UK/Euro Financial Market Daily Evening Briefing 24-09-2007

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London shares close firmer but off highs; NY recovers; miners gain

Leading shares close firmer although off highs as Wall Street recovered from lows and as Prime Minister Gordon Brown gave his first speech at the Labour Party conference, with miners underpinning gains in the blue chips on firmer metal prices.
   
At close, the FTSE 100 index was 9.2 points firmer at 6,4665.9 off an high of 6494.2, with the FTSE 250 index down 55.1 points at 11,039.6.
   
"Enthusiasm is waning since the Fed cut interest rates last week as traders realise nothing has considerably changed much in the market. The banks have been selling off on a nervous market," said Tom Hougaard, chief market strategist at City Index
   
"The main concern is what is going to happen to inflation and whether or not there are some more skeletons to come out," added Hougaard. 
   
In the US, Wall Street was recovering from earlier session lows as investors remain upbeat while they await further hints about the economy's direction in data to be released this week.
   
At London's close, the Dow Jones Industrial Average index was ahead 36.3 at 13,856.4 off a low of 13,806.9. The Nasdaq Composite index was up 15.84 points at 2,687.06, while the S&P 500 index gained 1.42 at 1,527.17.
   
Reports that begin rolling out Tuesday with existing home sales data for August and the Richmond Fed's regional manufacturing survey will help drive stocks. Many investors hope readings on durable goods and consumer spending will give the Fed room to cut rates still further.
   
There are no economic reports due during the session. However, speeches are expected from Fed Chairman Ben Bernanke, Dallas Fed president Richard Fisher, and Chicago Fed governor Charles Evans.
   
Back to to the UK, investors eyes were also focused on a speech given by Prime Minister Gordon Brown in his first Labour Party conference which steered clear of any talk of a snap autumn general election as he laid out his agenda for the next decade.
   
Brown instead chose to face head on what he considered to be the challenges facing his government in the coming years, talking of the recent turbulence in the international economy which led to the first run on a British bank in 140 years.
   
Brown conceded that in the last month "a wave of financial turbulence that started in America and then Germany has impacted on all countries, including the United Kingdom, and tested the stability of our financial system".
   
Turning to the markets, the heavyweight miners lent support against a background of firmer metal prices and positive news expected from BHP Billiton on Wednesday.

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BHP Billiton shares added 94 pence to 1,750, Antofagasta gained 52-1/2 to 843, while Rio Tinto was 155 pence firmer at 4,204, Xstrata 145 pence higher at 3,289, Vedanta Resources up 100 pence at 2,235 and Anglo American rising 130 pence to 3,277.
   
BHP is set to announce that it has uncovered what could be the world's largest gold resources at its Olympic Dam mine in South Australia, according to local Australian press reports.
   
Miners were also higher in the midcaps with Aquarius Platinum the top riser, up 1,114 at 1,853 and Hochschild Mining gaining 7-1/4 to 385.
   
In the retail sector, M&S rose 25 pence to 592, reversing recent weakness after Deutsche Bank reiterated its 'buy' rating, saying it believes the second half will prove a positive surprise.
   
A broker upgrade also helped boost Tesco by 5 pence to 447, after Citigroup raised its recommendation to 'buy' from 'hold' and increased its target to 500 pence from 450.
   
Also in broker news, Prudential gained 18-1/2 to 715 after Lehman Brothers upgraded its target on the group to 1,060 pence from 1,016, and its EV earnings estimates for 2007, 2008 and 2009 by 11 pct, 5 pct and 4 pct, and said Prudential remains its top pick in the UK life sector.
   
Lehman pointed out that the growth potential of Prudential's Asian and US businesses is widely recognised, but said without a large non-life business to fund this growth, Prudential has long been labelled a stock with cash-flow problems. Its peer Aviva was also higher, up 12-1/2 at 700-1/2.
   
Elsewhere, Smiths Group took on 23 pence to 1,050 as investors welcomed news that CEO Keith Butler-Wheelhouse will step down this week fuelling the belief the specialist engineering group may be broken up.
   
