UK/Euro Financial Market Daily Evening Briefing 21-01-2008

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London shares close sharply lower; US recession fears weigh

At the close, the FTSE 100 index was off 323.5 or 5.48 pct at 5,578.2, just off the low for the session of 5,571. The FTSE 250 index was down 419.5 at 9,260.6.

There is no direction today from Wall Street, closed for the Martin Luther King holiday, but US concerns are still weighing on the London markets. Rumours circulated that US banking giant Citigroup is struggling to find backers for its refinancing programme.

Meanwhile, Richard Hunter, head of UK equities at Hargreaves Lansdown, said: "It seems talk of US recession is now a probability rather than possibility, with a complete lack of buying interest in the market. The weak performance in the US on Friday has followed onto the UK market, with the UK unable to take any leads from the US today following the Martin Luther King holiday."

Turning to the London fallers, weakness was seen in the mining sector, against a backdrop of concerns about a slowing global economy, weaker commodity prices and waning M&A talk.

BHP Billiton was the top faller, dropping 143 stg or 10.38 pct at 1,235 as it failed to make a new offer to Rio Tinto, down 472 or 10.04 pct at 4,228 following rumours on Friday that the group would soon improve the terms of its merger proposal.

The Sunday Times reported BHP Billiton has called on seven global banks to provide the crucial 70 bln usd needed to fund its planned merger with Rio.

And, Xstrata was off 184 at 3,176-1/2 as Vale (Companhia Vale do Rio Doce) confirmed that it has been maintaining a dialogue with Xstrata'a management although "at the moment these discussions had not produced any material result yet".

Meanwhile, Vedanta Resources was off 141 at 1,591, Kazakhmys was down 114 at 1,041 and Anglo American was 238 weaker at 2,353. And Tullow Oil fell back 36 at 517 ahead of its trading update Wednesday.

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For 2007, analysts predict Tullow's volumes to be at the bottom end of its guidance of 72,000-75,000 barrels of oil equivalent per day, up from the 64,720 boepd it pumped in 2006.

Wolseley was down 6-1/2 at 688-1/4 after it said in a trading statement this morning that its pretax profit for the five-month period to the end of December 2007 is likely to have fallen by around a third due to challenging conditions in the US, especially the deteriorating US housing market.

In reaction, Evolution Securities downgraded its stance on Wolseley to 'sell' from 'reduce'. There were few blue-chip risers with insurer Friends Provident the standout leader, up 5-1/2 at 158, after US private equity firm JC Flowers confirmed weekend press speculation that it is considering a bid for the company.

Peer Resolution was a 0-1/2 pence higher at 712, ahead of its delisting next week, when the takeover by Pearl goes through. Moving to the 250 fallers, a broker downgrade hindered Premier Farnell, with Citigroup cutting its stance to 'sell' from 'hold' in a review of the service sector. Shares fell 6-1/4 to 128-3/4.

The Electronics distributor also said it has agreed to buy Hynetic Electronics Private Limited, an authorised distributor of Farnell products in India, for not more than 0.5 mln stg in cash this morning.

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A Citigroup downgrade also weighed on sector peer Electrocomponents, down 12-3/4 at 174-1/2, after the broker cut its stance to 'sell'.

Turning to the risers, Northern Rock was up 29-3/4, or 46.12 pct, at 94-1/4, as the UK government confirmed weekend reports it will refinance the ailing UK mortgage bank to make it more attractive to private bidders and set a two-week deadline for the sale.

Meanwhile, New Star Asset Management rallied in the wake of a massive drop on Friday after a profit warning. The company is the subject of bid rumours. Shares were up 5-1/2 at 106-3/4.

Biffa was up 9-1/4 at 341 after weekend press speculation that a GE-backed group could make a counter-offer for the group, which is already set to agree a 350 pence-a-share deal from a rival consortium backed by Montagu and Hg Capital.

