further evidence of how the credit crisis has affected the economy.
   
Bank of America, considered a bellwether for the banking industry because it has branches across the country, said "significant dislocations" in the capital markets caused third-quarter results to fall 32 pct. The disappointing results follow similar reports from other financial companies including Citigroup and
Washington Mutual.
   
At London's close, the Dow Jones industrial average was down 35.5 to 13,857. Broader indexes were also lower. The Standard & Poor's index fell 6.57 to 1,534.56 while the Nasdaq composite index was down 13.22 at 2,779.33.
   
Turning to UK equity news, DSG International was the heaviest faller, down over 8 pct, or 11.9 pence, to 124.1, after the group warned first-half earnings would be down year-on-year in a trading statement.
   
The company said that margins at PC World were hit by a reduction in laptop stocks arising from disappointing sales of Vista-related products and a changing sales mix.
   
Housebuilders were also down as investors feared interest rates may not be cut soon as strong UK retail sales dampened hopes of a rate cut in November. Barratt lost 35-1/2 to 658-1/2, Taylor Wimpey shed 13-3/4 pence to 253-1/4 and Hammerson dropped 53 pence to 1,066.

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Also weighing on the market were UK Real Estate Investment Trusts (REITS) with Cazenove downgrading the sector to 'underweight' from 'neutral' in a review, as well as cutting British Land and Land Securities to 'in-inline' from 'outperform'.
   
Land Securities slid 39 pence to 1,575, British Land lost 3 pence to 1,070 and Liberty International was down 18 pence at 1,095.
   
Elsewhere, ITV shares were hit, down 2.2 pence at 98.85, after the company said it will take an 18 mln stg operating charge in full-year 2007 to cover the costs of the premium-rate phone-in scandal, and will pay out up to 7.8 mln stg in reimbursements to affected consumers.
   
Oil stocks slipped late morning, falling in line with a weaker, wider market, with Royal Dutch Shell losing 4 pence to 2,069, BP shedding 3-1/2 pence to 616, and BG Group, which was downgraded by JP Morgan to 'neutral' from 'overweight' on valuation grounds, 14-1/2 pence weaker at 896-3/4.     

Financial stocks were also weak still suffering from negative sentiment and possibly read across after Bank of America reported disappointing figures, with Northern Rock down 3 at 204-1/2, Barclays off 17 at 602-1/2 and Alliance & Leicester fell back 27-1/2 at 756.
   
Reckitt Benckiser shares were hit by negative broker sentiment, down 74 pence at 2,933, with Panmure Gordon cutting its rating on the Anglo-Dutch household products group to 'hold' from 'buy', while keeping its 3,100 pence target, ahead of the company's third-quarter results next week.
   
Turning to the gainers, M&A talk saw a rise in British Airways shares, up 6-1/4 pence at 430, with the airline thought to be in merger talks with rival British carrier BMI, according to press reports this morning.
   
The carrier also confirmed it was looking to forge a "closer relationship" with American Airlines as it steps up moves to lock up more slots at Heathrow airport.
   
Scottish & Newcastle gained 1-1/2 at 757-1/2 after Dresdner Kleinwort estimated Carlsberg and Heineken could be willing to pay 823 pence per share for the group and raised its price target to 800 pence from 670 pence but cut its rating to 'add' from 'buy' on valuation grounds. Its peer Diageo was 3 higher at 1,122.
   
Turning to the midcaps, Sports Direct led the casualties, giving up 8 pence to 148-1/2, following shirt sale fears as England Euro 2008 hopes were dashed after the Russia defeat
 

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Panmure Gordon reiterated its 'sell' stance on the group citing poor fundamentals.

Elsewhere, online auction and trading company QXL Ricardo dipped 42 pence to 1,286, amid some profit-taking after it reported a tripling in half-year profits, boosted by a booming Eastern European market. Evolution Securities reiterated its 'add' stance on the group.
   
Shares in Stagecoach also experienced falls, down 10-1/4 pence at 251-1/2, with Collins Stewart cutting its rating on the company to 'sell' from 'buy', saying that its outperformance has left the valuation too stretched, and highlighting that 80 usd plus oil represents a negative risk to next year's earnings across the entire sector.
   
On a brighter note, Colt Telecom shares pushed up 3-1/4 pence at 183, after the company reported a rise in third-quarter underlying earnings despite a fall in revenue as higher margin data sales outstripped falling low-margin voice revenue.
   
In broker generated news, Ashtead gained 3-1/2 pence to 115-1/4 to become the top riser after ABN Amro initiated coverage in the industrial equipment renter with a 'buy' rating.