Exane upgraded the stock to 'outperform' from 'neutral' saying Smiths decision not to proceed with its Detection joint venture with General Electric has, in its view, reignited the break-up story.
   
Exane said the collapse of the joint venture negotiations is good news, noting that while the combined group would have been the leader in the detection market, it would have also limited any further outside interest in the company for the 30 months following its inception.
   
Turning to the downside, Northern Rock continued its slide and was the top faller, reversing from earlier gains, down 22.3 or 11.48 pct at 172 after JP Morgan saw its run-off valuation at 250 pence which was significantly above the 180 pence suggested by advisers linked with finding a buyer for the beleaguered mortgage lender.
   
The shares had opened sharply lower again in reaction to weekend press reports that the lender was no nearer to finding a buyer following its liquidity crisis with fears that it may have to be broken up. Peer Alliance & Leicester was also lower, down 21 pence at 716. Housebuilders were under the cosh on fears the sector is slowing down.

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Taylor Wimpey slipped 16-3/4 pence to 271, Persimmon was down 26-1/2 pence at 906-1/2 and Barratt Developments down 36-1/2 at 749-1/2 ahead of its full-year results on Wednesday which is feared will reveal a cautious outlook for the sector.
   
Wolseley's shares fell 41 pence to 807-1/2, after the company published full-year results this morning broadly in-line with brokers' expectations, alongside a cautious prospects statement.
   
The plumbing merchant said full-year pretax profit fell from last year, hit by its exposure to the gloomy US housing market, and said there are no signs yet of any upturn in the US housing market.
   
Turning to the midcaps, Game Group was 7 higher at 205 ahead of first half results to be released tomorrow.
       
Elsewhere, power rental and temperature control company Aggreko was 5 higher at 574-1/4 after the company announced that it has won a 45 mln usd contract with Empresa Nacional de Electricidad, leading Landsbanki to reiterate its 'buy' stance.
      
And merchant bank Close Brothers ticked up 1-1/2 pence to 807-3/4 following better-than-expected full-year results this morning, helped by strong growth at its asset management division.
   
On the 250 downside, insurance broker Benfield Group was 3 lower at 270 after Numis downgraded its stance to 'reduce' from 'add' with a new target of 245 pence from 320. Bearish broker comment also aided falls in Investec, 35-3/4 lower at 481-1/4 after Citigroup cut its price target and estimates but left its 'buy' recommendation unchanged after an investor briefing.
   
And Invensys fell back 18-1/2 to 317-1/4 after Exane BNP Paribas downgraded its recommendation to 'underperform' from 'neutral' and cut its price target to 315 pence from 329.

Diary of Events

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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 close lower as US gains fail to dispel subprime fears

The CAC-40 index closed down 8.16 points or 0.14 pct at 5,692.49. 19 CAC-40 stocks were up, 21 were down. On the Matif, September CAC-40 futures were trading at 5,713.50.
   
Banking stocks reflected the ongoing anxiety over the effects of the subprime crisis that led to a volatile day's trading. Societe Generale was down 1.63 or 1.35 pct at 118.96 at the close. Credit Agricole lost 0.17 or 0.62 pct to end at 27.37. BNP Paribas, the biggest loser of the sector in the day's trading, ended 1.75 or 2.27 pct lower at 75.32.
       
Subprime woes also weighed on Schneider Electric, which led losses on the CAC-40, falling 3.40 or 3.59 pct to close at 91.27 after Citigroup highlighted the potential impact of the crisis on the US commercial construction market, reducing its stance on the stock to 'hold' from 'buy' and cutting its target to 100 eur from 110.
       
Elswhere, automotive stocks performed better after Friday's positive review by Goldman Sachs, highlighting the benefits of ongoing restructuring in the sector.
   
Peugeot CEO Christian Streiff provided further grounds for optimism in an interview with El Pais this morning, saying the group should post significant growth through to 2015 as it downsizes its production sites to lift productivity.
   
