UK/Euro Financial Market Daily Evening Briefing 26-10-2007

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London shares close up but off highs; NY remains up; Kingfisher gains

UK blue-chips closed up but off highs as Wall Street remained firmer after Countrywide Financial said that it expects to return to profit this quarter with Kingfisher gaining among UK blue chips. 
   
At close, the FTSE 100 index was 85 points higher at 6,661.3, just down from the session high of 6,684.1, having recovered from a low of 6,567.1, while the FTSE 250 index was 29.1 points higher at 11,509.6.
   
"The UK again is taking its lead from the US with the market being buoyed by the Countrywide Financial statement that announced the group will be profitable in the current quarter and in 2008, as it restructures its business to take advantage of the current market," said Jim Wood-Smith, head of research at Williams de Broe.
   
"Also helping the market is now the expectation by investors the Fed is going to cut interest rates by 1/2 pct rather than a 1/4 pct as signs begin to emerge the credit crunch is starting to spread into the real economy," added Wood-Smith.
   
Over on Wall Street shares traded higher at the market open following the Countrywide announcement, but investors said record high oil prices and lingering concerns about the credit markets could spark some choppy trading conditions.
   
By London's close, the Dow Jones Industrial Average was up 52.8 points at 13,724.6, while the Nasdaq Composite index rallied 36.6 points to 2,787.46 and the Standard & Poor's 500 broad-market index jumped 11.75 points to 1,526.15.
   
Meanwhile, consumer sentiment, as measured by the Reuters/University of Michigan index, fell further than expected in October, as the ongoing housing slump dampened expectations for the economy adding to investor hope the Fed will cut interest rates soon.
   
The index fell to 80.9 in late October from a reading of 82.0 earlier in the month. Economists polled by Thomson's IFR Markets had expected sentiment to remain steady at 82.0.
   
Turning to UK equities, Kingfisher was the top riser, up 12.2 over 7 pct at 185.3 on vague bid rumours and also one trader saying the positive comment from Countrywide Financial was also helping sentiment among home improvement retailers.
   
Financials were also among the gainers with Standard Chartered up 84 pence at 1,805, as speculation of further stake-building by Singapore's Temasek Holdings and vague talk that Bank of China could be eyeing the Asian-oriented bank did the rounds.

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Meanwhile, Resolution shares took on 17 pence to 726-1/2, as UK insurer Pearl Group today unveiled an improved takeover bid for the group jeopardising an agreed offer from Standard Life and raising the prospect of a full-scale bidding war.
   
And Northern Rock featured yet again, up 3.2 pence at 190.7, as JC Flowers moved a step closer to bidding for the troubled mortgage bank. It announced the management team for its bid for Northern Rock, confirming earlier press reports.
   
In a statement to the stock exchange, the consortium said it was lining up former Marks & Spencer chairman Paul Myners as chairman.
   
In the statement, JC Flowers confirmed it is in continuing discussions with Northern Rock on a possible offer.
   
Elsewhere, Xstrata led the miners higher, up 187 pence at 3,528, with Antofagasta and Rio Tinto up 31-1/2 pence at 849-1/2 and 182 pence at 4,417 respectively, also seeing good gains, with sector consolidation talk helping buoy the shares alongside the strong metal prices.
   
Elsewhere in the resource sector, Royal Dutch Shell added 62 pence to 2,121 and BP took on 16-1/2 pence to 629, with the latter bolstered not only by firm prices but news it is paying 373 mln usd to put an end to investigations in the US.
   
Turning to the casualties, Sainsbury dropped 18-1/2 pence to 565-1/2, amid concern over potential bid prospects, as Delta Two, the Qatar-backed investment fund, said it is seeking extra equity but that there can be no certainty such funding will be forthcoming.
   
In a joint statement, Sainsbury and Delta said they have agreed it is in the "best interests of shareholders and colleagues to bring this process to a conclusion as soon as practicable".
   
Its peer WM Morrison also fell back 4-3/4 at 297-3/4.
   
And AstraZeneca was down 25 at 2,375 ahead of third-quarter results next Thursday.

