UK/Euro Financial Market Daily Morning Briefing 02-10-2007

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London shares up in early trade after Dow record, Tesco up on results

Leading London shares were higher in early trade, after the Dow Jones Industrial Average in the US soared to a record close yesterday, and with supermarket giant Tesco rising after reporting first-half results.
   
At 9.12 am, the FTSE 100 was up 27.7 points at 6,533.9, having been as high as 6,567.0 earlier. The index rose 39.4 points yesterday to close at 6,506.2. At 9.12 am, the FTSE 250 was up 130.8 at 11,212.3.
   
Volume was fair, with 449 mln shares having changed hands in 108,761 deals.
   
Wall Street began the fourth quarter with a huge rally on Monday, sending the Dow above 14,000 and well into record territory for the first time in two and a half months. Stocks were buoyed by a growing belief that the worst of the credit crisis has passed.
   
While the beginning of the new quarter was an incentive for institutional investors to buy, they also seemed to be motivated by a sense that banks and other financial companies generally weathered the recent credit market upheaval. Both Citigroup and Switzerland's UBS issued third-quarter profit warnings, but indicated the current period might see a return to normal earnings levels.
   
Meanwhile, the market was optimistic that new economic data might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting. The Institute for Supply Management said the manufacturing sector grew in September at the slowest pace in six months; the trade group said its index of manufacturing activity registered at 52.0 in September, below forecasts for a reading of at least 52.5.
   
"People are getting more confident there is going to be an October rate cut," said John C. Forelli, portfolio manager for Independence Investment. "To some degree, it looks like Citi kitchen-sinked the quarter, and that from here going forward will be calmer. That's underpinning the financials."
   
Enthusiasm about acquisition activity picked up after Nokia unveiled an 8.1 bln usd offer to buy navigation-software maker Navteq Corp. The deal was seen as a signal that corporations are feeling comfortable in making big moves despite recent market turbulence.
   
The Dow rose 191.92 points, or 1.38 pct, to 14,087.55.
   
The blue chip index surpassed its closing record of 14,000.41 set in mid-July, and moved into record territory, rising as high as 14,115.51 and eclipsing its previous intraday high of 14,021.95 set July 17.
   
Broader market indexes also rose sharply. The Standard & Poor's 500 index rose 20.29, or 1.33 pct, to 1,547.04, nearing its all-time trading high of 1,555.90, also reached in mid-July. The Nasdaq composite index rose 39.49, or 1.46 pct, to 2,740.99; the tech-laden index remains well below its high of 5,048.62, reached in 2000 when it was bloated by the dot-com boom.
   
The upbeat mood spread to Asia this morning. Hong Kong's Hang Seng index closed up 1,057.28 points at 28,199.75. Wall Street's surge and fund flows from China helped to propel the benchmark index past the 28,000 points level for the first time.

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Property and financial counters gained on hopes that the US Federal Reserve will cut rates again this month following a 50 basis points cut in September, while H-shares surged as some institutional investors shifted funds from China due to a week-long holiday there.
   
Dealers also noted that turnover was heavy as continuing weakness of the US dollar and expectations of a slowdown in the US economy is prompting institutional investors to increase fund allocations to the Asia-Pacific region, including Hong Kong.
   
It took just two sessions for the index to hit 28,000 after breaching the 27,000 level last Thursday. The market was closed yesterday for a public holiday.
   
Japanese shares also ended the day higher, with the Nikkei back above 17,000 points for the first time in about two months. As well as the US surge, a softer yen boosted exporters while financial shares were in demand as investors began taking the view that the worst of the credit crisis may be over.
   
The blue-chip Nikkei 225 Stock Average closed up 200.82 points or 1.2 pct at 17,046.78, after reaching an intraday high of 17,072.67. The index finished at its highest level since August 9, when it closed at 17,170.60. The broader TOPIX index climbed 23.90 points or 1.5 pct to 1,639.79, off a high of 1,641.82.
   
Crude oil prices were steady in Singapore this morning, following the sharp falls on Monday. At 10.51 am (0251 GMT), New York's main contract, light sweet crude for November delivery, was off 4 cents at 80.20 usd a barrel. The contract reached 80.24 usd in late US trades Monday, when it dropped 1.42 usd. Brent North Sea crude for November delivery was 10 cents higher at 77.74 usd.
   
US crude prices hit a record 84.10 usd in September, while London's Brent contract surged to a record high of 81.05 usd a barrel last Friday on concerns over global oil supplies.
   
Back in London, Tesco was 14-1/2 pence stronger at 450 after reporting that pre-tax profit for the 26 weeks to August 25 was 1.29 bln stg, up 18 pct on a year earlier. The dividend rose 13.9 pct to 3.2 pence a share.
   
