UK/Euro Financial Market Daily Evening Briefing 24-08-2007

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London shares close firmer, off highs; US data might dampen Fed rate move

Leading shares closed firmer but off highs today with the DJIA losing some of its early rally as investors worried that some stronger-than-expected US economic data might make the Federal Reserve less inclined to cut interest rates in spite of the subprime credit crunch.
   
At the close, the FTSE 100 index was 23.2 points firmer at 6,220.1, below the midafternoon peak of 6,232.2 having rallied from a late morning low of 6,182.4. All the broader FTSE indices ended higher, with the FTSE 250 index up 23.8 points at 10,969.5.
   
Volume was well below average, however, ahead of the long August Bank holiday weekend, with just 1.963 bln shares changing hands in 442,533 deals.
   
On Wall Street, by London's close, the DJIA was up 18.70 points at 13,254.60, with the S&P 500 index ahead 1.65 points at 1,464.15, and the Nasdaq composite index up 3.71 points at 2,545.41.
   
US stocks eased back from early highs. Peaks had been struck after a better-than-expected reading on US new homes sales for July was released after the opening bell; the data enhanced strong durable goods orders news, posted ahead of the open.
   
The Commerce Department said US new home sales rose 2.8 pct in July to a seasonally-adjusted annual rate of 870,000 units, after falling 4 pct in June.
   
Earlier, the latest durable goods report showed that orders to factories for big ticket goods jumped 5.9 pct in July, the most in 10 months.
   
Scott Scrase, a trader at CMC Markets, pointed out that the better-than-expected data had done little but further increase volatility on the DJIA, "adding further weight to suggestions that the Fed won't be so keen to cut rates as had been thought earlier in the week." Scrase added that "the fact remains that the markets could still be spooked by another line of bad news. "
   
In London, on a very slow news day, broker comment provided much of the interest.
   
Heavyweight miners were in demand after a bullish note on the sector by Lehman Brothers. Lehman said it was time to 'buy' the European metals and miners and reiterated its 'overweight' stance on Rio Tinto and Xstrata.
   
Rio Tinto was a top blue-chip riser, up 77 pence at 3,339 and Xstrata added 51 pence at 2,904.
   
Meanwhile Lonmin took on 32 pence at 3,172 after HSBC upgraded its rating to 'neutral' from 'underweight' in a mining sector review.

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The broker said recent heavy selling means the sector is trading at a 3 pct discount to discounted cash flow net asset values.
   
Strength in oil majors was also a prop for the blue chips as the crude price rallied towards 71 usd a barrel after the strong economic news from the US, with BG Group ahead 2-1/2 pence at 769-1/2, BP up 6 pence at 552-1/2, and Royal Dutch Shell ahead 29 pence at 1,894.
   
Elsewhere, software firm Sage was the top blue-chip gainer today, up 7-1/4 pence to 233-1/4 as Merrill Lynch upgraded its stance to 'buy' from 'neutral' with an unchanged price target of 270 pence.
   
Merrill Lynch said that it sees Sage group as a core technology holding in the coming months as its valuation has reached low levels not seen since the middle of the last recession.
   
And property blue chips British Land and Land Securities gained ground after both being upgraded in a Lehman review of the real estate sector,
   
The broker cut price targets across the board for UK property stocks to adjust for a change in its valuation methodology but upped its stance for British Land and Land Securities to 'overweight' from 'equal-weight'.
   
In reaction, British Land shares added 19 pence at 1,277 and Land securities gained 18 pence at 1,799.
   
On the downside with blue chips, weakness in financial issues remained the main drag on sentiment.
   
Standard Chartered was the top FTSE 100 faller, down 77 pence at 1,494, amid uncertainties over the impact of the credit crunch on its business, particularly after the Bank of China's disclosure today over its US sub-prime lending exposure.
   
Standard Chartered earlier quashed market rumours that it may have to bail out Whistlejacket Capital, one of its structured investment funds (SIVs), after it racked up hefty losses as a result of the recent credit market turmoil.
   
But the stock failed to respond, staying weak and also impacted by news that Merrill Lynch today removed the company from its list of preferred banks.
   