Diary of Events

For a diary of key 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 down amid profit taking, Wall St worries on BofA, jobs

The CAC-40 index finished down 51.56 points, or 0.89 pct, at 5,767.24. Among CAC-40 stocks, 6 closed higher, 1 ended flat and 33 closed lower.  On the Matif, October CAC-40 futures were trading at 5,759.5. On the broader indices, the SBF-80 index closed down 69.66, or 1.00 pct, at 6,911.52 while the SBF-120 ended 38.28, or 0.90 pct, lower at 4,204.99.
   
Dexia fell particularly hard -- shedding 0.64 eur or 2.78 pct to 22.38 to close as the biggest bluechip faller -- after its 2 pct gain yesterday on the back of a rumoured takeover by Societe Generale.
   
SocGen itself gave up 1.55 or 1.30 pct to 117.85, BNP Paribas slipped 1.02 or 1.31 pct to 76.63, while insurer insurer Axa dropped 0.39 or 1.26 pct to 30.48.
   
Other bluechips to see significant profit-taking included Vallourec -- down 5.49 or 2.58 pct at 207.32 -- and Capgemini -- off 1.20 or 2.54 pct at 46.07.   

Another major faller was Alcatel-Lucent, down 0.17 or 2.56 pct at 6.48, as the telecoms equipment maker resumed its downward trajectory after a brief upturn yesterday prompted by rumours CEO Patricia Russo is to resign.
   
Shares fell back throughout the tech sector, led by Soitec which fell 0.56 or 4.00 pct at 13.40 on the back of disappointing third-quarter results overnight from Korea's Hynix Semiconductor. The chip giant reported a fall in net profit for the second straight quarter after a glut of computer chips drove down prices.
   
STMicroelectronics followed the trend, losing 0.25 or 2.13 pct to 11.48. The stock recovered briefly at midday after its biggest single client, Nokia, reported impressive third-quarter earnings growth, before falling back again.
   
Elsewhere, oil services group Technip remained firmly out of favour after yesterday's disappointing strategy update. The shares dropped 2.68 or 4.19 pct to 61.22 after closing down 5.18 pct last night.
       
Car parts-maker Valeo also fell sharply, shedding 1.61 or 3.92 pct to 39.47 after unveiling a net loss of 40 mln eur for the third quarter versus a profit of 7 mln eur a year earlier.
   
In contrast, car makers Peugeot, up 0.39 or 0.68 pct at 58.02, and Renault, down 0.57 or 0.52 pct at 108.68, outperformed the market, lifted by Volkswagen's strong third-quarter sales and M&A talk surrounding the sector.
       
Another rare bluechip riser was Lagardere SCA, which added 1.28 or 2.22 pct to 59.05 on a report in French weekly Nouvel Observateur that Arnaud Lagardere is to sell a 40 pct capital stake and then delist the company.
   
The claims raised expectations of a buyback of minorities at a premium to the current market price. Lagardere subsequently rejected the report, calling the claims "groundless".    

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German shares close lower after disappointing Bank of America Q3 figures

The DAX was down 64.01 points or 0.80 pct at 7,921.40 after trading between 7,906.79 and 8,014.56 in today's trade. The MDAX was down 135.33 points or 1.27 pct at 10,529.08 while the TecDAX lost 15.30 points or 1.51 pct to 1,000.58.
  
DAX futures were down 75.00 points or 0.94 pct at 7,979.50 while bund futures were up 0.52 or 0.45 pct at 112.62. The euro was trading at 1.4283 usd compared to also 1.4283 usd in late afternoon London trade.
   
Leading blue chips lower, SAP lost 1.31 eur, or 3.31 pct, at 38.29, after it released largely disappointing third-quarter results. Traders and analysts said the shares were under pressure for several reasons including unfulfilled expectations that the company would raise full-year guidance, a lack of information about its planned purchase of French peer Business Objects and an anticipated stagnation of sales in the fourth quarter.
   
Deutsche Post retreated 0.57 eur, or 2.64 pct, at 20.99, on speculation that analysts' expectations for the upcoming third-quarter figures were too optimistic.
   
Fresenius Medical Care was down 0.45 eur, or 1.24 pct, at 35.84, correcting from gains yesterday after media reports said that the FDA could approve wider use of its PhosLo drug for kidney disease in pre-dialysis treatments.
   
Thyssenkrupp fell 0.62 eur, or 1.43 pct, at 42.66, for technical trading reasons as the shares have encountered key resistance levels, said traders.    

