UK/Euro Financial Market Daily Evening Briefing 24-07-2007

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London shares close sharply lower, hurt by Wall Street

UK blue chips had slumped by the close, hurt by Wall Street weakness, and index heavyweight BP turning negative following cautious comments from the new chief executive.
   
At the close, the FTSE 100 index was 125.7 points lower at 6,498.7, the low for the session. The other FTSE indices also finished lower, including the midcap FTSE 250, down 198.2 at 11,584.0. Volume was strong with 3.03 bln shares having changed hands in 629,196 deals.
   
Richard Hunter, head of UK equities at Hargreaves Lansdown, said: "We didn't follow Wall Street all the way up, but we're certainly following it down." He added: "The markets hate uncertainty and the biggest worry at the moment is what will happen with interest rates."
   
Most analysts expect the Bank of England to raise the base rate to 6 pct next month and many forecast a further increase to 6.25 pct by the end of the year. 
   
In the US, the Dow Jones was 99.9 points lower at 13,843.5 as London was closing, and the S&P 500 was 11.9 points down at 1,529.65. The Dow had been down 121.6 points earlier. There was some disappointment over earnings at Texas Instruments and chemicals giant DuPont, adding to ongoing concerns about subprime mortgages.
   
A decision by American Express, in a second quarter earnings release after the market closed on Monday, to lift its provisions for loan losses against a background of deteriorating credit quality has also hurt sentiment.
   
Turning to the UK blue-chip fallers, Johnson Matthey dropped 56 pence to 1,746 as investors opted to take profits following the UK speciality chemicals and precious metals group's Q1 results, which broadly met consensus forecasts.
   
Merrill Lynch said that the chemical company's full year estimates are towards the top end of the range, 248-276 mln stg and may be slightly vulnerable, especially considering the slightly tougher comparatives for the second half 2008. Merrill Lynch reiterated its 'neutral' recommendation.
   
Elsewhere, index heavyweight BP turned lower and closed 11-1/2 down at 590 after having risen this morning. The reverse was lower partly due to comments by new chief executive Tony Hayward that in the near term he expects to see further pressure on earnings and cash flow from cost inflation and higher depreciation charges.
    
Oil prices falling back from near-record levels may also have affected the shares. At 1.21 pm, London's benchmark Brent crude contracts for September delivery were down 1.33 usd at 75.53 usd per barrel, with oil cartel OPEC hinting at increasing supplies.
   
Earlier today, BP posted second quarter results ahead of expectations. But analysts pointed to tax charges and accounting items having caused much of this. The results were not sufficient to attract upgraded recommendations. 
   
Friends Provident shares were also weaker, down 4-1/2 pence to 196-1/2, with some profit-taking following the gains made yesterday on the back of confirmed bid talks.

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A broker downgrade also aided the insurer's falls, with SG Securities cutting its stance on the group to 'hold' from 'buy' today, saying that although Friends has solved its cashflow issue, it has come at a significant price.
   
Friends investors are keenly waiting for news of a counterbid, according to a report in the Financial Times, following yesterday's confirmation that the company was in discussions with Resolution regarding a possible all-share merger. Resolution was down 10-1/2 at 626-1/2.
   
Elsewhere, Capita shares took a fall, down 27 pence at 743, after the company behind the London congestion charging system, posted in-line results, with Panmure Gordon downgrading its view to 'hold' from 'buy'. Earlier, Capita posted an 18 pct increase in pretax profit, supported by strong organic growth.
   
Pretax, pre-amortisation profit reached 103 mln stg compared to 88.3 mln stg for the same period last year, in line with the forecasts of five analysts polled by the company.
   
In reaction, Panmure Gordon said that although the figures were up to its best expectations, an absence of a stated organic growth figure and a special dividend instead of share buyback suggest the shares are unlikely to hold on to expected initial gains.
   
Meanwhile, Wolseley was down 33 at 1,109, amid ongoing housing worries, although Panmure Gordon believes these are already priced in and initiated the group with a 'buy' recommendation and 1,380 pence price target.
   
Just five companies in the FTSE 100 finished higher. Yell Group gained 3-1/2 pence at 472-1/2, with Seymour Pierce upgrading the company to 'buy' from 'hold', prompted by the Yellow Book publisher's upbeat assessment of its US operations.
   
Earlier, Yell reported a drop in first-quarter earnings per share, due to growing competition in the US printed directories.
   
EPS slid 11.8 pct in the three months to the end of June, due to the many cut-price competitors that have sprung up in North America in recent months.
   
But despite its US travails, Yell said it was "on track" to achieve its targets for the current fiscal year, which is to deliver "further growth with high margins and strong cash flows".
   
Turning to M&A inspired gains, Imperial Tobacco was a good gainer in morning deals, 31 pence ahead at 2,326, with Citigroup upgrading its price target to 2,550 pence from 2,240 pence and retaining its 'hold' stance following the company's bid for Altadis.
   
