UK/Euro Financial Market Daily Evening Briefing 19-10-2007

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London shares close lower, banks down; NY slumps on oil price & earnings

Leading shares closed sharply lower, as the 20 year anniversary of Black Monday delivered a commemorative slump both in London and on Wall Street, while Northern Rock dropped after news of its chairman's resignation.
   
At the close, the FTSE 100 index was down 81.5 points at 6,527.9, off a high of 6,615.8. The FTSE 250 index was 112.3 points down at 11,299.30.
   
Volume was fair with 2.485 bln shares having changed hands in 570,254 deals.
   
In the US, stocks pulled back sharply and bonds jumped as rising oil prices and lacklustre profit reports stirred concerns about the ability of the economy to continue to push ahead.
   
At London's close, the Dow Jones industrial average was down 222.50 at 13,666.50. Broader indexes were also lower. The Standard & Poor's index fell 22.45 to 1,517.65, while the Nasdaq composite index was lost 40.60 to 2,758.71.
   
Oil moved past the psychological barrier of 90 usd per barrel for the first time overnight, while results from Dow Jones industrial average components 3M Co., Honeywell Inc., and Caterpillar Inc., gave investors little incentive to buy. Wachovia Corp. weak profits also renewed concerns about the health of the banking sector.
   
In London, stricken UK mortgage lender Northern Rock continued its turbulent times, down 17-3/4 to 186-3/4, after news its chairman Matt Ridley is to resign, and named Bryan Sanderson, the former chairman of Asia-focused bank Standard Chartered, as his successor.
   
In a statement, Northern Rock said Ridley and the rest of the group's board "believe that in the interests of all stakeholders in the company, the time is right to accept his resignation as a director and chairman of the company."
   
Banking sector peers followed suit, with HSBC 19-1/2 pence lower at 923-1/2 after UBS downgraded it to 'neutral' from 'buy'.
   
In a note this morning, UBS said it believes HSBC is relatively fully priced after a period of outperformance.
   
HBOS was 25 pence lower at 835. Alliance & Leicester was off 21 at 735 and Barclays fell 13 to 589-1/2.

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Elsewhere, WPP Group, down 29 pence at 665, after the advertising and marketing services company reported like-for-like revenues -- excluding currency fluctuations and acquisitions -- grew at almost 5 pct compared to the same period a year earlier, which came in below analysts' forecasts.
   
Merrill Lynch retained its buy rating on WPP but cut profit estimates.
   
Marks & Spencer was 15 pence lower at 610-1/2, after SG Securities downgraded it to 'sell' from 'hold'. The broker said the current recovery cycle is now in its third year, making prior year trading comparatives tougher, in its view.
   
The company's store refurbishment roll-out should help to support top-line growth, said the broker, but it said it thinks the most exciting like-for-like sales and market share recovery figures have now passed.
   
Also on the back foot were shares in AstraZeneca, down 93 pence at 2,461, following the decision late yesterday by the European Patent Office's Board of Appeal to revoke the patent for the UK drug group's asthma treatment Symbicort, leading brokers to cut estimates.
   
There were only a handful of risers, Resolution topped the leaderboard, up 15 to 722, after UK insurer Pearl Group unveiled a 691-pence per share takeover offer for the 83.5 pct of Resolution it does not already own, and said it intends to vote against Resolution's planned merger with Friends Provident. The offer was promptly rejected.
    
"We believe that our offer represents a great outcome for shareholders and offers a great future for policyholders. We look forward to engaging with the board of Resolution in order to secure a recommendation for our offer," Pearl said in a statement.
   
Housebuilders managed to hold onto gains, many of which were at or near 12-month lows yesterday, rallied today, following rumours of a 500 pence bid for midcap Redrow, up 11-1/4 pence at 383.
   
Persimmon was up 11 pence at 971 and Barratt Developments was up 8-1/2 pence at 667.
   
