UK/Euro Financial Market Daily Evening Briefing 20-09-2007

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London shares close lower; NY weaker; Northern Rock, banking sector down

UK blue chips closed lower as Wall Street remained weaker with the banking sector heavily hit, as Northern Rock dropped sharply, and HBOS moved lower on rumours it has approached the Bank of England about funding.
   
By close, the FTSE 100 index was 31 points lower at 6,429, although off the intraday low of 64.9 points down at 9.29 am. The FTSE 250 was 122.5 lower at 11,013.8.
   
"After rallying yesterday we are seeing minor profit taking today as investors wait and watch the dust settle. The main news is Northern Rock as it seems bizarre the government will not guarantee any new deposits placed in the bank. This has just added to the uncertainty in the market," said Philip Lawlor, strategist at Nomura.
   
Across the pond, by London's close US stocks remained weaker as investors stopped to cash in profits from its big rally, due to weaker-than-expected earnings at Bear Stearns.
   
The Dow Jones Industrial Average was down 19.8 points at 13,795.7 and the tech-heavy Nasdaq slipped 4.42 points to 2,662.26. The broad-market Standard & Poor's 500 index fell 3.42 points to 1,525.09.    

However, Wall Street's declines were modest, thanks to a strong third-quarter earnings report from Goldman Sachs and a drop in jobless claims last week. The Labor Department said jobless claims declined by 9,000 last week -- a good sign for the economy, particularly given August's decrease in payrolls and that the market had been predicting a slight rise in claims.
   
And, Federal Reserve Chairman Ben Bernanke told Congress that the credit crisis has created "significant market stress" and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.
   
Meanwhile, US Treasury Secretary Henry Paulson continued to downplay the crisis, telling members of Congress that the US is poised for continued economic growth.
   
Back to the blue chips, Northern Rock remained the biggest FTSE 100 loser, down 71.8 pence, or 27.94 pct, to 185.2, as sentiment surrounding the company took another turn for the worse as Treasury guarantees for depositors turned out to be less generous than hoped. The guarantees do not cover, for example, newly-opened accounts.
   
Rumours yesterday, although dismissed by the bank, suggested that any takeover bid for Northern Rock would be pitched at a deeply discounted level and investors were simply running for cover, traders said.
   
Citigroup cut its target for Northern Rock from 400 pence to 150 pence, with a worst-case scenario of 6 pence a share, and reiterated its 'sell' stance.

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Peer Alliance & Leicester once again suffered in sympathy with Northern Rock, down 60 pence at 755-1/2, having rallied sharply yesterday.
   
Meanwhile, HBOS was 37 pence lower at 837, amid rumours it had approached the Bank of England about the availability of funds for its mortgages. A spokesman for the bank denied this, and this helped the shares bounce from an earlier low of 809.
   
Royal Bank of Scotland fell back 17 at 521 and Standard Chartered shed 38 at 1,587.
   
In the midcaps Bradford & Bingley remained one of the biggest FTSE 250 losers, down 28-1/4 pence at 299-3/4.
   
Elsewhere, housebuilders also reversed yesterday's rally after a cautious note on the sector today from Citigroup. The broker said it still sees reasonable upside from UK housebuilders in the medium term, but added that it expects no price inflation in 2008 and has cut its current-year earnings estimates across the board.
   
Citigroup said it now expects zero house price inflation in 2008, as opposed to the 3 pct previously expected, but has left its inflation assumption for 2007 unchanged at 3 pct.
   
The broker downgraded blue chip Barratt Developments and soon-to-be-FTSE 100 stock Taylor Wimpey to 'hold' from 'buy', but upgraded mid caps Berkeley Group and Bovis Homes to 'buy' from 'hold', saying their shares have fallen too far.   

In reaction, Barratt shares shed 30 pence at 792, while its blue chip peer Persimmon lost 50 pence at 939. Among the mid caps, Taylor Wimpey dropped 15 pence at 290, Bellway shed 37 pence at 1,034, and Redrow was 21-3/4 weaker at 421.
   