Barclays finished 3-1/2 up at 738-1/2 pence, with some investors convinced it will not win the battle for ABN Amro, and regarding this as positive. Others note that the more the share price gains, the more valuable its bid and the more likely to succeed.    
   

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However, Reckitt Benckiser led the risers, up 31 at 2,748 as investors expect the group to reveal strong sales and earnings growth when it reports second quarter results tomorrow.
   
Turning to the midcaps, Sports Direct International was the biggest faller, down 43 pence at 147, after warning its year to end-April 2008 profit will fail to meet current market expectations, blaming poor sales at the start of the year on dismal weather in May, June and July, prompting Panmure Gordon to reiterate its 'sell' rating, and cutting its price target to 150 pence from 170.
   
Meanwhile, LogicaCMG lost ground, down 4 at 156-1/2, after executive director Didier Herrmann was asked to step down from the management board, but with both Merrill Lynch and Panmure Gordon retaining their 'buy' stance.
   
In a statement this morning, LogicaCMG said the board of management has asked Herrmann to step down, and added that he will do so with immediate effect.
   
In reaction, Merrill Lynch said this departure could suggest that there is a considerable amount of in-fighting going on at LogicaCMG to secure the CEO position.
   
On the 250 upside, FKI rose 3 pence to 113-1/4, rebounding from some of the losses made yesterday ahead of tomorrow's AGM, amid talk that a possible bidder for the engineering firm has walked away.
   
Finally, positive broker comment helped Britvic fizz up 13 pence ahead at 354, with Deutsche Bank upgrading its target on the company to 400 pence from 350, citing the firm's low share valuation and strong potential for robust growth beyond this year.
   
The broker said that while downgrades are likely for 2007 forecasts, it does not necessarily think that is the case for 2008 and 2009, where it expects the group to report strong double digit earnings growth.
   
It said the recent share price weakness due to the poor weather has provided a buying opportunity.

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Paris shares close sharply down on pre-results profit taking

The CAC-40 index finished down 101.69 points or 1.69 pct at 5,907.47. Among CAC-40 stocks, 38 closed lower and 2 closed higher.  On the Matif, August CAC-40 futures were trading at 5,949.00. On the broader indices, the SBF-80 index closed down 89.75 or 1.24 pct at 7,149.32, while the SBF-120 ended down 71.45 or 1.63 pct at 4,312.59.
  
Index heavyweight Total shed some of its recent gains, closing down 1.38 eur or 2.28 pct at 59.17 after cautious comments from BP CEO Tony Hayward. The UK oil giant published lower second quarter results, although slightly ahead of expectations, while Hayward predicted further pressure on earnings in the short-term due to rising costs.
   
Elsewhere among oil stocks, Technip fell 2.16 or 3.52 pct to end at 59.20, as investors took profits from recent gains fuelled by talk of a Saipem bid.
   
Vallourec closed down 5.13 or 2.41 pct at 207.82, again on fading speculation of a buyout by ArcelorMittal.
   
Financials continued to suffer under the weight of US subprime concerns, with Societe Generale losing 2.97 or 2.06 pct to end at 132.91, BNP Paribas falling 1.74 or 2.05 pct to 83.29 and AXA leading the CAC-40 fallers, down 1.03 or 3.27 pct at 30.50.
   
Dexia remained under additional pressure from yesterday's rumours it is to launch a counter bid for Depfa Bank plc, tumbling 0.43 or 1.83 pct to 23.01.   
   
In the tech sector, STMicroelectronics dropped 0.37 or 2.63 pct to 13.71 on investor pessimism over the group's second quarter results, due out after Wall Street closes.
      
STMicro was also hit by figures from rival chipmaker Texas Instruments, which last night published a drop in second quarter sales and profits, due to one-off items and a decline in the chip market in a number of sectors.
   
The French car sector saw a degree of profit-taking after yesterday's broad rise, with Renault down 1.49 or 1.31 pct at 112.03 and Michelin 2.65 or 2.53 pct lower at 102.08 ahead of this week's H1 earnings reports.
   
In Renault's case, the sell-off was exacerbated by first quarter earnings from Nissan Motor Co Ltd, in which the group owns a 44.3 pct stake.
   
Earlier today, the Japanese carmaker said its operating profit in the fiscal first quarter to June fell 3.2 percent year on year as sales of its high-end pickups and trucks slowed and as higher procurement costs outweighed windfall profits brought about by a weak yen.
   
In contrast, Peugeot was one of the few risers in the CAC-40, up 0.49 or 0.75 pct at 65.59 and adding to yesterday's gains which followed a price target hike from Exane BNP Paribas.
       
Among other risers, Gemalto added 0.81 or 4.52 pct to 18.74 as CA Cheuvreux upgraded the smart card maker to '2 Outperform' from 3 Underperform' and raised its price target to 23.5 eur from 15, praising the transition towards a model focused on services.

