UK/Euro Financial Market Daily Evening Briefing 26-09-2007

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London shares close firmer, off peak; NY higher; N Rock up on bid hopes

UK blue chips closed firmer today albeit below the session peak as some underlying market jitters countered morning gains on Wall Street and a bounce back by financials, with Northern Rock rallying after confirming it has received a number of approaches.
  
At the close, the FTSE 100 index was 36.1 points higher at 6,433.0, well below the afternoon peak of 6,484.4, having rallied from an opening low of 6,396.9.
   
All the the broader FTSE indices ended higher. Volume was solid, with 34537 mln shares changing hands in 645,546 deals.
   
Jimmy Yates, trader at CMC Markets said, in its view, news of far bigger than expected builds in US oil inventory data served to erode most of the gains in London towards the close.
   
Yates said "if the rising oil stocks are reflecting a fundamental weakness in the US economy and given the general absence of fresh corporate data then downside pressures may prevail in the weeks ahead."
   
Oil prices came off earlier highs today after The Energy Information Administration said crude stocks rose by 1.8 mln barrels last week, while gasoline inventories climbed 0.6 mln barrels.
   
Markets were expecting crude stocks would fall by around 3.1 mln barrels last week, while gasoline inventory would ease by 100,000 barrels.
   
At 3.44 pm London's benchmark Brent crude contracts for November delivery were down 6 cents at 77.55 usd per barrel. Before the data, the contracts were trading at around 78.22 usd a barrel.
   
Meanwhile on Wall Street, by London's close, the DJIA was 84.60 points higher at 13,863.20, while the S&P 500 index was up 9.60 points at 1,526.70, and the Nasdaq Composite index was ahead 22.28 points at 2,703.23.
   
US investors were encouraged by news that car giant General Motors and the United Auto Workers union have agreed a tentative labour contract that should put an end to a two-day strike at the car maker's US operations.
   
And news of a bigger than expected fall in US durable goods orders last month also helped out, which fuelling hopes for further Fed rate cuts.
   
US durable goods fell 4.9 pct in August, after a 6 pct rise in the prior month, above forecasts for a 3.1 pct decline, due in part to a decline  in aircraft orders for Boeing.

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In London, Northern Rock headed the FTSE 100 leaders' board, up 19.0 pence to 182.0 recovering from yesterday's drop following news the troubled mortgage bank is to yield to pressure to cancel its dividend, while confirming it had  been approached by several potential bidders.
   
In a statement issued last night, the mortgage lender said: "The board believes it would not be appropriate to make any interim dividend payment until it can make a full announcement regarding the outcome of discussions with other parties and the development of the business model.
   
Meanwhile, fears of a potential 'fire sale' were temporarily sidelined after it confirmed several approaches, reportedly including one from Spanish businessman Jose María Ruiz-Mateos.
   
The company refused to elaborate on how realistic any of the offers were or indeed any terms at all, but the government will be keeping its fingers crossed that the bank can find a partner to free it from its guarantee to depositors.
    
Other mortgage lenders also faired better today in sympathy with the Northern Rock news, with blue chip Alliance & Leicester up 24 pence at 733, and midcap Bradford & Bingley ahead 12-1/4 at 291-1/4.
   
Meanwhile HBOS shares took on 42-1/2 pence at 873 after Goldman Sachs upgraded its recommendation on the bank to 'buy' from 'neutral' adding it as well to its 'Conviction Buy' list.
   
Goldman said that while it remains bearish on the long-term outlook for UK banks, it believes it is time to start to differentiate between winners and losers post Northern Rock's woes.
   
Staying with financials, Invesco found support, gaining 35 pence at 666 following news yesterday evening that the Anglo-US fund management company is to move its primary listing from London to New York.
   
Merrill Lynch said this came as no major surprise but thought the shares looked cheap when compared to US peers like Franklin and AllianceBernstein.
   
Elsewhere Old Mutual shares firmed 4.8 pence at 157.4, ICAP took on 22 pence at 518-1/2, and mid cap New Star Asset Management gained 12-1/4 pence at 416-3/4 ahead of the firm's latest trading update due this Friday.
   
Away from financials, Smiths Group shares were in demand, up 32 pence to 1,095 after the group announced full-year results in-line with expectations and revealed that Philip Bowman would be appointed as CEO.
   
The aerospace and healthcare group confirmed that its chief executive Keith Butler-Wheelhouse would be replaced by the former Allied Domecq boss and break-up specialist Bowman in December.

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Meanwhile Johnson Matthey firmed 41 pence at 1,673 after a positive trading update today. The precious metals group said trading in the first half to September 2007 remained in line with expectations, with sales buoyed by increased demand for catalyst devices and strong platinum prices.
   
In reaction, Merrill Lynch said that there are a number of long-term positives for Johnson Matthey while retaining its 'neutral' rating on the stock.
   
