UK/Euro Financial Market Daily Evening Briefing 25-07-2007

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London shares close lower, US housing woes offset positive earnings news

The FTSE 100 closed lower Wednesday as concerns surrounding the state of the US housing market resurfaced and cancelled out tentative gains after some positive earnings from several index heavyweights.
   
By the close, the FTSE 100 was off a further 44.4 points at 6,454.3, following Tuesday's three-digit fall, with the broader FTSE 250 finishing down 168.10 points at 11,415.9. The other main indices also closed down.

Volume was solid with 2.9 bln shares trading in 636,561 deals.
   
After a hesitant start, markets got a lift after Reckitt Benckiser, Northern Rock, and GlaxoSmithKline released quarterly earnings that topped forecasts.
   
As it was, comfort from the results proved short lived as what little cheer there was quickly faded on further gloomy news relating to the US housing market.
   
The National Association of Realtors today confirmed the housing market is far from a recovery when it reported sales of existing homes dropped 3.8 pct in June to the slowest rate in more than four years.
   
The figure was worse than analysts expected, and followed data from the Mortgage Bankers Association showing mortgage applications fell for the first time in four weeks to a five-month low.
   
Over on Wall Street a short while ago, the Dow was up 55.4 points at 13,773.6 but well off opening highs.
   
On the downside, British Energy topped the fallers, off 26-1/2 at 482-1/2, after Goldman Sachs cut its target in the nuclear energy group to 570 from 574 and maintained its 'neutral' rating.
   
Elsewhere, the selling pressure was seen across several sectors with stocks that had enjoyed a recent bid premium witnessing some profit taking.

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J Sainsbury fell 7 at 583-1/2 after Robert Tchenguiz, who has built up a 10 pct stake in the UK supermarket group said he would not be prepared to back an offer by Qatari group Delta Two at the proposed level of 600 pence a share, thereby throwing the proposed takeover into doubt.
   
Delta needs to secure a 75 pct stake in order to proceed with a takeover via the form of a Scheme of Arrangement, which would minimize tax liabilities and enable it to de-list the company.
   
They would fail to get to that level without the support of both the family and Tchenguiz.
   
Turning to the day's earnings news, Reckitt Benckiser finished 60 lower at 2,688 as investors opted to lock in profits following the company's impressive Q2 numbers, which Collins Stewart described as faultless. Adding that not only did the company continue to grow at twice the market rate -- around 5 pct -- but there were no obvious poor performers.
   
Friends Provident finished 2.4 lower at 194.1 after the group confirmed its merger with Resolution, also down 15 at 618.
   
Analysts remain unconvinced by the deal. Collins Stewart put its 'hold' rating under review, saying while the deal makes sense, Resolution may be conceding too much of its existing potential value to Friends.
   
Evolution said the challenges of merging the very different cultures of the two businesses are likely to be considerable.
   
Bucking the day's negative trend, Glaxo finished top of the pile, up 29 pence at 1,275, after unveiling plans for a 12 bln stg share buyback alongside better-than-expected second-quarter results.
   
Northern Rock also finished strongly, up 15 at 817, with dealers attributing the gain to a short squeeze after the UK mortgage lender reiterated its outlook for the full year and hiked its dividend by over 30 pct.
   
Also finishing strongly, BAE Systems ended 4-1/2 better at 435-1/4 after announcing an agreement with VT Group to establish a joint venture to become the UK government's strategic partner for the design, build and support of future warships which analysts said was positive.
   
Rolls-Royce ticked up 3 to 530-1/2 after unveiling a 1 bln stg 10 year contract with the MoD to maintain its fleet of Royal Navy submarines.

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On the second line, earnings news helped Renishaw remain the top midcap riser, up 84 at 684, after the group reported full-year pretax profits for the year ending June 30, 2007 had increased to 52.13 mln stg from 38.10 mln last time. The result benefited from a 19.46 mln pension curtailment credit. In reaction, Merrill Lynch reiterated its 'buy' stance.
   
Autonomy rose 11 to 843 after saying it had expanded its advanced call and computer screen recording security features that enable enterprise customer contact centres recording strategies to comply with the Payment Card Industry Data Security Standards.
   
Croda International pared most of the session gains but still closed up 3-1/2 at 673 after interim results, thanks to a flurry of positive broker comment.
   
UBS repeated its 'buy' stance and 775 pence target, describing the results as solid and highlighting the positive reduction in the group's pension deficit.
   
On the downside, UK Bluetooth chip specialist CSR was the biggest faller, down 98 or 11 pct at 770-1/2 after company guidance for Q3 proved a little too cautious for analysts' tastes.
   
Recruitment shares were also among the casualties after a disappointing update from Holland's Randstad.
   
Michael Page slid 29 at 543-1/2 and Hays dropped 8 pence to 168.