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AstraZeneca profits are seen lower when it reports its third-quarter results on Thursday, as the company absorbs restructuring costs, although sales are seen surging ahead almost 10 pct on increased sales across the product range.

GlaxoSmithKline was off 8 at 1,232.
   
In broker generated news, BAE Systems fell back 12 at 503 after Goldman Sachs removed the company from its 'Conviction Buy' list on valuation grounds.
   
On the second line, Debenhams was among the gainers, up 3 pence at 115-1/4, with continued buying after trading news yesterday was better than expected and Merrill Lynch reiterated its 'buy' stance.
   
Turning to the 250 downside, Charter shed 55 pence to 1,090, put under pressure by a downgrade from Panmure Gordon.
   
Earlier today, the broker downgraded its view to 'hold' from 'buy' and lowered its price target to 1,275 pence from 1,365, following a slowdown warning from US peer Lincoln Electric last night.
   
Negative broker comment also helped to push Halfords 8-3/4 pence lower to 344-3/4.
   
Earlier, UBS cut its price target to 390 pence from 430, although it has left its 'neutral' recommendation unchanged.

Diary of Events

For a diary of key financial and corporate events in the UK next 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 end up, tracking US; corporate news outweighs oil, dollar

The CAC-40 index finished up 34.57 points or 0.60 pct at 5,794.87. Among CAC-40 stocks, 23 closed higher and 17 closed lower. On the Matif, November CAC-40 futures were trading at 5,801. On the broader indices, the SBF-80 index closed down 16.56 or 0.24 pct at 6,939.51 while the SBF-120 ended up 20.19 or 0.48 pct at 4,224.70.
   
Today's gains allowed the CAC-40 to wipe out losses from earlier in the week and end up 54.39 points or 0.95 pct on last Friday's close of 5,740.48.
   
Peugeot SA led CAC-40 risers, up 3.65 eur or 6.31 pct at 61.46, lifted by its consensus-beating quarterly sales and other goods news in the auto sector.  French peer Renault SA rose 3.56 or 3.32 pct to 110.91, helped by Nissan's higher-than-expected contribution to Renault's earnings.
   
A local analyst commented that, in addition to the good corporate numbers, Peugeot and Renault were boosted by French President Nicolas Sarkozy's plans to introduce an eco-tax, which should benefit the French manufacturers because they produce smaller, less polluting cars.
   
Vivendi SA also posted strong gains, ending up 1.10 or 3.66 pct to 31.14, helped by an upgrade to 'buy' from 'hold' at ABN Amro. Investors also welcomed a report in Les Echos that Vivendi has raised its stake in Maroc Telecom to 53 pct from 51 pct.
   
The enthusiasm pushed up telecoms operator Neuf Cegetel, in which Vivendi has a 40 pct stake. Neuf ended up 1.32 or 4.05 pct at 33.95.
   
In contrast, Dexia shed 0.52 or 2.40 pct to 21.13, leading fallers on the CAC-40. The Franco-Belgian bank was affected by renewed worries about its exposure to subprime problems through its US unit Financial Security Assurance (FSA).
   
Accor also gave ground, dropping 0.81 or 1.22 pct to 65.42. The Paris dealer noted that the hotel sector has fallen out of favour on the markets after enjoying substantial gains in the early part of this year.
   
EADS was another significant faller as the aeronautics group reacted to the sliding dollar. The strength of the euro against the dollar has become a serious financial burden on Airbus, which invoices its planes in dollars but a major part of its costs in euros. EADS ended down 0.25 or 1.01 pct at 24.55.
   
Outside the CAC-40, TF1 saw profit-taking after publishing above-forecast third-quarter sales figures, as investors took advantage of a recent strong run on the back of government plans to liberalise broadcasting regulations. TF1 shares closed down 0.52 or 2.60 pct at 19.49.
   
"The shares had a great upwards move on the deregulation story, so I think today we're just seeing a bit of profit-taking," a London-based trader said, adding that "the underlying fundamentals in the near term are not that easy."
   
Back on the upside, SEB SA surged 7.59 or 6.05 pct to 132.99 after revealing a 41 pct jump in nine-month operating profit to 165 mln eur.  CA Cheuvreux upgraded the stock to '2 Outperform' from '3 Underperform', saying SEB's valuation is modest and the price level at the moment "is an excellent entry point".
   
