UK/Euro Financial Market Daily Evening Briefing 20-08-2007

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London shares close up, well off highs, with miners rallying; NY mixed

UK blue-chips closed up, albeit well off earlier highs, with miners and financials leading the rally, while Wall Street fluctuated between gains and losses, with the main indices mixed by the London close.
   
At the close, the FTSE 100 index was up 14.5 points at 6,078.7, having earlier been as high as 6,163.4, while the FTSE 250 index finished 17.6 points higher at 10,703. Volume was fair, with 2.36 bln shares changing hands in 630,749 deals.
   
In the US, meanwhile, Wall Street fluctuating between gains and losses as investors tried to assess whether the Federal Reserve will keep lowering interest rates.
   
By the London close, the Dow Jones Industrial Average was down a mere 3.30 points at 13,075.80 points, while the Nasdaq Composite rose 2.15 to 2,507.18 and the S&P 500 index lost 3.15 at 1,442.80.
   
Trading was expected to be uncertain after the market's big rally Friday in response to the Fed's lowering of its discount rate, the interest it charges on its loans to banks.
   
The Fed said it would stand ready to make further moves to keep credit market losses from hurting the economy, but because it stopped short of a cut in the more important federal funds rate, uncertainty remained on Wall Street about the policymakers' intentions. The Fed is not scheduled to meet formally until Sept 18, and investors are expected to remain jittery until then.
   
Back in London, mining stocks dominated the blue-chip risers, rebounding after last week's losses, with BHP Billiton leading the pack, up 51 at 1,275, also aided by news it plans to restart its Olympic Dam smelter, which has been closed since Friday, next week.
   
The smelter at Olympic Dam, the world's fourth-largest copper deposit and biggest uranium deposit, was shut down after an incident that resulted in six workers being treated for smoke inhalation.
   
Meanwhile fellow miners rallied, with Antofagasta adding 12 pence to 656-1/2, Kazakhmys 45 pence firmer at 1,170, Lonmin up 16 pence at 2,990, and Rio Tinto 96 pence stronger at 3,078.
   
Analysts said the miners, having suffered heavily when the markets were falling, were simply rising with the recovery, but more so, as they have a high measure of volatility.
   
However, British Energy Group was the top blue-chip riser at the close, 19-3/4 pence firmer at 451-1/4, with Goldman Sachs upgrading its rating on the nuclear power firm to 'buy' from 'neutral' following its first-quarter numbers last week, in which it reported a 12 pct fall in profits as a result of prolonged outages at two of its plants.

The broker said its recommendation hike comes as it believes the very bearish output scenarios are now priced in.

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Bullish comment from Lehman Brothers helped lift shares in the financial sector, with Prudential up 7 pence at 657-1/2, after the broker said that with financials being in the middle of the credit crisis, it thinks the reaction has been overdone.
   
While midcap insurer Hiscox leapt 16-3/4 to 280 after the Lloyd's reinsurer and insurer reported first-half pretax profit that comfortably beat expectations.
   
The insurer reported that pretax profit for the half year to end-June rose 72 pct to 105.6 mln stg, beating analysts expectations of 89 mln stg from a consensus forecast supplied by the company. Analysts at Evolution Securities were positive, upgrading the stock to 'Buy' from 'Add'.
   
Northern Rock was another financial gainer, up 6-1/2 pence at 716, with Cazenove saying it does not believe the capital markets will be closed to Northern Rock for any significant period of time, if at all.
   
It said it believed the capital markets will remain open to Northern Rock, being a highly-rated issuer of prime residential mortgage-backed securities albeit, at what is likely to be a higher cost than seen previously.
   
Elsewhere among financial stocks, Man Group was up 5-1/2 pence at 464-1/2, Invesco pushed up 6 pence to 579-1/2, and Schroders climbed 26 pence to 1,218.     

