UK/Euro Financial Market Daily Evening Briefing 19-11-2007

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London shares close at day's low; NY remains down; Northern Rock slumps

At close, the FTSE 100 was down 170.4 points or 2.71 pct at 6,120.8 at a day's low, off a high of 6,331.7, while the FTSE 250 was 361.76 points lower at 10,404.5.
   
Volume was below average with 2.436 bln shares changing hands in 795,714 trades. Trading Central, a technical analysis service see key support levels at 6,270, 6,225, 6,170 and 6,110, with resistance seen at 6,380, 6,460 and 6,510.
   
"The credit markets are still having an impact on the markets. Libor is creeping up which signifies banks have a mistrust in borrowing from each other, which means normal commercial business can not be financed," said Ed Menashy, strategist at Charles Stanley.
   
Over in the US, Wall Street remained lower as Goldman Sachs downgraded large banks and estimated that Citigroup would have to write down 15 bln due to its exposure to risky debt over the next two quarters.  By London's close, the Dow Jones industrial average was down 165 points at 13,011.8.
   
Turning to the UK blue-chips, Northern Rock remained in the spotlight, plummeting over 21 pct or 28.4 to 104.2 after it said approaches from potential suitors it has received so far value the group "materially below" its 559 mln stg market capitalisation at the end of last week.
   
Also, the UK Treasury has extended part of the stricken UK bank's emergency loan to five years, rolling up some of the interest it owes into a new, longer-term 'subordinate loan'.
   
Other financials were lower as talk continued to circulate that a UK banking group is being forced to borrow large sums of money at very high lending rates and as Swiss Re announced a shock 1.2 bln sfr loss from credit underwriting activities caused by the market deterioration last month.
   
Alliance & Leicester shares fell 25-1/2 pence to 581-1/2 pence.  HBOS shares were also lower, trading down 29-1/2 at 730. Barclays shares fell 17-3/4 pence at 491-1/4. Barratt Developments - which had risen around 3 pct in opening deals - fell back 24-1/2 at 479-3/4 as concern about the health of the UK housing market continued.
   
Rightmove UK house price data showed prices have fallen by 0.7 pct over the past month, with annualised UK house price inflation falling to 7.9 pct from 10.4 pct previously. Estate Agent Countrywide said yesterday it will close some of its branches after being hit by a spate of cancelled sales.

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The news dragged British Land down 69 pence to 820-1/2 pence and Land Securities down 92 pence to 1,377 pence.
   
Mining stocks were lower too as some bearish comment weighed. Landsbanki cut its rating on BHP Billiton to 'reduce' from 'buy', saying the bid for Rio Tinto has taken all of the near-term upside out of the company and the broker believes the deal may prove to be too expensive to be worth completing, but it may take a year for this to become clear.
   
BHP shares fell 83 to 1,519. The shares surged into the black mid-morning after the group downplayed recent speculation that the group might add a cash element to its bid for Rio Tinto.
   
Anglo American fell 224 pence to 2,862 and Lonmin was 238 pence lower at 2,859 as platinum and gold prices fell overnight and as Deutsche Bank trimmed its price targets for the pair. The broker cut its target on Lonmin, rated 'hold', to 3,240 pence from 3,320 pence and on Anglo, rated 'buy' to 3,370 from 3,410.
   
DSG International was down 6.6 pence to 106.5 pence after two bearish notes. JP Morgan cut its target to 130 pence from 150 pence and repeated its 'hold' stance. Goldman Sachs started DSG with a 'sell' recommendation and a 111 pence target.
   
Turning to the upside, there were few blue chip risers, with Standard Chartered gaining 15 pence to 1,679 as the FT reported that Temasek had rebuffed an approach by three Chinese banks to acquire its 17 per cent stake in Standard Chartered. The shares gained amid speculation that the Chinese groups could
start buying shares in the market.
   
And, positive broker comment helped Smith & Nephew to add 2-1/2 at 575-1/2, Dresdner Kleinwort reiterated its 'buy' stance on the group and advised investors to snap up shares now and wait for longer term performance.

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Among the midcaps, Burren Energy plummeted more than 14 pct or 173 to 1,015 after Italy's Eni SpA terminated its bid discussions with the UK group.

Tomkins shares were lower after Goldman Sachs downgraded the group to 'sell' from 'neutral' with a cut in target to 175 pence from 210 pence following the credit crunch. Tomkins shares were 11 lower at 178-1/4.
   
On the FTSE 250 upside, Gyrus Group soared a massive 51.75 pct or 207 to 607 following news Japan's Olympus Corporation has agreed a 630 pence/share offer for Gyrus, implying an enterprise value for Gyrus of about 1.026 bln stg.
   
The offer, which has been recommended by Gyrus' board, represents a premium of 58 pct to the closing price of 400 pence on Friday.