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Paris shares plunge, CAC hits 18-mth low; subprime fears spark sell-off

The CAC-40 index finished down 347.95 points or 6.83 pct at 4,744.45. Among CAC-40 stocks, 1 closed higher and 39 closed lower. On the Matif, February CAC-40 futures were trading at 4,818. On the broader indices, the SBF-80 index closed down 398.62 or 7.26 pct at 5,092.28 and the SBF-120 ended 292.65 or 7.91 pct lower at 3,408.12. The euro was quoted at 1.4440 usd versus 1.4629 usd late Friday.

Pre-weekend jitters about writedowns in the financial sector were exacerbated this morning by news that Fitch has cut its rating for bond insurer Ambac, while Standard & Poor's has placed the company on negative watch.

SocGen eventually ended down 6.82 eur or 7.99 pct at 78.52. Franco-Belgian bank Dexia gave up 1.22 or 8.06 pct to 13.91, as concerns continued to centre on its US credit-enhancement unit FSA. Natixis Securities today cut its stance on Dexia to 'reduce' from 'hold', and lowered its price target to 14.5 eur versus 20.5 eur, saying it now values FSA at zero, given the uncertainties.

Elsewhere in the sector, insurer Axa plunged 2.48 or 10.08 pct to 22.12, BNP Paribas shed 6.68 or 9.63 pct to 62.71, Credit Agricole gave up 1.83 or 9.02 pct to 18.45, and Natixis fell 0.67 or 5.93 pct to 10.63.
Fears about the financial sector weighed across the whole market, exacerbating concerns over a global economic recession and prompting heavy selling of most stocks.

But a Paris dealer said he was unable to see any clear logic to explain the performance of different stocks, with classic cyclical stocks like auto companies outperforming. Peugeot, up 1.28 or 2.69 pct at 48.82, ended the day as the only bluechip riser, followed by tyre maker Michelin, down 0.03 or 0.05 pct at 59.79, and Renault, off 1.11 or 1.44 pct at 76.05.

Big fallers included steel giant ArcelorMittal, down 4.83 or 11.30 pct at 37.93, and telecoms equipment supplier Alcatel-Lucent, which plunged 0.45 or 9.55 pct to 4.26 after enjoying a rally towards the end of last week. Selling even extended to defensive stalwarts like utilities, which have tended to outperform in recent bearish markets. Veolia Environnement fell 5.05 or 8.72 pct to 52.89, and Suez tumbled 3.64 or 8.12 pct to 41.19.

Outside the CAC-40, Club Mediterranee plunged 2.85 or 9.53 pct to 27.05 amid uncertainty about the future of the stake held in the holiday operator by Richelieu Finance.

French IT group Bull was also hard-hit by the news, tumbling 0.18 or 6.14 pct to 2.75. Richelieu owns 5.02 pct of Bull, according to the IT group's website.

Among the handful of risers in Paris, chip maker Soitec climbed 0.15 or 2.44 pct to 6.31 ahead of its third quarter sales report this evening. Elsewhere, aerospace group Thales outperformed the market, shedding 0.94 or 2.54 pct to 36.04 after giving upbeat comments to the press. .

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German shares plunge, led by financials, as uncertainty persists

At the close, the DAX was down 523.98 points or 7.16 pct at 6,790.19, having traded in the 6,762.77-7,292.68 band. The MDAX lost 488.97 points or 5.80 pct to 7,940.51, while the TecDAX declined 67.02 points or 8.46 pct to 725.32.

DAX futures slid 522.50 points or 7.08 pct to 6,858.50, while bund futures were 0.67 points or 0.58 pct higher at 116.92. The euro was trading at 1.4441 usd, compared with 1.4482 usd in London afternoon trade.

Hypo Real Estate led today's underperformers in the DAX, declining 4.07 eur or 18.46 pct to 17.98, after Deutsche Bank cut its price target on the stock to 22.40 eur from 24.00 eur. Last week, the brokerage lowered its recommendation on the shares to 'hold' from 'buy', citing additional earnings risks through 2010 on the current credit market environment.