UK sales increased by 5.4 pct to 18.3 bln stg, incorporating like-for-like sales growth excluding fuel of 3.5 pct. Tesco had previously reported first quarter like-for-like sales growth of 4.7 pct so the second quarter represented a slowdown, primarily due to the wet weather and tough comparatives owing to last year's hot summer weather and World Cup.
   
Broker Landsbanki said that at first glance, the figures appear slightly better than it had been expecting. But it added that figures supplied by Tesco exclude certain start-up losses in new or acquired businesses that Landsbanki includes. The broker retained its 'hold' rating.
   
Cazenove, which has an 'outperform' on Tesco, described the results as impressive profit delivery in the face of challenging conditions in Q2 in the UK.  It said the results indicated that market concerns over UK trading momentum have been overblown, and focus can now return to the key elements of the investment case; UK sales and margin dynamics, international operations of growing profit significance and, in the immediate term, the launch of the US operation.
   
B&Q owner Kingfisher was up 5.1 pence at 187.7 after HSBC upgraded it to PLC to 'overweight' from 'neutral' and raised its target to 235 pence from 228 pence. The broker said that Kingfisher is trading at a 28 pct discount to the sector on 2007 earnings adjusted for property, increasing to a 31 pct discount for 2008.

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Miners, having enjoyed a strong run in recent days, accounted for many of the blue chip fallers in early trader. Copper, gold and platinum prices have slipped back today.
   
Lonmin was 137 pence lower at 3,567. Antofagasta was down 20 pence at 783.  Banking giant Barclays was another gainer, up 16 pence at 616-1/2 pence.
   
Among the midcaps, Findel, the home shopping and educational supplies business, was up 31 pence at 678-1/2 after announcing that sales for the six months to September were up 32 pct to a record level with all divisions contributing to the rise.
   
Findel also said it has decided to maintain its current group structure following a strategic review initiated last May.
   
"Both the Home Shopping and Educational Supplies divisions are operating well within the existing group structure and the board does not believe that in the current markets their performance or shareholder value would be enhanced by adopting a revised corporate structure," the group said. Some analysts had thought the review would lead to a demerger.
   
In reaction, Seymour Pierce, which has an 'outperform' rating on Findel, said that overall it has been an encouraging performance.
   
The broker added that obviously there are some concerns about credit sales and bad debt going forward for the group, but to some extent ratings have been discounting this.
   
Sofware group Autonomy Corporation was up 70 pence at 930 after Evolution initiated coverage with a 'buy' rating and 999 pence target citing the group's recent second quarter results, which it said confirmed the healthy state of the underlying business.
   
Evolution thought that bid speculation around the shares is overplayed but 2008 core earnings growth of 47 pct and EPS growth of 35 pct suggests further re-rating is justifiable.
   
Publishing group Informa was up 24-1/2 pence at 530-1/2 after Bear Stearns initiated coverage with an 'outperform' rating and a target of 660 pence.

Diary of Events

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MILAN - Market data at 9.30 am:

Main indices
   
Mibtel at 31,523, up 0.48 pct
S&P/Mib at 40,614, up 0.49 pct

Main S&P/Mib gainers
   
Italcementi up 1.93 pct at 16.06 eur
   
BMPS up 1.56 pct at 4.48
   
Banca Popolare di Milano up 1.53 pct at 10.63 ahead of the meeting of its strategic committee to discuss possible alliance partners and draw up a shortlist of candidates. Among the possible candidates is Unipol, up 0.62 pct at 2.42
   
Impregilo up 1.42 pct at 4.87
   
Banco Popolare up 1.39 pct at 16.50

Main S&P/Mib losers
   
Enel down 0.30 pct at 7.96
   
Saipem down 0.23 pct at 29.92
   
Luxottica down 0.16 pct at 24.43
   
Gruppo Editoriale l'Espresso down 0.38 pct at 3.45
   
Other stocks in the news
   
Fiat up 0.55 pct at 21.77 after the release late yesterday of Sept car registration figures that showed a rise for the brand of 3.52 pct. The overall market share of the Fiat group inched up to 31.08 pct from 30.50.
   
Sirti suspended ahead of a statement, with reports saying it could win an order for more than 1 bln eur to renew the state railway telecommunication infrastructure
   
UniCredit up 1.11 pct at 6.18, rebounding from yesterday's weakness as broker Sanford Bernstein retained its 'over eight' rating as it considers the bank to be better insulated if liquidity problems deteriorate into a more prolonged crisis
   
Intesa Sanpaolo up 0.27 pct at 5.545 after Lehman Brothers placed some 60 mln shares at 5.45-5.50 eur each, with the seller being the Cariparma Foundation

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FRANKFURT - Market data at 10.33 am

DAX - up 33.16 points, or 0.42 pct, at 7,955.58
MDAX - up 196.18 points, or 1.90 pct, at 10,525.22
TecDAX - up 12.12 points, or 1.24 pct, at 991.25
DAX futures - up 26.50 points, or 0.34 pct, at 7,750.00
   
Major Climbers:
   
Hypo Real Estate, up 1.75 eur, or 4.16 pct, at 43.85, after Deutsche Bank singled out the commercial real estate bank as its top pick among German banks in a review of 5 of the country's major banks.
   