Positive broker comment also provided the spur for key defence sector stocks, with BAE Systems up 14-1/2 pence at 431 and Meggitt up 13-1/2 pence at 298-3/4, after Merrill Lynch said it felt the sector was discriminated against in the recent market sell-off.
   
Turning to the downside, Imperial Tobacco Group was among the casualties, 22 lower at 2,138, as Citigroup said current conditions could lead to a larger-than-forecast rights issue which could cut EPS by as much as 5 pct.
   
Citigroup said Imperial's earnings outlook is materially affected by the 'credit crunch', and that its EPS depends on the size of the rights issue that will be used to pay for most of the Altadis acquisition.
   
The broker said that, in turn, this depends on how conservative the ratings agencies are next year, the price it can sell Logista for, and Imperial's share price at the time of the rights issue.
   
Also trading in the red was Tesco, down 2-3/4 pence at 400-3/4, after a report in the Sunday Telegraph revealed the Competition Commission believes it has found the smoking gun in its ongoing probe into the practices of the Big Four supermarkets.
   
Store giants Tesco and Asda have been exposed over email threats to farmers, and have been ordered by the watchdog to reveal their dealings with suppliers.

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Retail sector peer J Sainsbury, fell 10 pence to 510-1/2, after JP Morgan cut its price target to 400 from 500. It said the company's like-for-like growth was driven by inflation rather than volume.
   
Among the 250 risers, news of a contract win lifted shares in Amec, up 5-1/2 pence at 605, after the Sunday Times reported the company's 42 mln stg five-year contract from the Kuwait National Petroleum Company to provide consulting and engineering services.
   
M&A speculation helped push London Stock Exchange Group higher in afternoon trade, up 31 at 1,301, as hopes increased that Nasdaq's mooted disposal of its 31 pct stake could open the door to fresh takeover bids.
       
Meanwhile, Restaurant Group was 6 pence firmer at 267, after the Lex column in Saturday's Financial Times said short-term volatility in the market currently provides a compelling buying opportunity as the shares are trading at a slight discount to the sector.
   
On the midcap downside, St Modwen was 26 pence lower at 514, after Merrill Lynch cut its stance on the group to 'sell' from 'neutral'.
   
Merrill said that it recognises St Modwen is a niche developer operating in a very specialised part of the real estate market, but sees better value elsewhere.
   
On the macro front, gross mortgage lending in the UK reached a new record level for the month of July despite the Bank of England's series of interest rate rises, the Council of Mortgage Lenders said today.
   
In its monthly survey the CML said that gross mortgage lending rose to 34.4 bln stg - up 13 pct year-on-year and the highest ever level recorded for July. However the figure was slightly lower than the total of 34.8 bln recorded in June.

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Paris shares close higher but pare gains in line with hesitant Wall St

The CAC-40 index finished up 35.75 points or 0.67 pct at 5,399.38. Among CAC-40 stocks, 32 closed higher, 7 closed lower and 1 was unchanged. On the broader indices, the SBF-80 index closed up 85.76 or 1.34 pct at 6,472.61 while the SBF-120 ended 29.66 or 0.76 pct higher at 3,936.53.
   
Power and transport equipment group Alstom, which had suffered an uninterrupted fall since closing at 135.22 on August 8, recouped 4.18 eur or 3.54 pct to 122.37.
   
Steel maker ArcelorMittal, which fell steeply last week as investors fled commodities assets including metals, added 1.37 or 3.43 pct to 41.28.
   
Some energy and consumer-related stocks also regained ground after suffering during the recent sell-off. Among utilities, EDF rose 1.51 or 2.18 pct to 70.87 and Suez was up 0.58 or 1.56 pct at 37.65. In the auto sector, Michelin rose 2.04 or 2.44 pct to 85.51, Peugeot was 0.81 or 1.39 pct higher at 59.11 and Renault was up 0.95 or 1.01 pct at 94.90.
   