UK Diary of Event:

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 fears on economy, industrial shares plunge

The CAC-40 index finished down 91.06 points or 1.65 pct at 5,432.57. Among CAC-40 stocks, 4 closed higher and 35 closed lower. On the broader indices, the SBF-80 index closed down 171.44 points or 2.7 pct at 6,188.87 and the SBF-120 ended 71.77 points or 1.79 pct lower at 3,933.21.
   
The euro was at 1.4663 usd compared to 1.4640 usd at midday. Industrial stocks suffered the biggest losses, with car maker Peugeot leading the decliners down 3.05 eur or 5.56 pct at 51.79.
   
Heavy engineering firm Alstom dropped 7.70 eur or 5.44 pct to 133.75 while tire maker Michelin fell 3.77 or 4.74 pct to 75.70 and steel pipe maker Vallourec sank 8.54 or 4.31 pct to 189.65.
   
Adding to the market's morose mood was news that transport strikes that have crippled the country would enter their seventh day Tuesday, coinciding with a separate one-day strike by France's civil servants.
   
France's Finance Minister Christine Lagarde estimated the cost of the strikes to France at 300-400 mln eur per day. Financial stocks were also hammered after renewed worries over asset write downs in the sector out of the US.
   
Axa's decline followed unconfirmed media reports that it is mulling a bid for UK insurer Friends Provident. Credit Agricole, meanwhile, was in the spotlight after announcing this morning it has purchased 14.99 pct of Bankinter for a total of 809 mln eur.
   
"The market doesn't appreciate risk-taking in the current climate, and is wondering what could be hidden in the acquisition target's balance sheet," a local dealer commented.
   
Among the handful of shares gaining Monday was France Telecom, which rose 0.67 eur or 2.58 pct to 26.61 after broker ING reiterated its 'buy' stance and raised its price target to 29.5 eur from 25, saying the telecom operator is trading at an unjustified discount to its peers.
   
Separately, analysts at Natixis Securities welcomed Friday's news a consortium led by France Telecom has been selected to buy 51 pct of Telkom Kenya for 390 mln usd. In the French broker's view, this could herald the start of a series of acquisitions in emerging countries aimed at boosting the group's growth.

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German shares close lower; financials under pressure; TUI drops

At the close, the DAX was down 100.29 points, or 1.23 pct, at 7,511.97. The MDAX fell 395.05 points, or 4.08 pct, to 9,276.82, while the TecDAX retreated 38.36 points, or 4.08 pct, at 901.66. DAX futures fell 123.00 points, or 1.60 pct, to 7,548.00, while bund futures were 0.47 eur or 0.41 pct higher at 114.86.
   
The euro was trading at 1.4665 usd at 5.45 pm in Frankfurt. In general, investors are fairly nervous at the moment and it is difficult to make forecasts for the market, said Deutsche Postbank trader Stefan Soellner.
   
"The DAX is currently floating between an important support level and a key resistance mark. Should the DAX be able to break above the 7,500-7,550 mark, it could open up room for some further advances," Soellner said.
   
Local traders pointed to adverse effects from a surprise 1.2 bln sfr loss at Swiss Re due to sub-prime problems and uncertainty over US interest rates weighing on the market.
   
Further financial sector uncertainty was also palpable across the Atlantic. Citigroup Inc was added to Goldman Sachs' "Americas Sell List," as the brokerage expects the company to take as much as 15 bln usd in writedowns and possibly cut its dividend.
   
Leading blue chips lower, TUI plunged 1.11 eur, or 5.55 pct, to 18.90 eur. Russian Investor Alexei Mordashov hiked his stake in travel and tourist firm to 3.02 pct from less than 3 pct, calling it a "strategic investment."
  
A trader said that Mordashov is seen as shoring up chief executive Michael Frenzel's position, which was not well received by the market. Continental slipped 3.62 eur, or 3.98 pct, to 87.30. Volkswagen lost 6.05 eur, or 3.56 pct, to 164.1. Commerzbank cut its price target on the stock to 162 eur per share from 170 and maintained its 'reduce' rating.
   
Financials were underperforming with Hypo Real Estate being the worst performer among the pack as speeches from Commerzbank's CEO Klaus-Peter Mueller and Deutsche Bank's CEO Josef Ackermann at the Euro Finance Week did not paint an encouraging picture for investors.
   
Hypo Real Estate lost 1.01 eur, or 2.77 pct, at 35.51, Commerzbank was 0.67 eur, or 2.6 pct, lower at 25.06, while Deutsche Bank slipped 1.31 eur, or 1.56 pct, at 82.75.
   
Allianz shares were 3.97 eur, or 2.80 pct, lower at 137.80 after investors worried that a shock 1.2 bln sfr loss that Swiss Re reported this morning due to sub-prime-affected operations might also show up in market deterioration at Germany's largest insurer.
   
"The surprise loss that Swiss Re announced is definitely pressuring insurance stocks lower, as investors are worried that Allianz and Munich Re might soon show similar impairments related to sub-prime activities," said a Frankfurt-based trader.
   