Theolia also starred among midcaps, adding 1.12 or 6.38 pct to 18.67. The group's decision to issue launch a maximum of 240 mln eur of convertible bonds has been warmly received by the market.
   
The renewable energy producer is also firmly in focus due to France's Grenelle Environnement summit, at which President Sarkozy yesterday pledged 1 bln eur for the "energy and motors of the future."

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German shares close higher on automotive stocks, Wall Street gains

The DAX closed 16.73 points or 0.21 pct higher at 7,949.17 points after trading between 7,919.20 and 7,970.36 today. The MDAX rose 7.60 points or 0.07 pct to 10,589.34 points, while the TecDAX retreated 11.05 points or 1.10 pct to 989.11. DAX futures added 12.00 or 0.15 pct to 7,997.00, while bund futures declined 0.08 or 0.07 pct to 113.87.
   
Automotive stocks led gains today, with auto supplier Continental adding 5.21 eur or 5.38 pct to 102.01 eur ahead of its third-quarter results to be released on Oct 31.
   
Traders also pointed to a report in Manager Magazin that the Agnelli family is interested is taking large share holdings in German manufacturing companies. The tyre and auto parts manufacturer is expected to release solid third-quarter earnings on Wednesday, with investors awaiting statements on the process of the integration of Siemens AG's former VDO unit.
       
Volkswagen rose 7.30 eur or 4.18 pct to 181.80 eur as the carmaker's consensus-beating third-quarter figures finally won out over less positive elements in today's earnings statement, which analysts and traders said called into question Europe's largest automaker's growth potential.
      
MAN shares gained 1.28 eur or 1.08 pct to 120.14 eur amid warmed-over rumours that peer Scania might soon launch at a takeover bid, with traders saying they had heard talk of an offer at 137 eur per share.
   
Bucking the trend, Daimler shares were 0.96 eur or 1.23 pct lower at 76.80 eur correcting from yesterday's gains on the back of solid third-quarter results and perhaps also put under some pressure after WestLB downgraded its stance on the automaker to to 'add' from 'buy' while reiterating a 78 eur-per-share target.
   
Elsewhere on the DAX index, Deutsche Telekom added 0.35 eur or 2.51 pct to 14.28 eur as its shares continued a six-day advance, which was bolstered yesterday by positive results from French peer France Telecom and after ABN AMRO upgraded its stance on the telecommunications giant to 'hold' from 'sell' in sector review.
   
France Telecom said yesterday it was raising its guidance for full-year organic cash flow generation to 7.5 bln eur from 6.8 bln previously, thanks to an anticipated stabilization of its gross margin for 2007.
   
Merck KGaA advanced 0.82 eur or 0.96 pct to 86.22 eur as the shares rebounded from pressure earlier this week after the pharma and chemicals company failed to allay investors' concerns that its liquid crystals business is set to encounter competitive headwinds.
   
On the other end of the DAX, Hypo Real Estate led decliners, dropping 0.86 eur or 2.12 pct to 39.66 eur.
   
Metro lost 0.53 eur or 0.89 pct to 59.10 eur, which traders attributed to a weak consumer climate index this morning and disappointing margin and sales growth figures from Dutch peer Ahold.
      
On the MDAX, K+S added 14.38 eur or 11.06 pct to 144.38 eur as the top performer on the index.
   
On the TecDAX, Conergy plummeted 16.93 eur or 31.94 pct to 36.07 eur after the solar energy specialist said late yesterday its 2007 profits are expected to drop due to lingering currency effects and uncertainty over progress on some of its larger projects.

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Amsterdam shares close higher on Wall St, heavy Shell trading

Shares in Amsterdam closed higher, closely tracking Wall Street and aided by heavy trading in index heavyweight Royal Dutch Shell. 
   
The AEX rose 1.22 points or 0.22 pct to 547.16, after trading in a range 542.77-548.29.
   
Government bonds traded lower while the euro stood at 1.4380 usd versus 1.4288 usd late yesterday.

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