Among other weak blue-chip financials, Northern Rock saw some of its recent rally reversed, losing 17-1/2 pence at 739-1/2 as hopes that the under-pressure mortgage could be a bid target faded.

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And hedge fund manager Man Group shed 12-1/2 pence at 477-1/2 as investors shied away from the stock amid worries over the impact of the equity market turmoil on its business.
   
Meanwhile, mid-cap fund manager Henderson Group shed 3-1/2 pence at 135-1/4 as the sector remained out of favour even though its first-half results came in better than expected.
   
Henderson saw its first-half group operating profit before tax from continuing operations excluding recurring items rise by 31 pct to 60.5 mln stg, up from 46.2 mln stg in the first half of last year, helped by a strong result from Henderson Global Investors.
   
However, the firm admitted that the second half of the year would be "more challenging" due to market volatility, but said it was still on track to reach its full-year cost-to-income ratio target of 70 pct.
   
Sticking with mid-cap earnings news, Spectris shares lost 15-1/2 pence at 840-1/2 after its first-half results failed to impress.
   
The manufacturer of precision instruments and controls reported first-half adjusted pretax profits of 36.8 mln stg, against 27.5 mln for the same period in 2006.
   
Sales were up 7.6 pct in constant currencies, Spectris said, but adverse currency exchange limited revenue growth to 1.7 pct, giving revenue of 308.7 mln stg.
   
On the upside, however, Unite Group was a FTSE 250 riser, up 4-1/2 pence at 400-1/2 after UBS has upgraded its rating to 'buy' from 'neutral' on valuation grounds, while cutting the target to 500 pence from 540.
   
And Bunzl took on 14-1/2 pence at 684-1/2 ahead of its interim results, due on Tuesday.

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Paris shares close higher as US gains spur buying

The CAC-40 index finished up 46.05 points or 0.83 pct at 5,569.38. There were 33 gainers and six decliners, while one stock ended unchanged. The euro was quoted at 1.3636 usd, against 1.3567 late yesterday.
   
There was little French company news to spur trading, and the impending UK bank holiday Monday lent the market a quiet tone, but the upward impulse from the US left about half of the blue chips with gains of 1-2 pct.
   
ArcelorMittal strongly outperformed other CAC-40 stocks in late trading to close up 2.74 eur or 6.25 pct at 46.60, buoyed by an upgrade to 'buy' from 'neutral' by Merrill Lynch, which said the stock is trading at a 25 pct discount to global peer multiples.
   
ArcelorMittal also benefited from a general rise in steel-related stocks in Europe, as did Vallourec, which outperformed with a rise of 3.05 eur or 1.57 pct at 196.80.
   
Carrefour was the second largest gainer in the CAC-40, rising 1.07 eur or 2.17 pct to 50.47, after a week in which it announced its withdrawal from the Swiss market as it focuses on those where it is already among the top retailers.
   
A leading Carrefour competitor, Auchan, today announced its withdrawal from the Moroccan market.
   
Property company Unibail-Rodamco gained 3.55 eur or 1.93 pct to close at 187.49, but continuing concerns about credit stemming from the US subprime crisis kept a damper on most financial shares.
   
BNP Paribas closed down 0.69 eur or 0.88 pct at 77.71, losing more than others, as the credit fears overshadowed its announcement that it will unfreeze three investment funds in which it blocked transactions earlier this month due to liquidity problems.
   
Societe Generale closed down 0.39 eur or 0.33 pct at 119.24, Credit Agricole closed down 0.03 eur or 0.11 pct at 27.49, and Axa closed unchanged at 29.71.
   
Outside the CAC-40, Plastic Omnium gained 1.40 eur or 4.07 pct to 35.82. It has been in the process of refocusing on its core activities, partly through acquisitions.
   
Nuclear power plant maker Areva rose 19.55 eur or 2.81 pct to 714.55, after denying a German newspaper report that it was interested in buying a stake in German wind turbine maker Nordex. Among decliners, Clarins dropped 1.18 eur or 2.08 pct to 55.46.

