UK/Euro Financial Market Daily Morning Briefing 01-10-2007

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London shares open lower; NY closes down; Northern Rock falls

Leading shares opened lower following a weaker close on Wall Street on Friday, with the financial sector seen under pressure after reports a sale of Northern Rock is doomed and on reports UBS has written off billions of dollars.
   
At 9.00 am, the FTSE 100 index was 8.4 points lower at 6,460.1, having closed 19.6 points down last week at 6,466.8, while the FTSE 250 index was ahead 16.9 points at 11,054.3. Volume was light with 204 mln shares changing hands in 47,690 deals.
   
"The weakness in the banking sector today has been started off by the write-off by UBS," said Mark Priest, head of equity sales at Tradindex. "But looking ahead to the rest of the week investors will be eyeing US non-farm pay rolls on Friday to see if the interest rate last month has had any effect."
   
Overnight on Wall Street, stocks dipped on Friday, the last trading day of the third quarter, with investors cautious ahead of October's corporate earnings reports.
   
But market losses were small, thanks to positive reports on consumer spending, construction spending, inflation and Midwest manufacturing.
   
The Dow slipped 17.31 to 13,895.63, while the Standard & Poor's 500 index fell 4.63 to 1,526.75 and the Nasdaq composite index lost 8.09 to 2,701.50.
   
In US economic news, today's ISM manufacturing index for September will give an update on business attitudes. Economists are predicting little change with a reading of 52.8 down from 52.9 in August.
   
On Asian markets, the Hang Seng index was closed today for a public holiday. The Nikkei 225 Stock Average ended the morning up 65.66 points at 16,851.35 after the Bank of Japan's quarterly Tankan survey revealed better-than-expected business confidence, distracting investors' attention from the negative effects of a stronger yen and US stocks weaker close Friday.
   
In Asian trading hours, oil prices were flat after concerns over a Gulf of Mexico storm eased. New York's main futures contract, light sweet crude for delivery in November, was 6 cents lower at 81.60 usd per barrel in late morning trade. The contract reached 81.66 usd in late US trade on Friday.
   
Brent North Sea crude for November delivery was off 3 cents at 79.20 usd after it rocketed above 81 usd per barrel for the first time in London on Friday, owing to concerns over stretched global energy supplies.

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In UK economic news, investors will be focused on whether or not the Bank of England springs a surprise interest rate cut on Thursday in response to the credit market turmoil.
   
The BoE's Monetary Policy Committee is widely expected to keep rates on hold at 5.75 pct, but some analysts believe there is a slight probability the central bank could follow the Federal Reserve's move earlier this month to lower lending costs instead.
   
Meanwhile, the manufacturing PMI survey today is expected to reveal manufacturing activity edged lower, pressured by rising interest rates and crude oil prices, while the services PMI on Wednesday is also predicted to show a decline in activity, as the sub-prime fallout takes its toll on the financial services sector.
   
Turning to the blue chips, financial stocks were under pressure with Northern Rock the biggest loser, down 26.6 at 152.6 following a slew of press reports about the beleaguered bank.
   
The Sunday Express reported any Northern Rock sale is "doomed to failure" and large investors doubt any deal can succeed, while the Saturday FT reported brokers said shares could fall further and a bid could come in at under 200 pence.
   
Panmure Gordon has cut its price target to 100 pence from 300 pence on Northern Rock.
   
Its peers were also lower. Barclays was 5-1/2 weaker at 590 with the Mail on Sunday reporting the bank has pulled the planned sale of loan arm First Plus at the eleventh hour after the business failed to attract sufficiently high bids.
   
Alliance & Leicester was down 12 at 780, Lloyds TSB was 4 lower at 538-1/2 and second liner Bradford & Bingley was 10 weaker at 293.
   
Also depressing investor sentiment were reports by the FT that UBS is expected to warn it has written of billions of dollars on fixed income assets. Fund management groups Schroders was also down 23 at 1,176 and Invesco lost 9 at 652.5.
   
In the second liners, New Star Asset Management was 10 lower at 354 and Henderson Group fell back 2-3/4 at 168.
   
Elsewhere, commodity stocks were also lower following the trend of profit-taking in Asia and on reports by German business paper Finanz & Wirtschaft that Rio Tinto may sell new shares to preserve its A-rating with rating companies.
   
Rio Tinto was down 31 at 4,197-1/2, BHP Billiton was 6 lower at 1,744 and Antofagasta was off 20-1/2 at 742.
   
On the upside, Tate & Lyle was the top riser, rallying 9-1/2 at 412 after Barron's reported the group may be vulnerable to a takeover from a big food company such as Nestle. The group was bouncing back after falling 28 pct on Friday after issuing a profit warning.

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Turning to the second liners, Biffa was the top riser, up 10-1/2 at 232 after the group said it expects a worse first-half performance in its waste collection division than a year ago, although the unit's performance for 2007/08 as a whole is likely to be in line.
   