Banks were mostly in positive territory but posted only moderate gains after rebounding strongly during Friday's afternoon's rally and amid continued uncertainty about the extent of the financial correction. Dexia ended up 0.16 or 0.81 pct at 19.94, BNP Paribas inched up 0.10 or 0.13 pct at 78.30, while Societe Generale slipped 0.21 or 0.18 pct to 117.95.
   
Alcatel-Lucent rose 0.14 or 1.81 pct to 7.87 as investors returned to buying after the telecoms equipment maker's big drop since its disappointing first-half results at the end of July.
   
However, Dresdner Kleinwort analysts warned in a note that they believe "the company will struggle to deliver in full on its restructuring programme" in view of concessions reportedly made to French trade unions.
   
Union sources told Agence France-Presse that a deal on the implementation of 1,458 planned job cuts may be struck at talks scheduled for September 3 and 5, which would then be approved by a works council meeting a week later. No one at Alcatel-Lucent was available to comment on the report.       

France Telecom -- up 0.24 or 1.14 pct at 21.24 -- continued to be sought after, following last week's gains on the back of speculation it is close to securing the rights to sell Apple's iPhone in France.
   
Rival telecoms operator Neuf Cegetel was one of the biggest climbers of the session, adding 0.98 or 3.59 pct to 28.31, boosted by its announcement that it will offer unlimited downloads from the catalogue of Vivendi unit Universal Music as part of its triple-play internet service.
   
Analysts at CM-CIC Securities said in a note to clients that the move will not revolutionise the internet service provider sector, but will help Neuf differentiate itself from its two main competitors, France Telecom and Iliad -- whose shares fell back 1.50 or 2.21 pct to 66.50.
   
On the downside, Air France-KLM fell 0.22 or 0.80 pct to 27.30 as investors reacted to fresh speculation that the group will acquire a stake in struggling Italian peer Alitalia.
     
Total dropped 0.26 or 0.49 pct to 52.68 as oil prices fell on expectations Hurricane Dean will spare key oil and gas facilities in the Gulf of Mexico. Separately, the French group announced it has agreed to take a 35 pct stake in an offshore exploration block in Vietnam.

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German shares close higher as global rebound continues

The DAX gained 29.24 points or 0.40 pct at 7,407.53, having traded between 7,386.55 and 7,450.39 today. The MDAX was up 134.51 points or 1.41 pct to 9,646.66, while the TecDAX climbed up 4.65 points or 0.55 pct to 849.35. DAX futures were down 14.50 points or 0.19 pct at 7,440.50, while bund futures added 0.12 points or 0.11 pct to 113.42.
  
Shares in Deutsche Boerse rose to the top, adding 2.70 eur or 3.51 pct at 79.70 as they benefited doubly from the market turn-around.  On the one hand, Deutsche Boerse whose shares have been under pressure lately, corrected upwardly along with the majority of the market. On the other hand, because the market has become more friendly at the moment investors are speculating that this will translate into high turnover levels for the German exchange operator.
  
Hypo Real Estate followed, rising 0.84 eur or 2.15 pct to 39.83, as it  benefited from today's rebound. The shares had lost as much as 28 pct over the last month and are  perfectly positioned for a counter-reaction, said a trader.
   
Deutsche Telekom gained 0.28 eur or 2.12 pct at 13.47, after the head of its personnel operations, Thomas Sattelberger, said in an interview that he wants to restructure his department. Traders were quick to point out, however, that the proposed job cuts are already part of plans to reduce the company's employees by 32,000 by 2008.
   
ThyssenKrupp, meanwhile, added 0.82 eur or 2.05 pct 40.91 and Continental rose 1.66 eur or 1.86 pct to 90.86.     

At the other end, Deutsche Bank dropped 1.38 eur or 1.45 pct to 93.47. Wirtschaftswoche published a report over the weekend saying the bank could face a wave of lawsuits from small- to medium-sized companies that claim they were wrongly advised in regard to swap transactions.
   