Shares in peer Munich Re were down 1.83 eur, or 1.51 pct, at 119.17. Daimler shares slid 1.94 eur, or 2.92 pct, at 64.61 after its chief financial officer Bodo Uebber said it would be worth examining the possibility of expanding US production plus purchasing in the country given the current weakness of the dollar.
   
Bucking today's negative trend, shares in Deutsche Postbank rose 1.8 eur, or 3.42 pct, at 54.49 following a report in Frankfurter Allgemeine Zeitung that Postbank's parent company Deutsche Post will look into possibly selling the unit in 2008 after the end of its mail monopoly in Germany.
   
Deutsche Post, which owns a stake of just over 50 pct in the retail bank, declined 0.24 eur, or 1.08 pct, to 21.93 Shares in Metro advanced 0.51 eur, or 0.79 pct, to 64.70, after the Frankfurter Allgemeine Sonntagszeitung reported Germany's biggest retailer Edeka, which is acquiring Plus from Tengelmann, is interested in Metro's "Extra" store chain.
   
TecDAX-listed Conergy was the worst decliner on its index, plunging 6.39 eur, or 23.80 pct, to 20.46 after a report in Die Welt newspaper churned up fears that the solar company is on the verge of dissolution should it not see a quick turnaround from a recent bond it launched. Shares in QSC, meanwhile, added 0.11 eur, or 4.20 pct, at 2.73 on the other end.

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Amsterdam shares close lower as financials weigh; TomTom bucks trend

The AEX closed down 8.99 points or 1.80 pct at 491.09, after opening at 501.93 and trading in the range 490.09-504.63. Government bonds traded higher while the euro stood at 1.4663 usd versus
1.4642 usd late Friday.
   
The AEX closed at 495.34 on the last day of trading in 2006 and slipped below that level at about 3 pm CET. The lowest level on the AEX this year was reached on March 14 with a level of 473.38.
   
Financials opened down and continued lower after Swiss Re had a knock-on effect on many European financials, after announcing a shock 1.2 bln sfr loss from its credit underwriting activities.
   
Fortis was off 4.72 pct to 17.17 eur also amid news Petercam cut its rating on the stock to 'hold' from 'add', no longer expecting the group to outperform its Benelux peers, while Aegon fell 4.20 pct to 12.10 after it said it finished its 1 bln eur share buyback programme.
   
ING lost 3.40 pct to 25.26 as it gave "no comment" to market speculation it is interested in buying the UK's Northern Rock, marking a change in the Dutch bancassurer's official stance.
   
Midcap bancassurer SNS Reaal fell 3.80 pct to 14.94 after buying Swiss Life's Dutch and Belgian units, lifting SNS Reaal into a number two position in the Dutch life insurance market.
   
Midcap brokers outperformed, with Van der Moolen up 0.65 pct to 3.10 and BinckBank down 0.27 pct at 14.99 pct after it said shareholders have approved the acquisition of Rabobank's Alex Beleggersbank, as well as the financing of that acquisition, at today's EGM.
   
SBM Offshore led AEX decliners, falling 6.26 pct at 24.24, while heavyweight Shell closed marginally lower, down 0.18 pct at 27.21. Vedior fell 6.15 pct to 11.91, Randstad shed 1.47 pct at 30.07, while midcap
peer USG People lost 6.12 pct at 16.41.
   
Akzo Nobel lost 3.36 pct to 50.05 as it said it completed the sale of Organon BioSciences to Schering-Plough for 11 bln eur.
   
Heineken weakened 1.62 pct to 44.27, amid reports Scottish & Newcastle is ready to sell French unit Elidis in a bid to secure independence as it faces the prospect of a possible hostile takeover from the Heineken/Carlsberg consortium.
   
Among just four blue chip gainers, TomTom led the way higher, putting on 2.49 pct at 61.65 as it launched its bid on Tele Atlas. Unilever ended 1.11 pct higher at 24.49.
   
On the midcap, CSM gained 0.72 pct at 23.83. Among midcap decliners, Aalberts Industries slumped 8.04 pct at 13.61 and BAM lost 6.66 pct at 14.30, while peer Heijmans fell 5.27 pct at 23.00 eur amid news that it sold a shopping centre in Belgium for 38.5 mln eur.
   
Fugro fell 3.38 pct to 51.80, ahead of its trading update after the market close tonight and off intraday highs after SNS Securities earlier upgraded it to 'buy' from 'accumulate'.
   
Local issue Grolsch jumped 75.65 pct higher to 47.25 after SABMiller made a "knock-out" recommended offer of 48.25 eur per share for the Dutch brewer, valuing the company at 816 mln eur, analysts said.
   
VastNed Retail fell 6.12 pct at 65.60 amid news that it said it will give potential bidders the opportunity to perform a due diligence investigation and that interested parties should contact the board of management.

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