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German shares close lower led by Allianz, EON

The DAX was down 137.42 points or 1.73 pct at 7,806.79, after trading between a low of 7,806.23 points and a high of 7,933.58 points.The MDAX was down 193.08 points or 1.73 pct at 10,954.57 points, while the TecDAX eased 14.25 points 1.49 pct at 939.29 points. DAX futures were down 105.00 points or 1.32 pct at 7,871.00 while bund futures added 0.08 or 0.07 pct to 112.02 points.
   
Allianz, off 4.10 eur or 2.44 pct at 163.90, was the worst performer as the market pondered about the financial impact the current floods in Britain would have on the insurance industry.
   
Muenchener Rueckversicherungs AG and Hannover Rueckversicherung AG said they cannot yet estimate the financial damages caused by the current floods in Britain.
   
A Munich Re spokesman said the company would probably be affected "as it seems to be a major damage," adding that Munich Re's exposure to the floods that occurred in the UK in June amounts to about 20 mln eur. Munich Re was down 2.44 or 1.85 pct at 129.62.
   
Utilities fell due to slightly lower oil prices, with EON down 2.96 or 2.42 pct at 119.51 and RWE paring 1.37 or 1.69 pct at 79.59.
   
Deutsche Post was lower 0.51 or 2.26 pct at 22.08. Germany was one of the three countries the European Commission has called upon today to change their legislation on VAT exemption for postal services which are not compatible with its VAT directive. The other two are the UK and Sweden.
   
The commission's request takes the form of a reasoned opinion, which is the second stage of infringement proceedings.
   
DaimlerChrysler lost 1.15 eur at 65.74 as rumours persisted that there may be difficulties ahead of the planned sale of its US unit Chrysler to Cerberus.
   
Infineon fell 0.26 to 12.63 on the back of disappointing sales at rival Texas Instruments and ahead of third-quarter figures to be released by the company's US DRAM unit Qimonda after the close of the US market today.
   
MAN, up 1.65 eur or 1.54 pct at 108.98, was the sole blue chip bucking today's negative trend. Merrill Lynch upgraded shares in the heavy truck manufacturer to 'buy' from 'neutral' with a target of 130 eur a share, which represents an upside of 21 pct.
   
Merck KGaA, down 0.57 eur or 0.58 pct at 97.54, was still an outperformer ahead of the company's results tomorrow. Analysts said they expect Merck to report that its second-quarter net profit slumped, as a year-earlier gain from the sale of its shares in Schering was not repeated, and as the company wrote down the value of some inventory.
   
Over on the MDAX, Wincor Nixdorf fell 4.49 eur or 6.40 pct at 65.68 after it released third-quarter figures that came in slightly lower than expectations, disappointing investors who are more used to the company beating market forecasts. AWD was up 0.67 or 2.24 pct at 30.56.
   
On the TecDAX, Freenet lost 0.71 eur or 3.81 pct at 17.94 while MorphoSys gained 0.91 or 2.05 pct at 45.31.

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Amsterdam shares close lower, as Wall Street sinks; Vedior outperforms

The AEX closed down 7.36 points or 1.32 pct at 551.59, after opening at 557.98 and trading in the range 551.03-558.83. Government bonds traded higher and the euro stood at 1.3822 usd versus 1.3813 usd late yesterday.
   
Staffing company Vedior led gainers, adding 1.72 pct to 21.92 eur ahead of its figures due Thursday, in which it is expected to post a rise in second-quarter sales and net profit. Peer Randstad added 0.06 pct to 62.19 eur ahead of its numbers, due tomorrow.
   
TomTom gained 0.77 pct to 45.85 eur following two price target  upgrades on the back of yesterday's second-quarter earnings and announced  takeover offer for midcap map maker Tele Atlas.
   
Tele Atlas fell 1.48 pct to 21.37 eur following two downgrades to 'hold' from 'buy' after the share price rose above TomTom's 21.25 eur per share offer price.
   
Akzo Nobel added 0.68 pct to 63.33 eur after it reported in-line second quarter results with a strong operational performance and improved margins.
   
TNT led blue chip decliners, off 3.78 pct at 32.40 eur, while DSM dropped 2.66 pct to 36.65 eur ahead of its second quarter results, due Thursday.
   
Among financials, Aegon was off 1.93 pct at 13.69 eur on news that it will change the accounting principles used to value guarantees on certain products in the Netherlands from the second quarter of 2007.
   
ING was down 1.41 pct at 32.24 eur, Fortis was 0.99 pct lower at 29.97 while ABN Amro slipped 0.33 pct to 36.78 eur.
   
Among midcap decliners, LogicaCMG was off 2.09 pct to 2.34 eur amid news that the board of management has asked an executive director to step down with immediate effect.
   
Local issue Laurus added 14.86 pct to 4.87 eur, boosted by ongoing M&A speculation, traders said.

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