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German shares close lower led by financials as US subprime woes continue

The DAX was down 4.69 points or 0.06 pct at 7,507.27 after trading between 7,459.95 and 7,526.14. The MDAX lost 16.41 or 0.16 pct to 10,067.49, while the TecDAX gained 5.45 or 0.61 pct to 897.57.
   
DAX futures were down 0.50 points or 0.01 pct at 7,530.00 while bund futures advanced 0.06 points or 0.05 pct to 113.63.
  
Commerzbank was the worst performer among financials, down 0.30 eur or 1.01 pct at 29.50, followed by Hypo Real Estate, down 0.39 or 0.96 pct at 40.11, Allianz down 1.46 or 0.92 pct at 157.65 and Munich Re, down 1.17 or 0.91 pct at 127.23.
   
TUI, down 0.50 or 2.72 pct at 17.89, was the biggest loser on the blue chip board.
   
Truckmaker MAN was the biggest gainer, up 4.42 or 4.46 pct at 103.57. Traders pointed to rumours that Europe's largest carmaker, Volkswagen, might be preparing a 120 eur-a-share bid for the heavy truck manufacturer. Most traders however played down the rumour, which surfaced late in the afternoon.
   
VW was down 0.65 or 0.43 pct at 148.86. DaimlerChrysler was lower 0.02 or 0.03 pct at 63.06 while Continental lost 0.27 or 0.29 pct to 93.40.
   
Commerzbank had upgraded its stance on DaimlerChrysler to 'buy' from 'hold' while maintaining its target at 71 eur per share, saying that it believes second-quarter results on Aug 29 will be a catalyst for positive share development.
   
HSBC upgraded its stance on Continental to 'overweight' from 'neutral' and raised its price target to 117.3 eur per share from 115.5.
   
Premiere, down 1.35 or 7.75 pct at 16.06, led losers on the midcap index MDAX. It said it will carry out a 250 mln eur capital increase in the next few weeks. Kuka was the top performer, adding 0.89 or 3.31 pct to 27.75.
   
On the TecDAX, MorphoSys lost 1.76 or 4.52 pct to 37.19 while Nordex was up 3.52 or 11.69 pct at 33.62.

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Amsterdam shares close higher, tracking Wall St; Arcelor leads

The AEX closed 3.35 points or 0.65 pct higher at 518.10, after trading in a range of 512.65-520.48. Government bonds traded higher while the euro stood at 1.3637 usd versus 1.3569 usd late yesterday.
   
Arcelor Mittal gained 6.18 pct to 46.56 eur on the back of a recommendation upgrade at Merrill Lynch.
   
SBM Offshore put on 2.89 pct to 28.51 eur after ING raised its price target on the issue and Royal Dutch Shell put on 0.84 pct to 27.73 eur.
   
Unibail-Rodamco rose 1.93 pct to 182.50 eur ahead of Monday's first-half earnings of Rodamco, while Philips added 1.13 pct to 28.71 eur and Ahold put on 1.82 pct to 9.46 eur with investors shrugging off a price target cut at Goldman Sachs.
   
Heineken put on 1.02 pct to 45.65 eur and TNT put on 0.78 pct to 31.03 eur.
   
Financials ended mixed. Fortis put on 0.55 pct to 27.23 eur, but ING shed 0.07 pct to 29.66 eur, Aegon lost 0.15 pct to 13.38 and ABN Amro dropped 1.07 pct to 34.23 eur.
   
Wolters Kluwer shed 0.38 pct to 20.84 eur amid news of a small acquisition. Hagemeyer lost 1.27 pct to 3.12 eur.
   
Among midcap shares, construction and property stocks were in demand. Wereldhave added 2.88 pct to 89.76 eur, BAM gained 1.72 pct to 19.47 eur, Corio rose 1.72 pct to 56.82 and Heijmans won 0.73 pct to 35.86 eur in bargain hunting after steep losses yesterday. ASMI added pct to 2.08 eur and Vopak rose 1.12 pct to 39.80.
   
Stork shed 0.56 pct to 47.53 eur, Fugro dropped 0.34 pct to 50.08 and Boskalis led decliners, losing 1.05 pct to 31.06 eur in profit-taking after surging yesterday on better-than-expected earnings.

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