UK/Euro Financial Market Daily Evening Briefing 20-02-2008

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London shares close lower; NY remains weak; Alliance & Leicester falls 

At close, the FTSE 100 index was off 73.3 at 5,893.6, off the session low of 5,847.4, and having fallen from a high of 5,966.9, while the FTSE 250 index was down 84.2 points at 10,124.4.

Volume was light, with 2.6 bln shares changing hands in 699,312 deals. "It has been depressing news today in terms of Alliance & Leicester, which has got the market on a bad foot," said Philip Lawlor, strategist at Nomura.

"Also, the inflation data out of the US was marginally worse than expected putting the Fed in an awkward position in terms of rate cuts. Although I think the Fed will continue trying to help the economy and cut rates further if need be," added Lawlor.

In the US, stocks fell as consumer inflation rose faster than expected in January, as the sharpest yearly increase in food prices in almost two decades pushed overall yearly inflation to a high not seen in more than two years with disappointing housing market data also weighing on investor sentiment.

At London's close, the Dow Jones Industrial Average index was down 68.7 points at 12,268.5. Separately, the Standard & Poor's 500 index fell back 8.04 to 1,340.75, and the Nasdaq Composite index was 8.71 lower at 2,297.49.

Turning to UK equities, Alliance & Leicester was one of the major fallers, off 36 pence at 492.

Earlier, the UK mortgage lender warned that higher funding costs will dent 2008 margins as it reported an expected 29 pct slump in 2007 core operating profit, held back by large scale write-downs against its debt-backed investments in the wake of the global credit squeeze.

In reaction, Collins Stewart reiterated its 'sell' recommendation and Panmure Gordon cut its price target to 600 pence from 655.

Other financials fell, with HBOS off 12-1/2 at 646-1/2, Lloyds TSB down 4 at 428 and midcap Bradford & Bingley slipping 1-1/4 to 181.

Meanwhile, housebuilders took a knock after a bearish sector review from Dresdner Kleinwort this morning, in which it downgraded Taylor Wimpey, Persimmon, and midcap peer Bovis Homes to 'sell' from 'reduce'.

Taylor Wimpey was the top FTSE 100 faller, off 13.9 at 166.2, while Persimmon dropped 4-1/2 to 705-1/2. Meanwhile, Bovis Homes lost 37 to 556-1/2 and among midcap peers Barratt Developments was down 17-3/4 at 389 and Bellway was 31 lower at 769.

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Elsewhere, a change in broker recommendation pushed Kingfisher 4.7 lower to 132. JP Morgan cut its rating to 'underweight' from 'neutral' and its target to 135 pence from 144 ahead of the retailer's trading statement tomorrow.

Wolseley fell back 25 at 653-1/2 after Credit Suisse downgraded the group to 'underperform' from 'neutral' and cut its price target on the stock to 540 pence from 610 pence. Johnson Matthey was 71 weaker at 1,930 as Bear Stearns cut its rating on the group to 'peer perform' from 'outperform'.

On the blue chip upside, sector consolidation talk provided a lift for Xstrata, up 57 at 3,946.

Mining peer Anglo American rebounded from earlier losses, up 14 at 3,161 as the group announced it will receive new order mining rights for all of its operations in South Africa. Earlier, Anglo American posted record full-year underlying earnings in line with market expectations, and announced 380 mln usd in cost savings in 2007.

Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers, said, "Today's strong numbers are reaffirmation that the long term demand story is not going away any time soon" and "the general market view towards the shares remains resolutely positive."

Other miners were also higher, Kazakhmys was up 40 at 1,488 and Vedanta Resources gained 45 at 2,218. But it was Rexam that topped the leaderboard, adding 20-1/4 to 442-1/4 after posting full-year results that Seymour Pierce said were a touch better than its estimates and consensus. The broker upgraded its stance to 'buy' from 'outperform'.

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Elsewhere, Scottish & Newcastle gained 19-1/2 to 807-1/2 on rumours that SABMiller is planning to launch an 850 pence a share counter-bid.

On the second line, Bluebay Asset Management soared 30-3/4 or more than 12 pct to 270-3/4 after it posted an increased first-half pretax profit and said it is very well positioned to benefit from its robust investment and infrastructure platform.

A Citigroup upgrade encouraged buyers in Croda International, up 28-1/2 at 604. Earlier, the broker upped its stance to 'buy' from 'hold', prompted by Croda's well received full-year results yesterday.

Hotels group Millennium & Copthorne was 11-3/4 higher at 415-1/4 after upping its dividend 47.1 pct as part of its results. In reaction, Landsbanki said the results and dividend rise were ahead of forecasts, and reiterated its 'buy' stance.

A broker upgraded helped shares in UK Coal gain 26 to 445-1/4 as Numis Securities initiated coverage as 'buy' with a 661 pence target, with the broker taking a positive view on both the company's property and mining divisions. On the downside, some strong gainers from yesterday slipped back, including Morgan Sindall, which was 61 lower at 1,099.

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Paris shares close lower as weak US data adds to oil, KKR fears; EDF tumbles 

The CAC-40 index finished down 73.02 points or 1.49 pct at 4,812.81. Among CAC-40 stocks, 5 closed higher, 1 was unchanted and 34 closed lower. On the Matif, March CAC-40 futures were trading at 4,829.