And WPP Group shares took on 20-1/2 pence at 654 after Morgan Stanley hiked its rating on the advertising giant to 'overweight' from 'equal-weight', albeit with a reduced price target of 770 pence from 800, on valuation grounds.
   
Morgan Stanley said its economists are looking for a US slowdown then re-acceleration in H2 2008 and into 2009 and it therefore does not feel its WPP upgrade is as foolhardy as it may seem.
   
But on the downside with blue chips, oil major BP continued to be hurt by yesterday's press report quoting chief executive Tony Hayward as saying third-quarter revenues will be "dreadful", losing another 5-1/2 pence at 567.
   
Meanwhile shares in Carphone Warehouse shed 7-1/2 pence at 350-1/4, with BT Group losing 2-1/4 pence at 305 amid uncertainty caused by news telecoms regulator Ofcom has launched a consultation on the outlook for next generation broadband access (NGA).
   
Ofcom said it is proposing regulations based on the same principles currently governing networks while putting forward two more, specific to NGAs.
   
But DSG International shares topped the fallers board, down 5.0 pence at 129.9 after disappointing interim results from mid cap peer Kesa Electricals and as Credit Suisse issued a cautious note on the UK electrical retailers. The broker trimmed its targets for DSG to 95 pence from 155, and for Kesa Electricals to 265 pence from 320, and reiterated 'underperform' ratings on both stocks.
   
The broker cautioned that profitability at the two groups could be impacted by regulatory attempts to restrict the extended warranty market, coupled with growth in the lower-margin e-commerce business.
    
Kesa Electricals shares fell back 15-1/4 pence to 261 after the company reported a decline in first half earnings, reflecting costs associated with investments for future growth.

UK Diary of Events

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Paris shares close higher on Wall St strength, Fed rate cut hopes

The CAC-40 index closed 49.18 points or 0.87 pct higher at 5,690.77. Thirty-one CAC-40 stocks were up, 9 were down. On the Matif, October CAC-40 futures were trading at 5,708.50. The euro was quoted at 1.4122 usd, against 1.4134 late yesterday.
   
Capgemini led the gainers on the CAC-40, ending the session 2.39 or 5.93 pct higher at 42.70, as news that CEO Paul Hermelin had confirmed full-year targets calmed fears over the group's subprime risks, and added to already positive sentiment sparked by M&A speculation in the sector.
   
According to a local dealer, Hermelin's confirmation of the targets at a Cheuvreux investor conference "shows the group feels it isn't affected by all the subprime turmoil, despite everything that's happening at its subsidiary." "The share really needed Hermelin's comments today after a catastrophic end to the summer," he commented.
   
Also performing strongly was Carrefour, with traders pointing to reassuring comments from the retail giant on an impending end to the current supermarket price war. The stock ended the session 0.93 or 1.91 pct higher at 49.59.
   
A local trader said David Shriver, an adviser to chief executive Jose Luis Duran had made the comments at a retail conference in London. "He's basically said that the price war is slowing down in France," he explained.
   
Another dealer welcomed the news, saying "it's good to hear this directly from Carrefour, especially after Leclerc made similar comments recently." Leclerc's chief executive told a specialist industry magazine that the low point in terms of prices had already been reached, the dealer explained.
   
EDF closed up 1.29 or 1.77 pct at 74.24 after a price target upgrade from Lehman Brothers. The broker raised its target to 90 eur from 68 eur and reiterated its 'overweight' recommendation based on the conviction that the company is the best long-term value play in the sector.
  
Recent heavy fallers rose throughout the session as bargain-hunting kicked in, with Schneider Electric edging up 0.21 or 0.23 pct to close at 91.21. Construction stocks were up too, with Vinci ending the day 0.66 or 1.23 pct higher at 54.38 and Lafarge gaining 0.84 or 0.79 pct to end at 106.57.
   
In a note to clients this morning, CM-CIC analysts reiterated their 'buy' stance on Lafarge, saying the recent decline in the shares was excessive and that it is "too hasty to factor in a scenario of housing price deflation that draws parallels with the 1992-95 (housing) crisis."
   
Banking stocks also inched up after recent selling. Societe Generale was up 1.04 or 0.89 pct at 117.99 while Credit Agricole ended 0.11 or 0.41 pct higher at 27.05.
   
EADS ended the session 0.38 or 1.84 pct higher at 21.08. The Financial Times today reported the group is to appoint Lakshmi Mittal and Sir John Parker, chairman of National Grid, as non-executive directors.

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German shares close higher as investors speculate on US interest rate cut

The DAX closed up 34.71 points or 0.45 pct at 7,804.15 after trading between a high of 7,815.49 and a low of 7,788.44. The MDAX won 65.26 points or 0.64 pct to 10,300.28 while the TecDAX rose 20.10 points or 2.13 pct at 964.23. DAX futures were up 17.00 points or 0.22 pct at 7,886.00 while bund futures were down 0.32 or 0.28 pct to 112.25.
   