Meanwhile, retailer Kingfisher gave back opening gains and was 11.3 pence lower at 181 as a cautious outlook statement offset better-than-expected first-half results.
   
Europe's largest home improvement retailer has reported a first-half profit before tax and exceptional items of 189.6 mln stg, compared with the consensus forecast of 183 mln stg, up from 178.5 mln stg a year earlier. This was achieved on the back of a 9.8 pct increase in retail sales to 4.78 bln stg, with like-for-like sales up 4.3 pct.
   
However, Kingfisher chief executive Gerry Murphy said the UK market remains "relatively weak". "We expect the second half to be tough as recent interest rate rises and current uncertainty in financial markets affect customer behaviour," he said.
   
The cautious outlook also had an impact on peer Home Retail Group, owner of DIY retailer Homebase, with its shares down 21-1/4 pence at 373-3/4. And ahead of FY results on Monday Wolseley was off 28 at 866-1/2 with analysts seeing the the group's pretax profit down on US woes.

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Turning to the upside, cruises operator Carnival was the top FTSE riser up 157 or 7.08 pct at 2,374 after the group announced Q3 results were better than expected on stronger pricing.
   
Carnival reported an 11.8 pct rise in third-quarter net profit buoyed by a similar rise in revenues and raised its remaining share repurchase authorisation to 1 bln usd from 578 mln.
   
Elsewhere, further developments in the Friends Provident merger saga pushed the shares up 7.1 pence to 174.7, with rumours that Zurich Financial Services is to make a bid for the group. Friends has already announced an agreed merger with Resolution, but the issue is far from settled.
   
Resolution has confirmed that it has been approached by both UK insurer Standard Life and specialist insurance rival Pearl Assurance, but has not received an offer or proposal from either party. Standard Life was 3 pence lower at 274. Resolution was 0-1/2 higher at 684.
   
And, there was a better performance on the high street from food retailer Sainsbury, up 15-1/2 pence at 569-1/2, aided by news the company has opened its books to potential Qatari-backed bidder Delta 2.
   
Mining stocks were also in demand following higher prices. Anglo American gained 53 at 3,182, Xstrata was up 35 at 3,085, and Kazakhmys was 27 higher at 1,450.
   
On the second line, London Stock Exchange was the top FTSE 250 riser, up 234, or 16.1 pct, at 1,687 after US stock market operator Nasdaq said it has sold 28 pct of the company to Borse Dubai as part of a wider deal, which will see the two exchanges become joint owners of Nordic counterpart OMX. Nasdaq retains a stake of 3 pct.
       
Construction and support services company Alfred McAlpine was 6-1/4 stronger at 493-1/4, amid rumours that Carillion, down 9-1/2 at 385-1/2, was about to make a 550 pence-a-share bid.
   
But on the downside, a disappointing trading update saw nightclubs and bars operator Luminar become the top faller, dropping 66-1/2 to pence to 633.  Luminar said its overall like-for-like sales were up 4.1 pct in the first half, as it reported a "satisfactory" trading performance to end-August.
   
In reaction, Altium said that, given the circumstances, it expects to reduce its current year pretax profit estimates by about 4 pct or 1.5 mln, which it said is clearly a little disappointing.
   
Premier Oil shares were 19 pence lower at 1,069-3/4, after it posted weaker first-half profits, hit by increased exploration costs, prompting KBC Peel Hunt to downgrade the stock to 'sell' from 'hold'.
       
Dairy Crest was 35 pence lower at 685 after the Office of Fair Trading said it had provisionally found that large supermarkets and dairy processors have colluded to increase the prices of dairy products which led to an estimated cost to consumers of 270 mln stg. The OFT statement inquiry helped to pull down Morrison, down 6-1/4 at 271-1/2, having been a major FTSE 100 riser earlier.
   
And finally, Stagecoach was 14 lower at 225-1/2 after Dresdner Kleinwort cut its rating on the transport group to 'hold' from 'buy' with an unchanged target of 244 pence.