On the broader indices, the SBF-80 index closed down 30.64 or 0.55 pct at 5,577.88 and the SBF-120 ended down 48.50 or 1.37 pct at 3,491.91.

The euro was quoted at 1.4661 usd compared with 1.4739 usd late yesterday.

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German shares close lower, led by Hypo Real Estate, RWE, Deutsche Telekom

The DAX was down 102.61 points or 1.47 pct at 6,899.68, after trading between a low of 6,852.58 and a high of 6,964.93. The MDAX was down 85.35 points or 0.93 pct to 9,103.81, while the TecDAX fell 11.86 points or 1.45 pct to 806.23.

DAX futures were down 83.00 points or 1.19 pct to 6,916.50 while bund futures were up 0.10 or 0.09 pct to 115.88. The euro was trading at 1.4651 usd compared with 1.4612 usd in afternoon trade in London.

Hypo Real Estate, down 9,64 eur or 3.40 pct at 18.16, was the biggest loser in the financial sector, which was back in the limelight following yesterday's news that Credit Suisse will take a net income hit of approximately 1 bln usd in the first quarter but expects to remain in profit for the period.

RWE was down 2.53 or 2.88 pct after it announced it will propose a full year dividend of 3.15 eur per share as well as disclosed a share buyback plan of up to 2.5 bln eur between Feb 21 and Oct 17.

Deutsche Telekom eased 0.40 or 3.05 pct to 12.70.

Bayer was under pressure on the back of a patents lawsuit from Novartis in the US over the haemophilia treatment Kogenate. Bayer said it will "vigorously" defend itself against a patent infringement suit.

Bayer closed 1.53 or 2.79 pct lower at 53.37.

On the upside, Fresenius Medical Care, up 0.86 or 2.47 pct at 35.70, led advancers after it disclosed a 30 pct jump in its fourth quarter net profit, beating market consensus.

Analysts at Commerzbank reiterated their 'buy' rating and 47 eur target on the stock and said the results released this morning were a "favourable mix" and "better than expected". The broker said lower-than-expected revenues per treatment in the US were offset by better-than-expected patient numbers.

Merck was up 1.16 or 1.41 pct at 83.14.

Allianz was higher on the eve of publication of its complete fourth quarter results, closing up 0.16 or 0.14 pct at 117.49. Allianz already announced on Jan 24 that it met its full year targets with operating profit rising to more than 10.8 bln eur from 10.4 bln and net profit up at 8 bln from 7 bln.

Analysts will be focusing on any announcements tomorrow regarding Allianz's Dresdner Bank unit as well as possible share buybacks.

Over on the MDAX, financial service provider MLP was down 0.99 or 8.96 pct at 10.06 after the company disclosed a 2008 outlook which disappointed investors. MLP said it expects profit margins this year would be lower than last year.

Leoni AG was the best performer, adding 1.91 or 7.18 pct at 28.53.

On the TecDAX, Q-Cells eased 4.37 or 6.52 pct at 62.65. Freenet was up after its spokeswoman disclosed the company has plans to sell its DSL broadband business and that initial discussions have already begun with interested parties.

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Amsterdam shares close lower as Wall Street falls; Heineken sinks

The AEX closed down 2.08 points or 0.46 pct at 446.69, after opening at 444.83 and trading in the range 444.04-450.67. Government bonds traded lower, while the euro stood at 1.4652 usd, compared with 1.4741 usd late yesterday.

Brewer Heineken led decliners, falling 6.02 pct to 36.53 eur, with investors miffed no concrete outlook for 2008 was given during the presentation of in-line full-year numbers. Jurgen Smits van Oyen at Petercam said the absence of guidance will be received as a disappointment.

TNT moved 2.83 pct lower to 27.09 eur as ING cut its rating on the logistics group to 'hold' from 'buy' and lowered its price target to 30 eur from 35 eur, saying it fears the near- to medium-term outlook is dominated by uncertainty and risks.

TomTom fell 2.34 pct to 37.90 eur ahead of its fourth-quarter numbers, expected tomorrow before the market opens. Analysts anticipate strong fourth-quarter earnings per share and revenues on after the company chased a larger share of the US market in the last quarter.

On the midcap Vopak fell 2.43 pct to 33.32 eur and Wessanen was off 2.37 pct at 9.06 eur.

ArcelorMittal led blue chip gainers, adding 3.35 pct to 49.34 eur, as investors welcomed news of a substantial share buyback that will boost earnings per share.

Office supplies company Corporate Express added 1.99 pct to 7.70 eur, as investors speculated that US peer Staples will raise its 7.25 eur-per-share offer on the company. Analysts doubt the company will talk for less than 8.50 eur a share, with some saying a price of 10 eur may be closer to the mark.

ING gained 0.92 pct to 21.96 eur as the Dutch bancassurer reported lower than feared subprime-related impairments and broadly in line fourth quarter results.

Staffer Randstad climbed 0.78 pct to 27.01 eur following an upgrade to 'buy' from 'hold' at Fortis on valuation grounds, with the broker maintaining its target at 35 eur.

Takeover target Vedior rose 1.06 pct to 17.20 eur in sympathy. On the midcap, Heijmans gained 2.02 pct to 24.69 eur ahead of its full-year figures out tomorrow morning.

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