Peugeot edged lower to end the session 0.04 or 0.07 pct lower at 56.73, but its fellow automotive stocks fared better. Renault ended 1.03 or 1.03 pct at 101.03, while Michelin gained 1.58 or 1.73 pct to close at 93.12.
   
ArcelorMittal benefited from positive news flow, according to a Paris-based dealer. "They're expanding in energy activities in India, there's a major share buyback programme, good progress on the integration between Arcelor and Mittal, acquisitions in Poland, all that is extremely positive," the dealer said.
   
The group's stock ended the session 0.83 or 1.53 pct higher at 54.95.
   
EADS ended 0.12 or 0.59 pct higher at 20.45. Its Airbus unit said this afternoon that it had narrowed potential production site partners down to 5 from 11.
   
Danone climbed 1.06 or 1.88 pct to end at 57.57 following an upgrade to 'outperform' from 'neutral' by Citigroup. EdF was the biggest gainer on the CAC-40, closing 2.02 or 2.86 pct higher at 72.56.
   
La Tribune claimed the French government could sell a 5 pct stake in the power company by the end of the week in an unsourced report, but one local dealer said the story was mere speculation and that EDF shares were benefiting from their lack of exposure to the current dollar weakness.

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German shares close lower as sentiment weighs on banks

The DAX was down 6.51 points or 0.08 pct at 7,787.92, having so far traded between 7,762.05-7,797.62. The MDAX gained 12.39 points or 0.12 pct to 10,407.92, while the TecDAX added 19.70 points or 2.13 pct to 944.50 amid takeover speculation surrounding Freenet. DAX futures were up 26.50 or 0.34 pct at 7,7950.00, while bund futures declined 0.10 or 0.09 pct to 112.37.
  
Leading blue-chips lower, Commerzbank slumped 1.29 eur or 4.34 pct to 28.44 eur due to renewed pressure on the financial sector.
   
Peer Deutsche Bank fell 1.65 eur or 1.80 pct to 90.20 eur after an unconfirmed report the bank is facing losses of up to 1.7 bln eur on underperforming loan packages associated with the subprime crisis in the US mortgage market.
       
Tech stocks were also a weak feature, with Infineon shares easing 0.36 eur or 3.00 pct to 11.65 eur and SAP falling 0.18 eur or 0.43 pct to 41.58 eur.
   
Bucking today's negative trend, Deutsche Boerse added 3.33 eur or 3.67 pct to 94.00 eur as dealers pointed to several factors including signs that the German stock market operator should see good third quarter trading numbers due to market volatility.
   
In addition, traders said that a price target upgrade to 112 eur per share from 106 at Citibank is helping the stock, along with vague talk of consolidation in the sector and continued positive effects from the company's announcement of a 300 mln eur share buyback programme last Monday.
   
Carmakers were higher, with BMW closing up 1.57 eur or 3.60 pct at 45.14 eur after the company's head of production said the automaker plans to increase production capacity and further boosted by a glowing article in Barron's magazine.
   
DaimlerChrysler gained 0.87 eur or 1.28 pct to 68.86 eur after dealers spoke of vague rumours that the Quandt family, who own a large stake in BMW AG, might be interested in buying a stake in DaimlerChrysler. Peer Volkswagen rose 0.94 eur or 0.60 pct to 156.61 eur.
   
Elsewhere on the DAX index, Bayer rose 1.57 eur or 3.60 pct to 45.14 eur, rebounding from losses on Friday.
   
MDAX-listed K&S jumped 8.47 eur or 7.12 pct to 127.42 eur at the top of the index, while IVG was 1.51 eur or 5.47 pct lower at 26.08 eur.
   
MTU Aero Engines shed 2.17 eur or 5.47 pct to 26.08 eur as dealers said it has come under pressure from a weakened US dollar.
   
On the TecDAX, Freenet rocketed up 2.00 eur or 12.50 pct to 18.00 eur after United Internet announced late on Friday it will take a 50 pct stake in a newly established holding company that directly holds a 6.01 pct stake in Freenet and has the right to buy a further 18.49 pct of its shares in a clear move to acquire the internet service provider.
       