UK 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 close lower on weak US home sales, mixed corporate results

The CAC-40 index finished down 70.36 points or 1.19 pct at 5,837.11. Among CAC-40 stocks, 8 closed higher and 32 closed lower.  On the Matif, August CAC-40 futures were trading at 5,891.50. On the broader indices, the SBF-80 index closed down 69.21 or 0.97 pct at 7,080.11, while the SBF-120 ended 50.03 or 1.16 pct lower at 4,262.56.
   
STMicroelectronics was the biggest faller on the CAC-40, sliding 0.88 eur or 6.42 pct to 12.83 after slashing its forecast for semiconductor market growth to 2 pct from 4-5 pct. The technology group reported last night a second-quarter net loss of 758 mln eur, against a year-earlier profit of 168 mln, but said sales will continue to improve sequentially this year.
   
Analysts at Citigroup said the sales outlook was "extremely disappointing", while Commerzbank commented that it was "clearly a negative surprise". In a note to clients, Credit Suisse's analysts said there is "still nothing here to make new buyers step in, given lack of margin expansion in a relatively robust environment".
   
Peugeot ended down 3.89 or 5.93 pct at 61.70, Renault fell back 3.93 or 3.51 pct to 108.10 ahead of its first half results due out after market close, while tyre-maker Michelin shed 2.47 or 2.42 pct to 99.61.
   
Financial stocks remained under pressure amid intensifying concerns over the subprime mortgage market in the US, with today's June home sales figures provided further evidence of a squeeze in the housing market.
  
BNP Paribas fell 1.53 or 1.84 pct to 81.76, Credit Agricole dropped 0.41 or 1.42 pct to 28.41, Dexia was down 0.31 or 1.35 pct at 22.70,  Societe Generale shed 1.63 or 1.23 pct to 131.28, while insurer Axa was off 0.57 1.87 pct at 29.93.
   
Index heavyweight Total gave up 1.21 or 2.04 pct to 57.96. Crude oil prices fell after the US reported gasoline stocks above expectations, easing concerns of a shortfall during the peak-demand driving season.
   
Outside the CAC-40, Nexans was another major faller -- down 7.00 or 5.34 pct at 124.00 -- as the cable maker revealed that second quarter sales growth was zero in its energy infrastructure business compared to a year earlier, after an 11 pct jump in the three months to March.
   
Luxury goods firm Hermes International also disappointed the market with its second-quarter report, saying a negative currency impact will restrict full year results to around year-earlier levels. The stock fell 2.78 or 3.56 pct to 75.32.
   
Smallcap Wavecom, meanwhile, plunged 5.05 or 19.02 pct to 21.50. The telecoms equipment maker said second-quarter net profit jumped to 5.0 mln eur, from 0.2 mln a year earlier, lifted by "both organic and external growth".  But the shares dived midafternoon as analysts reacted negatively to the company's comments in a conference call.
   
On the upside, Business Objects was the big riser of the day, adding 2.33 or 7.64 pct to 32.83 after beating its own guidance with a two-fold increase in second-quarter EPS, and raising its forecasts for the full year.
   
Oberthur Card Systems rose 0.14 or 2.43 pct to 5.91 after the smart card maker announced a 17.4 pct jump in sales to 144.2 mln eur in the second quarter from 122.9 mln a year earlier, topping analysts' expectations.
   
Back on the CAC-40, Vivendi led the few climbers -- up 0.48 or 1.51 pct at 32.27 -- ahead of its second-quarter sales report after market close. Its pay-TV unit Canal Plus reported this morning a 6.9 pct rise in quarterly sales year-on-year, accelerating from 5.9 pct growth in the first quarter.
   
France Telecom added 0.02 or 0.10 pct to 19.90. Broker Credit Suisse upgraded its rating on the company to 'neutral' from 'underperform', and its target to 22 eur from 20, saying risks to the stock appear increasingly priced in.

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German shares close lower as earnings season kicks off with mixed results

The DAX closed 114.24 points or 1.46 pct lower at 7,692.55, after trading between 7,659.61 and 7,790.20. The MDAX was 109.01 points or 1.00 pct lower at 10,845.46, while the TecDAX dropped 15.52 points or 1.65 pct at 923.77. DAX futures were down 20.50 points or 0.26 pct at 7,747.00, while bund futures lost 0.01 points or 0.01 pct to 112.19.
   
Siemens plunged 6.34 eur or 5.98 pct to 99.70, as traders said that, after closer evaluation, the group's second-quarter numbers released today were not as good as first presumed, and the price it is willing to pay for Dade Behring is seen as too high.
  
MAN followed, dropping 2.67 eur or 2.45 pct to 106.31. Merck KgaA was 2.33 eur or 2.39 pct weaker at 95.21 after the pharma/chemicals conglomerate released second-quarter figures showed a better-than-expected net profit, but largely came in lower than expected on all other key figures.
   