Frankfurt exchange operator Deutsche Boerse, too, fell 11.77 eur or 10.18 pct to 103.88. Commerzbank plunged 2.12 eur or 10.06 pct to 18.96. The company is set to post further writedowns for the fourth quarter, though less extensive than those it posted in the third, a company spokesman said.

The comment confirmed statements made by incoming chief executive Martin Blessing in a news agency interview. Allianz dropped 13.31 eur or 9.99 pct to 119.88, on fears over the possible impact the worldwide financial crisis may have on the German insurer's banking unit Dresdner Bank.

Thyssenkrupp plunged 3.19 eur or 8.91 pct to 32.61. Major outperformer of the DAX was Volkswagen, retreating 1.57 eur or 1.05 pct to 148.43. Other automotive stocks, too, were among the group of major outperformers, with automotive supplier Continental decreasing 1.76 eur or 2.32 pct to 74.26, and BMW falling 1.40 eur or 3.72 pct to 36.28.

Infineon fell 0.25 eur or 3.72 pct to 6.47. while Metro retreated 1.25 eur or 2.31 pct to 52.88. Over on the MDAX, SGL Carbon led German mid-caps lower, dropping 4.00 eur or 12.50 pct to 28.01. At the other end, AWD Holding fell 0.02 eur or 0.07 pct to 29.62, leading major outperformers.

TecDAX-listed Q-Cells lost 10.95 eur or 16.48 pct to 55.49. At the other end, GPC Biotech was the only advancer, gaining 0.08 eur or 3.86 pct to 2.15.

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Amsterdam shares close at 19-month low amid recession worries

The AEX closed down 27.63 points or 6.14 pct at 422.45 after opening at 444.41, touching an early high of 444.76 to then reach a low of 421.21. All blue-chip stocks closed lower. Government bonds traded higher, while the euro stood at 1.4453 usd versus 1.4636 usd late Friday.

ING was the worst performer amongst the Amsterdam blue-chip financials, falling 10.49 pct to 20.99 eur after broker Cazenove downgraded the bancassurer to 'in-line' from 'outperform'.

Financial peers Ageon and Fortis fell 8.21 pct to 9.62 eur and 6.74 pct to 14.12 eur, respectively. Midcap BinckBank plummeted 8.26 pct to 7.00 eur. SNS Reaal was down 6.89 pct at 11.90 eur. Companies with heavy exposure to the US market weighed, with TomTom falling 8.13 pct to 33.44 eur and Corporate Express sliding 9.59 pct to 3.49 eur.

Philips, the only blue-chip gainer for most of the day, fell in late trades to close down 0.82 pct at 24.18 eur, still far outperforming the market on solid fourth-quarter results and plans to lift its dividend and accelerate its share buyback plan.

Staffing companies were down after Citigroup issued a "gloomy" sector note. Randstad was down 7.03 pct at 24.34 eur and Vedior fell 4.81 pct to 15.83 eur after Citigroup lowered the price targets for the issues. USG People lost 2.71 pct at 13.27 eur after the international broker downgraded the issue to 'sell' from 'hold'.

Brewer Heineken was down 2.66 pct at 38.81 following weekend reports S&N is set to recommend 7.8 bln stg Carlsberg/Heineken takeover later this week as the UK takeover panel deadline for the takeover on Thursday approaches.

Among the oil companies, SBM Offshore fell 3.47 pct to 16.14 eur and Royal Dutch Shell was off 4.70 pct at 24.54 eur. Midcap Fugro dived 15.62 pct to 38.68 eur. KPN was off 5.01 pct at 11.76 eur following reports Dutch telecoms watchdog OPTA is set to look into potential discounts KPN awarded to large companies.

Supermarket group Ahold weakened 4.65 pct to 7.79 eur after subsidiary Schuitema reported unspectacular fourth quarter results late on Friday, with SNS Securities saying the company is slowly turning around, but will need "considerably" more time. Oce was the best performing midcap, up 1.01 pct at 12.06 eur.

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