Hypo Real Estate was the bank worst affected by the negative Bank of America numbers, down 0.86 eur, or 1.95 pct, at 43.16 as traders said its shares were already under pressure earlier due to concerns of prolonged fallout from the credit crisis.
   
Deutsche Bank, dropped 1.09 eur, or 1.19 pct, at 90.15, while Deutsche Postbank lost 0.89 eur, or 1.68 pct, at 52.01.
   
Bucking the sudden negative trend, MAN added 2.75 eur, or 2.31 pct, at 121.96, on the top of a list of seven gainers. Its shares were boosted by a newspaper report that said Sweden's Scania AB is preparing to launch a bid for the German heavy trucks manufacturer.
   
"In recent days there has been a lot of smoke about a possible takeover, now we have some fire," said a Frankfurt-based trader reacting to the report in the Swedish daily Dagens Industri.
   
The newspaper said Volkswagen and Wallenberg family-controlled entities, have agreed Scania will bid for MAN, citing "many" unnamed sources. The deal is structured so that Scania will bid for MAN, with Investor AB and the Wallenberg foundations possibly selling their stakes in Scania later on, according to the report.
   
The article said VW supervisory board chairman Ferdinand Piech played a crucial role in hammering out a deal. Volkswagen, which owns around a 30 pct stake in MAN, added 1.49 eur, or 0.86 pct, at 175.57 on the news.
   
Bayer advanced 1.03 eur, or 2.31 pct, at 59.87, continuing the stock's long-term out-performance. Henkel shares were 0.45 eur, or 1.28 pct, higher at 35.62, rebounding from two days of losses.
   
Over on the MDAX, Bilfinger Berger fell 3.04 eur, or 4.97 pct, at 58.08 as the worst performer on the index. IKB meanwhile, added 0.33 eur, or 2.36 pct, at 14.33. Pfleiderer, was up 0.21 eur, or 1.14 pct, at 18.68 on positive broker comments form Equinet and HSBC.
   
TecDAX-listed Freenet lost 0.91 eur, or 4.79 pct, at 18.09, after Boersen-Zeitung cited a United Internet AG spokesman as saying that the TecDAX peer will not launch a takeover bid for Freenet this year. At the other end of the index, Pfeiffer Vacuum, gained 1.47 eur, or 2.21 pct, at 67.85.

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Amsterdam shares close lower tracking Wall St; ASML shines

The AEX closed 3.02 points or 0.54 pct lower at 551.53 after trading in a range of 549.02-556.99. Government bonds were broadly higher and the euro stood at 1.4286 usd versus 1.4196 usd late yesterday.
   
Most shares were lower. Heineken shed 0.67 pct to 46.16 eur as investors fretted over the costs for Heineken's possible takeover bid of Scottish & Newcastle in a consortium with Carlsberg.
   
Heineken may have to take on loans or even perform a substantial rights issue to finance its part of the bid, an Amsterdam-based trader said.
   
Staffing stocks were all lower on profit taking after strong gains yesterday. Vedior shed 3.23 pct to 16.79 eur and Randstad dropped 2.73 pct to 40.91, while on the midcap, market peer USG People dropped 3.39 pct to 21.92 eur.
   
Companies with exposure to the US dollar were lower as the currency chalked up yet another record low versus the euro today.
   
Corporate Express dropped 2.03 pct to 7.72 eur, while ING shed 1.44 pct to 31.43, Hagemeyer lost 1.46 pct to 4.74 eur, SBM Offshore dropped 1.47 pct to 27.50, and Aegon dropped 0.64 pct to 13.96 eur.
   
Fortis shed 1.02 pct to 22.31 eur after it said it has signed a new 10 bln eur credit facility with a banking conglomerate to finance the ABN Amro buy.
   
On the other end of the spectrum, Unilever added 0.76 pct to 22.46 eur, Ahold rose 1.09 pct to 11.14 eur and ASML rose 1.36 pct to 24.68 eur after several brokerages raised their price targets on the stock following yesterday's strong third-quarter earnings and bullish outlook.
    
Among midcap shares, Oce dropped 3.08 pct to 15.75 eur, Wereldhave shed 2.91 pct to 81.60 and Fugro lost 2.33 pct to 57.35 eur with investors unimpressed with news about an 18 mln eur order.
    
Wessanen rose 0.47 pct to 10.66 eur, Vopak added 0.53 pct to 39.55 and Van der Moolen added 1.11 pct to 3.64 eur.

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