EON lost 2.68 eur or 2.24 pct at 116.83, while Allianz declined 3.64 eur or 2.22 pct to 160.25.
   
Bucking today's trend, Fresenius' curious advance to the top, up 1.68 eur or 5.02 pct to 35.15, had traders and analysts puzzled. Most said they had not seen any news that could explain the rise.
   
"It might be correcting from the prolonged drop it has been on for several months," one trader said. Another speculated that news released on Monday that US Medicare restrictions on anaemia drugs was seen as less severe than some feared may be spreading.
   
Lufthansa advanced 0.60 eur or 2.95 pct to 20.97 in late afternoon trade after the airline announced second-quarter figures that largely beat expectations while raising it full-year operating outlook to "significantly" above 1 bln eur.
   
DaimlerChrysler gained 1.19 eur or 1.81 pct at 66.93 after the car group reported divisional results that came in well above market expectations.
   
Continental added 1.78 eur or 1.67 pct to 108.50 as investors digested the pricing of its takeover offer for Siemens AG's automotive parts manufacturing unit VDO. Several Frankfurt-based traders said the 11.4 bln eur price was on the low side of expectations, which had ranged as high as 12 or 13 bln before the announcement.
   
On the MDAX, Patrizia Immobilien dropped 0.67 eur or 5.60 pct to 11.30 as the worst performer. At the top, Techem rose 1.15 eur or 2.25 pct to 52.15.
   
Praktiker gained 0.60 eur or 1.94 pct at 31.50 after the German home improvement chain announced above-forecast net profit and sales for the second quarter, as well as raising its EBITA forecast for the full year.
   
On the TecDAX, GPC Biotech dropped 4.93 eur or 33.42 pct to 9.82 on news that the biotech company failed to win US Food and Drug Administration approval at this stage under a fast track cancer approval process for its prostate cancer drug Satraplatin. Ersol Solar Energy gained 3.76 eur or 5.59 pct at 70.97.

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Amsterdam shares close lower; staffing stocks slide
 
The AEX closed 4.71 points, or 0.85 pct, lower at 546.88, after opening at 547.32 and trading between 544.56-551.67. Government bonds traded higher and the euro stood at 1.3716 usd versus 1.3813 usd late yesterday.
   
Staffing stocks took a hit after Randstad gave a cautious third-quarter outlook as it posted second-quarter figures toward the lower end of forecasts. Randstad fell 16.39 pct at 52.00 eur, while AEX peer Vedior lost 6.84 pct at 20.50 eur and midcapper USG People shed 6.10 pct at 30.80 eur.
   
Hagemeyer slipped 2.96 pct at 20.50 amid market comments suggesting that privately-owned MRO Industries -- which last Friday filed for liquidation protection in the Netherlands -- could be a good purchase for the Dutch industrial services company.
   
Among financials, ING fell 1.80 pct at 31.90 amid reports that it has been given first option to purchase Banco Santander's Latin American pension operations.
   
ABN Amro shed 1.39 pct at 36.27 amind a price target upgrade to 38 eur at Rabo Securities, as it said the takeover bid from Barclays is still not an alternative for the Royal Bank of Scotland-led consortium's offer.  Fortis eased down 0.73 pct at 29.75 and Aegon was 0.37 pct lower at 13.64.
   
Philips closed 1.78 lower at 30.84 after awarding a 250 mln usd finance and accounts services outsourcing deal to India's Infosys Technologies Ltd.
   
DSM was unable to hold onto its earlier gains after being upgraded to 'buy' at ABN Amro ahead of its results expected tomorrow. It fell 0.11 pct at 36.61.
   
Akzo Nobel closed 0.98 pct lower at 62.71 after its Q2 results yesterday, while TomTom came off recent highs after its strong Q2 results and takeover of Tele Atlas, closing 1.68 pct lower at 45.08.
   
On the midcap, Heijmans fell 6.33 pct at 40.56 eur, Aalberts Industries was off 2.71 pct at 20.09 and Boskalis Westminster shed 2.30 pct at 28.00.
   
Among gainers on the AEX, TNT led the way, gaining 1.16 pct at 32.21 amid news it is to invest 7 mln eur over the next four years in its domestic express services & solutions operations in Vietnam. ASML closed the day out 1.09 pct higher at 22.26, while midcap peer ASMI climbed 1.25 pct at 21.05.
   
Food stocks outperformed, with Heineken up 0.15 pct at 46.59, Unilever up 0.13 pct at 23.25 and Numico up 0.02 pct at 53.70. On the midcap, CSM put on 0.44 pct at 27.10.
   
On the midcap, Stork closed up 0.10 pct at 48.25, after earlier announcing second-quarter net profits were pressured by a 35 mln eur provision in its Aerospace division. Analysts also said the underlying performance was strong exclusive of the provision.

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