Biffa said in July the collection division was facing tough competition in its local account markets and technical problems at its Leicester mechanical-biological waste treatment plant.
   
And after a trading update, Firstgroup was 12 higher at 700-1/2 after it said it has made a good start in the first half of the year, in line with its expectations on strong cashflows and an improved operating margin.
   
Elsewhere, Cookson Group was up 26-1/2 at 789-1/2 after the group announced it plans a 20 mln stg ceramic expansion in China.
   
And WSP Group was 18-1/2 higher at 726 after it announced it is acquiring Chas H Sells and CBP Consulting.
   
In broker-generated news, Big Yellow Group edged up 13-3/4 at 513 after Citigroup initiated coverage on the group with a 'buy' rating and a 600 pence target. Citigroup said Big Yellow Group at current levels offers an attractive proposition and self-storage provides investors with a more defensive play in the real estate market.

Diary of Events

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US Summary

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MILAN - Market data at 9.55 am

Main indices
   
Mibtel at 30,939, down 0.26
   
S&P/Mib not available as there are technical problems with the distribution of the index, the Milan stock exchange said

Main S&P/Mib losers
   
Alleanza down 5.12 pct at 9.325 eur as hopes of a minority buyout, which in the past supported the shares, by Generali vanish
   
Banco Popolare down 2.72 pct at 15.62
   
Unipol down 1.82 pct at 2.37
   
BMPS down 1.72 pct at 4.2675 as ING makes double digit cuts to its 2008-2009 earnings forecasts to reflect a harsher macroeconomic climate in Italy
   
Eni down 1.45 pct at 25.79

Main S&P/Mib gainers
   
Pirelli up 1.12 pct at 0.8545
   
Prysmian up 1.10 pct at 20.20 on its first day of trading on the blue-chip index
  
Terna up 0.94 pct at 2.6175
   
Italcementi up 0.77 pct at 15.66
   
Luxottica up 0.54 pct at 24.00

Other stocks in the news
   
Unicredito Italiano down 1.25 pct at 5.925 on the first day of trading as a merged entity with Capitalia, which has been eliminated from the index

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FRANKFURT - Market data at 10.23 am

DAX - up 5.97 points, or 0.08 pct, at 7,867.48
MDAX - up 23.83 points, or 0.23 pct, at 10,385.57
TecDAX - up 6.29 points, or 0.65 pct, at 972.35
DAX futures - up 8.50 points, or 0.13 pct, at 7,944.00
   
Major Climbers:
   
TUI, up 0.85 eur or 4.70 pct at 18.93, after receiving a boost from a report in Frankfurt Allgemeine Zeitung that US financial investor Guy Wyser-Pratte is considering raising his 1 pct stake in the company and trying to exert influence or major changes
   
Merck, up 1.40 eur, or 1.65 pct, at 86.00, as the shares rebounded from losses last week, which Morgan Stanley - among others - said were overdone
   
Lufthansa, up 0.31 eur, or 1.54 pct, at 20.48, as Goldman Sachs re-started the airline's shares with a 'neutral' rating
   
Deutsche Postbank, up 0.60 eur, or 1.17 pct, at 52.09, after UBS raised its stance to 'buy' from 'neutral' leaving its price target of 63 eur per share unchanged and saying the bank's shares have largely underperformed the Eurobanks sector by 12 pct.
   
MAN, up 0.98 eur, or 0.96 pct, 103.03

Major Decliners:
   
Deutsche Bank, down 1.21 eur, or 1.34 pct, lower at 89.17, as it shares came under pressure after Swiss peer UBS AG said today that is expects to see a third quarter pretax loss of 600-800 mln sfr, citing a write-down of positions in fixed income, rates and currencies related to deteriorating conditions in the US subprime market.
   
Commerzbank, down 0.27 eur, or 0.95 pct, at 28.12, on similar pressure due to UBS profit warning and after UBS downgraded its stance to 'neutral' from 'buy' and reduced its price target to 31 eur per share from 37, saying a recent investor's day has once again failed to be a positive catalyst for the stock.
   
Allianz, down 1.15 eur, or 0.70 pct at 162.70
   
Deutsche Post, down 0.10 eur, or 0.49 pct, at 20.30
   
Infineon, down 0.05 eur, or 0.41 pct, at 12.04, after the company is sticking to its goal of posting an EBIT margin of 10 pct in 2009 even though earnings targets have become more difficult to achieve due to the weakness in the chip market.

Other Shares in Focus:
   
MLP, up 0.51 eur, or 5.45 pct, at 9.87, leading the MDAX higher after Citigroup upgraded the financial services provider to 'buy' from 'hold', but cut its price target to 13.00 eur from 15.80, with the broker saying risks hanging over the stock are more than priced in.

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