Moving to the second line, negative broker sentiment helped push shares in Emap down 30-1/2 pence to 877, with Morgan Stanley downgrading its rating to 'equal-weight' from 'overweight' and cutting its target to 1,000 pence from 1,025, citing a less favourable risk reward.

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A broker downgrade also hurt Inmarsat, down 14-1/2 pence at 485, as Morgan Stanley cut its rating on the communication services company to 'equal-weight' from 'overweight', on valuation grounds.
   
William Hill shares were down 12 pence at 609-1/2, after Lehman Brothers initiated coverage on the betting company with an 'underweight' rating and 700 pence, while peer Ladbrokes's shares benefited after Lehman started the company as 'overweight' with a target of 475 pence.
   
Lehman said that of the two, it believes Ladbrokes has more attractive short-term prospects, owing to its higher number of amusement with prizes (AWP) machines, cost reduction in the retail network, more advanced international expansion and better technology in the interactive business. Ladbrokes was down 6-1/2 pence at 409-1/4.
   
On the 250 upside, packaging company DS Smith was a major riser, up 11-1/2 at 228, after Goldman Sachs upgraded it to 'neutral' from 'sell'.
   
Infrastructure provider Alfred McAlpine was up 19 pence at 555, despite expressing disappointment that fund manager Schroders has indicated it would accept Carillion's 570 pence offer for the company.

Diary of Events

For a diary of key financial and corporate events in the UK next 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 lower, tracking Wall St, on oil, earnings worries

The CAC-40 index finished down 26.76 points or 0.46 pct at 5,740.48. Among CAC-40 stocks, 16 closed higher and 24 closed lower.  On the Matif, October CAC-40 futures were trading at 5,750.  On the broader indices, the SBF-80 index closed down 26.14 or 0.38 pct at 6,885.38 while the SBF-120 ended 18.99 or 0.45 pct lower at 4,186.00.
   
The euro was at 1.4255 usd, down from a record high of 1.4318 earlier today but still above 1.4195 usd late yesterday.
   
The fall in Paris shares was not as severe as in Wall Street, thanks to strong upward movement from several stocks, particularly aerospace supplier EADS, whose shares soared following talk of a major A350 order from leasing company ILFC. At the close, EADS shares were trading at 23.86, up 3.60 pct.
   
Shares in Vallourec, the CAC-40's second biggest mover, were trading at 209.66, up 1.13 pct as talk of a bid returned, with some analysts saying shareholder Bollore has already agreed to tender his 4 pct stake in the group to Gazprom.
   
Europe's banking sector took a further blow after disappointing earnings results from America's fourth-largest bank, Wachovia. Dexia led the fallers in the sector, shedding 2.32 pct to 21.86, after outperforming its peers in recent weeks.

Societe Generale fell 0.99 pct to 116.3, BNP Paribas slipped back 1.25 pct to 75.67 and Credit Agricole shed 1 pct to 26.63. In insurance, Axa fell 1.31 pct to 30.08. The five financial players have a combined index weighting of just under 20 pct.
   
Bank and insurance stocks were already lower this morning as disappointing results from Bank of America Corp revived concerns over the impact of the credit crisis ahead of third quarter reporting season for French financials. Carmakers Renault and Peugeot featured among the CAC-40's biggest losers after outperforming the market yesterday.

Peugeot was down 2.40 pct at 56.63, while Renault was down 2.42 pct at 106.05. Insecurity over oil prices struck a blow to Air France shares, down 2.37 pct at 25.99. The biggest bluechip faller was Accor, down 2.45 pct at 64.98.

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German shares close lower in quiet trading, led by financial stocks

The DAX ended down 37.28 points or 0.47 pct to 7,884.12 after trading within a range of 7,870.73 and 7,940.29 during the day. The MDAX lost 77.93 points or 0.74 pct at 10,451.15 while the TecDAX fell 10.80 points or 1.08 pct at 989.78.
   
DAX futures lost 60.50 points or 0.76 pct at 7,941.00 while bund futures gained 0.85 or 0.75 pct at 113.47. The euro was trading at 1.4254 usd compared to 1.4287 usd in early afternoon London trade.
   