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 end down, tracking Wall St; caution back after 2-day surge

The CAC-40 index finished down 42.06 points or 0.73 pct at 5,688.76. Among CAC-40 stocks, 7 closed higher, 32 closed lower and 1 was unchanged. On the Matif, September CAC-40 futures were trading at 5,711.5. On the broader indices, the SBF-80 index closed down 51.94 or 0.78 pct at 6,623.56 while the SBF-120 ended 30.79 or 0.74 pct lower at 4,131.12.
   
Credit Agricole fell 0.33 eur or 1.18 pct to 27.57, BNP Paribas shed 0.86 or 1.10 pct to 77.14, Dexia slipped 0.15 or 0.69 pct to 21.51, while Societe Generale was down 0.49 or 0.40 pct at 120.82.
  
Among other fallers, Air France-KLM dropped 0.84 or 3.23 pct to 25.20 on renewed rumours of a possible tie-up with Alitalia. Reports in the Italian press this morning claimed that Air France-KLM is proposing a share swap to combine the two companies.
   
"It would be a very complicated deal," said Petercam analyst Thijs Berkelder of Berkelder. "There are a lot of problems in Italy, which Air France-KLM could solve. But it would have to have a full mandate to act. If politically that is not possible, there would be no reason to buy Alitalia."
   
EDF was the biggest faller at the close, down 0.48 or 3.34 pct at 71.77, as the utility saw profit-taking after acting as a defensive stock in recent sessions.
   
Pernod Ricard fell 4.22 or 2.71 pct to 151.55, as the overall market weakness offset the company's 24 pct rise in full-year net profit from ordinary activities, meeting its guidance for an increase above 20 pct.
   
The company said a decision to bid for Absolut vodka parent company V&S will depend on whether or not Pernod has concluded a deal with Russia's Stolichnaya before the Swedish sale process begins.
   
EADS dropped 0.35 or 1.70 pct to 20.25 amid concerns the slide in the dollar will mean its Power8 restructuring targets are insufficient. But the group said it will not change its plan for restructuring its Airbus unit unless the euro stays above the 1.40 usd rate "for a sustainable period".   

Among the few bluechip gainers, construction firm Vinci rose 00.59 or 1.12 pct to 53.19 following an upgrade from Morgan Stanley to 'overweight' from 'equal weight.'
   
Vivendi gained 0.15 or 0.50 pct to 30.24 after analysts at Merrill Lynch upgraded the shares to 'buy' from 'neutral.'  France Telecom, meanwhile, ended unchanged at 22.72. The group's CEO confirmed today a widely rumoured deal with Apple under which mobile phone operator Orange will exclusively sell the iPhone in France.
   
Off the CAC-40, Eramet surged 15.11 or 7.06 pct to 229.20 amid revived speculation that the Duval family is actively seeking the sale of its 37 pct stake in the nickel miner.
   
Haulotte Group added 1.16 or 4.32 pct to 28.03 after the aerial work platform maker revealed a 39.2 pct jump in first half net profit and announced that order intake to the end of August was up by more than 50 pct.

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German shares close lower on profit taking

The DAX closed down 15.75 points or 0.2 pct at 7,735.09, after having traded between a low of 7,696.94 and a high of 7,745.25.
   
The MDAX fell 81.42 points or 0.79 pct to 10,262.03, while the TecDAX closed lower 3.78 points or 0.41 pct to 915.69. DAX futures were almost flat and closed 2.5 points or 0.03 pct lower at 7,725.50, while bund futures declined 0.49 points or 0.43 pct to 112.67.
  
Deutsche Bank found itself at the bottom of the DAX, as it dropped 1.92 eur, or 2.04 pct, at 92.25 after Deutsche Bank's chief executive Josef Ackermann admitted to mistakes which Germany's largest bank made before the beginning of the subprime credit problem.
   
Hypo Real Estate was likewise down 1.06 eur, or 2.74 pct, at 37.65, as demand for the stock waned after yesterday's strong gains.
   
Deutsche Postbank, was down 0.87 eur, or 1.69 pct, at 50.63. Commerzbank could slightly escape the banking sector's trend, down 0.35 eur or 1.21 pct at 28.55 after the bank reiterated its full-year target of an adjusted after-tax return on equity of more than 12 pct, despite the current crisis in the US sub-prime credit market.
   