Leading blue chips higher, Deutsche Boerse advanced 3.21 eur, or 3.44 pct, at 96.61, after Credit Suisse raised its target on the German stock market operator to 115 eur per share from 107 while maintaining its 'outperform' rating, saying that the stock has been strong in recent days and it considers it the most attractive play in the European exchange and inter-dealer broker sector.
   
BMW added 1.41 eur, or 3.11 pct, at 46.68, with dealers pointing to an article in Capital magazine that said the auto-maker wants to significantly raise its margin targets and will be discussing a vigorous cost-cutting programme at a supervisory board meeting this Thursday.
   
RWE, added 1.49 eur, or 1.72 pct, at 88.21 after JP Morgan raised its target  to 80.20 eur compared to the previous target of 73.20 eur, given the potential for consensus earnings upgrades.
   
Peer EON gained 1.61 eur, or 1.26 pct, at 129.48, after JP Morgan said the utility offers the best value among European utilities after the broker revised its earnings forecasts in the sector.
   
Lufthansa, was 0.26 eur, or 1.33 pct, higher at 19.82 as the stock added to recent gains and after an article in Boersen-Zeitung said Germany's flag carrier hedged against rising oil prices through the end of 2007.
   
Bucking today's positive trend, Merck, lost 2.42 eur, or 2.51 pct, at 94.03 at the bottom of the DAX. BASF was down 1.03 eur, or 1.05 pct, at 96.65. Thyssenkrupp dipped 0.42 eur, or 0.93 pct, at 44.52, while Metro lost 0.75 eur, or 1.18 pct, at 62.92.
   
Over on the MDAX, AWD Holding added 1.11 eur, or 5.16 pct, to 22.63, at the top of the index. Symrise, dipped 0.53 eur, or 2.71 pct, to 19.05 at the other end.
   
TecDAX-listed United Internet raced to the top of the index, gaining 1.26 eur, or 8.95 pct, at 15.34.
   
Morphosys was 1.64 eur, or 3.76 pct, higher at 45.22, after the biotech company said the US Patent and Trademark Office has awarded it a patent to protect its main technology of developing genetically modified antibodies.
   
At the other end of the index, Aixtron lost 0.11 eur, or 1.66 pct, at 6.50.

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Amsterdam shares close higher, rebounding from losses; Boskalis surges

The AEX closed 4.38 points or 0.82 pct higher at 539.37, after trading in a range of 536.65-541.51. Government bonds traded lower, while the euro stood at 1.4214 usd versus 1.4133 usd late yesterday.
   
Akzo Nobel led the way on the AEX, closing 3.47 pct higher at 57.86 eur after announcing that it will hold an EGM on Nov 5 on its bid for ICI. ABN Amro also kept the issue at 'buy' and raised its price target to 69 eur from 64, adding that it is positive on the outlook for Akzo Nobel's coatings business.
   
Peer DSM climbed 1.44 pct at 36.71 eur as ABN Amro kept it at 'buy', but upped its price target to 44.0 eur from 42.5.
   
Postal group TNT added 2.28 pct to 28.68, while KPN put on 2.19 pct at 12.11 eur.
   
Steel giant ArcelorMittal added 1.66 pct at 54.96 as it announced that it expects to complete the merger of ArcelorMittal and Arcelor around Nov 13.
   
Financials also traded higher, led by Fortis which put on 1.18 pct at 20.50 eur, while Aegon rose 0.75 pct at 13.42 and ABN Amro added 0.68 pct at 36.93 and ING 0.62 pct at 30.85.
   
Heavyweight Shell dipped 0.21 pct at 29.14 as oil prices fell after US government data showed a surprise increase in gasoline and crude oil stocks. Earlier, reports emerged that Kuwait wants to push Shell out of a consortium for a refinery project in China. Oil services group SBM Offshore fell 0.25 pct at 27.74 eur.
   
Corporate Express traded flat at 7.67 after saying the results of its strategic review will be announced on Oct 1. The group also received a price target cut to 8 eur from 10 eur at Citigroup.
   
On the midcap, Boskalis Westminster surged 8.23 pct at 34.04 eur after the US Congress approved a water resources bill paving the way for a large amount of dredging work. Analysts also downplayed concerns of a possible delay to a land reclamation at the Port of Rotterdam's harbour that Boskalis is bidding for.
   
BAM closed 3.61 pct higher at 18.34 in bargain hunting after yesterday's losses on the back of negative investor response to the company's raised full-year guidance that dealers and analysts had said was overdone.
   
Corio gained 2.60 pct at 59.13. Fugro led midcap decliners, shedding 2.25 pct at 55.39.

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