United Internet, meanwhile, was 0.33 eur or 2.37 pct higher at 14.23 eur.
   
At the other end of the index, Draegerwerk fell 1.92 eur or 2.80 pct to 66.72 eur.

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Amsterdam shares close slightly lower, led down by Fortis

The AEX closed 3.02 points or 0.55 pct lower at 541.63 after opening at 543.88 and trading in a range of 540.63-544.43. Government bonds traded mostly lower and the euro stood at 1.4079 usd versus 1.4080 usd late Friday.
   
Fortis fell 4.96 pct to 25.30 eur, leading decliners after underperforming throughout the day amid news related to its consortium bid for ABN Amro. Fortis saw its target cut by JP Morgan, which said the consortium is "overpaying" for ABN Amro, while sources close to the matter, legal and market analysts have told Thomson Financial News that the European Commission is set to clear the acquisition.
   
Other blue-chip financials also declined, with Aegon slipping 0.52 pct at 13.39 and ING losing 0.84 pct at 30.75 amid news it will restructure its Belgian operations and reduce the number of full service branches there. ING also declined to comment on reports that its Indian banking unit is in talks with with Centurion Bank of Punjab and Kotak Mahindra Bank about a possible takeover. Takeover target ABN Amro bucked the trend and rose 0.16 pct at 36.70.
   
Among other notable decliners, Unibail-Rodamco, which was in the news today as a shortlisted candidate for a stake in the Rungis international food market, shed 3.46 pct at 180.30.
   
TNT shed 2.99 pct at 28.23 while Vedior gave up 2.21 pct at 15.51, Hagemeyer lost 1.70 pct at 2.89 and Corporate Express was 0.88 pct lower at 7.89.
   
Akzo Nobel was off by 0.93 pct at 56.47 while making news with the European Union extending the deadline on its inquiry into the sale of its Organon unit to Schering-Plough to October 11, while chemical peer DSM dipped 0.82 pct at 36.12 after saying it would invest in a Danish purification technology company.
   
Personal navigation device maker TomTom led blue-chip gainers, rising 2.70 pct to 56.69 eur after announcing it will formally launch its 21.25 eur per share offer for Tele Atlas on October 2. Midcap mapmaker Tele Atlas also gained, closing 0.34 pct higher at 20.47.
   
ArcelorMittal gained 1.84 pct at 54.94 and SBM Offshore added 0.46 pct at 28.09 while elsewhere in the oils sector, Royal Dutch Shell was flat at 29.85 and Fugro found itself among the handful of midcap gainers, rising 1.03 pct at 55.77.
   
ASML added 0.66 pct at 23.04 and Ahold was flat at 10.48, off earlier gains on speculation the retailer is preparing to sell its Portuguese operations Jeronimo Martins and talk of a possible Carrefour bid for Metro, traders said. One trader also pointed to ongoing positive sentiment about Ahold's performance and rising prices in Dutch supermarkets.
   
Crucell closed 3.51 pct lower at 14.29 after leading midcap decliners throughout the day following the announcement that Merck & Co has halted an experimental AIDS vaccine study that used Crucell's PER.C6 cell technology. Though the company said that PER.C6 was not the reason why the programme failed, analysts saw it as a negative development for the Dutch biotechnology group, with Lehman Brothers and SNS Securities lowering their price targets.
   
Oce dipped 2.32 pct to 15.14 and Wereldhave lost 2.17 at 82.42 pct while real estate peer Corio was 0.12 pct lower at 58.65 and local real estate share Vastned Retail lost 3.27 pct at 56.76 after announcing the completion of its share buyback programme.
   
BAM closed 0.75 pct lower at 18.55 while making news this afternoon by announcing a 19 mln eur contract for an office that will be leased to the Dutch Central Bureau of Statistics. Earlier, BAM gained on news that its US unit Flatiron is within a month of closing negotiations to rebuild a collapsed bridge in Minnesota.

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