Traders said financial stocks were largely weaker on a rather negative broker note from JP Morgan on the German banking sector.
   
"After the poor Bank of America quarterly figures yesterday, JP Morgan's cautious stance on German banks has had 'one-two punch' effect, pressuring the sector lower," one dealer said. 
   
Commerzbank led losses in the sector, losing 0.69 eur or 2.24 pct at 30.14, followed closely by Deutsche Postbank, down 1.13 or 2.17 pct at 50.88.
   
Allianz fell 3.32 or 2.08 pct at 156.14, Deutsche Bank eased 1.33 or 1.48 pct at 88.82 while Hypo Real Estate declined 0.58 or 1.34 pct at 42.58.
   
On the upside, Volkswagen was the top performer, adding 1.93 or 1.10 pct at 177.50 amidst continuing speculation that it and the Wallenberg family -- both main shareholders in Swedish truckmaker Scania AB -- have reached an understanding that Scania would make a bid for German truckmaker MAN AG.
   
MAN itself was the third best performer, capping its winning streak this week to close 1.05 or 0.86 pct at 123.01. Goldman Sachs raise its price target on MAN to 152 eur from 130 while reiterating its 'buy' rating saying speculation of a takeover or tie-up with Swedish peer Scania AB was largely behind the price hike.
   
Infineon Technologies was the biggest loser on the blue chip board, shedding 0.34 or 3.10 pct at 10.62.
   
Lufthansa was off 0.56 or 2.70 pct at 20.21, which traders said could be traced to rising oil prices.
   
Siemens finished unchanged at 91.36 after vague rumours that it might be planning to issue a special dividend this year -- which had driven the shares higher earlier -- had largely subsided.
   
ProSiebenSat.1 was the biggest loser on the MDAX, easing 1.90 or 8.74 pct at 19.85. EADS, up 0.78 or 3.39 pct at 23.81, was the top performer.    

Over on the TecDAX, GPC Biotech lost 0.41 or 4.83 pct at 8.07 while MorphoSys added 0.83 or 1.87 pct at 43.01.

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Amsterdam shares close lower tracking Wall St; Hagemeyer rallies

The AEX closed 0.48 points or 0.09 pct lower at 551.05, after trading in a range of 549.44-554.38. Government bonds traded higher while the euro stood at 1.4250 usd versus 1.4286 usd late yesterday. ASML led decliners, dropping 1.70 pct to 24.26 eur in profit-taking after yesterday's gains.
   
TNT shed 1.33 pct to 29.01 eur, Unibail-Rodamco lost 1.10 pct to 172.78 and SBM Offshore shed 1.16 pct to 27.18 eur.
   
Corporate Express dropped 0.91 pct to 7.65 eur and Royal Dutch Shell lost 0.84 pct to 29.54 eur.
   
On the other end of the spectrum, Fortis rose 1.03 pct to 22.54 eur amid news that ABN Amro -- now partly owned by Fortis -- has sold its stake in Unicredito.
   
Ahold rose 0.54 pct to 11.20 eur after a price target hike at Theodoor Gilissen.
   
Heineken added 0.93 pct to 46.59 eur amid reports that investment group Capital Group has reduced its stake in Scottish&Newcastle, on which Heineken may put out a takeover bid together with Carlsberg.
   
Hagemeyer surged, adding 3.80 pct to 4.92 eur, amid speculation that another company than bidder Sonepar may put out a higher takeover bid.
   
Among midcap shares, losers also outpaced winners. LogicaCMG dropped 1.72 pct to 2.28 eur, Wereldhave shed 1.89 pct to 80.06, SNS Reaal dropped 1.67 pct to 16.44 eur and Van der Moolen shed 1.37 pct to 3.59 eur.
   
Vopak gained 1.52 pct to 40.15 eur, Boskalis added 1.37 pct to 40.06 and Wessanen led the few gainers, adding 2.44 pct to 10.92 eur after an upgrade to 'buy' at SNS Securities.

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