Deutsche Post eased 0.27 eur, or 1.28 pct, to 20.75, as dealers pointed to US rival FedEx Corp slashing its full-year guidance on the back of first-quarter results that the parcel carrier reported today for the beginning of its 2007/08 fiscal year.
   
Bucking today's negative trend, Metro shot up 3.90 eur, or 6.21 pct, at 66.70, after the retailer nominated Eckhard Cordes as the company's new chief executive, replacing Hans-Joachim Koerber, who asked to be released of his duties as of Oct 31.
   
Deutsche Boerse was 1.70 eur, or 1.96 pct, higher at 88.53 after UBS raised its target on the German stock market operator to 95 eur per share and due to continued support for the company's stock buyback programme announced on Monday.
   
Siemens was 1.11 eur or 1.19 pct higher at 94.43 after the company said it signed a reservation agreement with Greater Gabbard Offshore Winds Ltd and Fluor Corp over 140 3.6 megawatts wind turbines to be delivered in 2009 and 2010.
   
Shares in RWE were 0.69 eur, or 0.80 pct, higher at 86.41, after the utility company announced today that its chief executive Harry Roels will step down ahead of time as of Sept 30 and will be replaced by Juergen Grossmann as of Oct 1. Volkswagen was 0.43 eur or 0.28 pct higher at 154.02.
   
Over on the MDAX, Wacker Chemie was down 7.32 eur or 4.31 pct at 162.68, while at the upper end of the index, Hochtief gained 3.87 eur or 4.93 pct to 82.41.
   
TecDAX-listed Wirecard was the worst performer on the index, dropping 0.43 eur, or 4.3 pct, at 9.57, while IDS Scheer added 0.38 eur, or 2.61 pct, at 14.96 at the other end.

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Amsterdam shares close lower, tracking Wall St; Corporate Express gains

The AEX closed 1.09 points or 0.20 pct lower at 542.45, after trading in a range of 539.41-543.03. Government bonds traded lower while the euro stood at 1.4088 usd versus 1.3954 usd.
   
Corporate Express gained 6.34 pct to 8.05 eur, providing the story of the day amid reports that sparked M&A speculation. Some media reported that some of the group's shareholders want it broken up and sold, while other reports suggested that competitor Staples had already made a bid behind closed doors.
   
Among decliners was staffing company Vedior, which shed 0.99 pct to 16.05 eur while peer Randstad dropped 0.92 pct to 38.74 eur. Positive comments on the stocks were outweighed by worries among investors about the stability of the economy following continued credit crunch woes.
   
Reed Elsevier lost 0.15 pct to 13.50 eur, ING edged 0.16 pct lower at 30.95 eur, Akzo Nobel dropped 1.05 pct to 56.28, Philips shed 1.43 pct to 31.04 and Unilever lost 1.71 pct to 22.44 eur.
   
TNT led decliners, shedding 2.38 pct to 29.55 eur after market peer Fedex gave off a profit warning.
   
Among gainers was ABN Amro, adding 0.22 pct to 36.75 eur. The bank held its EGM on the takeover bids by Barclays and the RBS consortium but as votes were not held, the EGM was seen as uneventful beforehand by investors.
   
Fortis rose 0.45 pct to 26.61 eur, amid reports that Fortis will launch its 13 bln eur share issue tomorrow, with new shares being priced at 15 eur a piece.
   
SBM Offshore rose 1.35 pct to 27.84 eur after a price target upgrade to 34 eur from 30 at Morgan Stanley.
   
Among midcap shares, Univar added 0.17 pct to 53 eur amid news that CVC has extended its tender offer period for Univar shares until October 4. SNS Reaal added 1.42 pct to 15.69 eur and Van der Moolen added 1.85 pct to 3.31 eur.
   
Stork dropped 0.46 pct to 45.22 eur aid news that unions have asked Marel to put out a takeover bid on all of Stork. Vopak dropped 1.77 pct to 41.06 eur, Aalberts shed 2.13 pct to 16.58 and ASMI led decliners, shedding 2.44 pct to 19.22 eur.

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