Deutsche Postbank, up 1.84 eur or 3.46 pct at 55.64, buoyed by Deutsche Bank's recommendation that its shares are the best bet in a struggling economy
   
Deutsche Boerse, up 2.10 eur, or 2.17 pct at 99.29, after the German stock exchange operator released September trading figures that confirmed it had profited from recent turbulent trade
   
Commerzbank, up 0.44 eur, or 1.52 pct, at 29.37, helped by a general rebound in banking shares today and after Deutsche Bank said risks the bank faces from the US subprime crisis are among the worst for German banks but, nonetheless, 'insignificant'
   
Deutsche Bank, up 1.19 eur, or 1.29 pct, at 92.36, also boosted by a general turnaround in banking shares largely due to Citigroup's announcement yesterday that its profit levels should return to normal in the fourth quarter.
   
Major Decliners:
   
Bayer, down 0.60 eur, or 1.06 pct, at 55.85
   
EON, down 0.82 eur, or 0.65 pct, at 127.82, as demand for defensive utilities wanes in a upward turning market
   
RWE, down 0.29 eur, or 0.33 pct at 88.36, also on lower demand for utilities
   
BASF, down 0.23 eur, or 0.24 pct, at 96.82
   
Deutsche Telekom, down 0.01 eur, or 0.07 pct, at 13.83

Other Shares in Focus:
   
Infineon, up 0.12 eur, or 1.00 pct, at 12.07, after the German chipmaker said US unit Qimonda AG has reached an agreement with Sony Corp to set up a joint venture to design DRAM chips that speed up data processing in consumer electronics.
   
MDAX-listed K S AG, down 0.76 eur, or 0.61 pct, at 124.55, as the only decliner on the index after it said late yesterday its full-year earnings before interest and tax will come in at the lower end of its targeted range of 310-325 mln eur.
   
MDAX-listed Rheinmettal, up 2.06 eur, or 3.54 pct, at 60.30, after Westlb raised its stance on the defense hardware specialist to 'add' from 'hold' and pegged its price target at 70 eur per share, according to dealers who had a first look at a note from the brokerage.

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AMSTERDAM  - Market data at 10.30 am

Major indices
   
AEX 546.61, up 1.04 points
AMX Midcap 725.76, up 4.51 points
Government bonds mainly lower

Major gainers
   
Corporate Express gains 2.65 pct at 7.4 eur following yesterday's losses after its strategic review announcement yesterday, while Rabo Securities cut its price target to 9 eur from 12.
   
Vedior and Randstad gained 2.02 pct at 16.19 eur and 1.85 pct at 40.23 eur respectively as turnover in the staffing sector gained 7 pct year-on-year in mid-August to mid-Sept, while Randstad also completed its acquisition of Team BS. Midcap peer USG People put on 3.57 pct at 21.46 eur
   
TomTom 1.57 pct higher at 57.69 eur after it said the tender period for its Tele Atlas offer starts tomorrow
   
ArcelorMittal rose 1.00 pct at 56.39 eur as it announced an indicative 5.75 pesos, or 1.83 usd, per share cash offer for the outstanding 34.7 pct of its Argentine unit Acindar
   
Fortis was 0.82 pct higher at 20.95 eur amid reports Banco BPI has acquired 1 pct of Banco Comercial Portugues from Fortis
   
TNT gained 0.10 pct at 29.50 eur as Rabo Securities said it will not be impacted by the European Union's formal ratification yesterday of plans to delay mail market liberalisation to 2011
   
Aalberts up 1.96 pct at 17.70
   
Nutreco rises 0.10 pct at 49.81 eur after it buys a 51 pct stake in the animal nutrition activities of Turkey's Interkim
   
Arcadis jumps 4.68 pct at 53.93 eur after winning new 50 mln usd flood protection contract in New Orleans

Major decliners
   
Hagemeyer shed 2.14 pct 3.20 eur following recent gains on M&A speculation
   
Heineken slipped 1.64 pct at 45.49 eur
  
Oce fell 2.19 pct at 15.21 eur after it posted largely in-line third quarter results but gave an full-year outlook that analysts say was below expectations
   
Tele Atlas -- which said it will hold EGM on the TomTom offer on Nov 14 and provided an updated trading statement to include higher royalties -- was 1.06 pct lower 21.57 eur
   
Laurus flat at 4.22 eur as SNS Securities said it expects that Casino will sell its stake in May 2010 following yesterday's resignation of Casino CEO from Laurus' supervisory board

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