According to the report, several companies are facing multi-million eur losses and claim the bank had not warned them of potential risks related to its investment product CMS Spread Ladder Swap.
   
TUI fell 0.25 eur or 1.42 pct to 17.86 after it cancelled all its flights to Cancun, Mexico, and Jamaica through Friday, due to hurricane Dean.
   
DaimlerChrysler eased, 0.74 eur or 1.23 pct to 59.40, while RWE declined 0.98 eur or 1.20 pct to 80.93.
   
Over on the MDAX, Hochtief rose to the top, adding 5.22 eur or 8.18 pct to 69.03 after  the construction company announced it had won a 400 mln eur contract, together with two partners, to build and maintain two schools in Scotland. Wincor Nixdorf declined 2.60 eur or 4.23 pct to 58.84 at the other end.

TecDAX-listed Nordex added 1.55 eur or 6.53 pct to 25.28, while Jenoptik eased 0.33 eur or 4.76 pct to 6.61.

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Amsterdam shares close higher in bargain hunting recovery; Pharming leads

The AEX closed 5.57 points or 1.12 pct higher at 504.57 after opening at 503.85 and trading in a range of 503.22-508.17. Government bonds traded mainly higher, while the euro stood at 1.3472 usd against 1.3489 usd late Friday.
   
Pharming was the biggest gainer, surging 27.48 pct to 2.83 as it reported good clinical results for its product Rhucin and said it expects to launch the drug on the European market in early 2008.
   
Among blue-chip gainers, Hagemeyer was the standout, closing 7.69 pct higher at 3.22 after an upgrade to 'hold' from 'reduce' at Rabo Securities following the stock's sharp decline late last week.
   
Arcelor Mittal was also a solid gainer, rising 3.25 pct to 41.27 eur, while ASML gained 3.09 pct to 20.34 and Corporate Express put on 2.77 pct to 8.53.
   
Ahold also outperformed, gaining 2.49 pct to 9.07 following a bullish note from Citigroup and speculation that supermarket prices will rise in the Netherlands due to the higher cost of raw materials. Local issue peer Laurus gained 3.05 pct to 4.39.
   
Staffing stocks were higher after strong earnings from Michael Page. Randstad was most in demand, up 1.84 pct at 40.90, while Vedior put on 1.48 pct to 17.18 and midcapper USG People rose 3.27 pct to 23.94
   
Philips was higher, up 1.72 pct at 27.85 as Exane BNP Paribas reiterated the stock at 'buy', but cut is price target to 35 eur from 37.
   
Financials were less in demand than last Friday when the Fed cut its discount rate, but still booked gains across the board. ABN Amro closed 1.42 pct higher at 34.05, Aegon finished 0.60 pct higher at 13.29, while Fortis put on 0.44 pct to 26.83 and ING ended 0.40 pct firmer at 29.46. Midcapper SNS Reaal gained 2.63 pct to 15.60.
   
As oil prices dipped on expectations that Hurricane Dean would miss key oil installations in the Gulf of Mexico, Royal Dutch Shell posted modest gains of 0.66 pct at 27.20, while oil services group SBM Offshore rose 0.97 pct to 27.10 eur
   
There were just two decliners on the AEX, both ot them publishing stocks. Wolters Kluwer shed 1.29 pct to 20.70, while Reed Elsevier lost 1.25 pct to 12.60 Local issue publisher TMG closed 3.02 pct lower at 24.66.
   
On the midcap, Univar led gainers as CVC Capital Partners said it would launch its 53.50 eur per share public offer for the Dutch chemical company tomorrow, ending uncertainty about the deal. It closed 5.89 pct higher at 51.75.
   
Ordina gained 4.30 pct 14.30 ahead of its half year results tomorrow, with analysts forecasting it to report slightly ahead of its guidance. There were few midcaper decliners, led down by Oce, which closed 0.58 pct lower at 15.28.

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