UK/Euro Financial Market Daily Morning Briefing 03-10-2006

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London shares fall in early deals; commodities weigh, Xstrata bucks trend

UK blue chips were lower in early deals, following on from losses on Wall Street overnight and weighed down by weak commodity stocks on the back of falling prices, but Xstrata bucked the trend after announcing a 1-for-3 rights issue.   
   
At 8.53 am, the FTSE 100 was 32.8 points lower at 5,925.0 after closing 3.00 points down at 5,957.8 on Monday, while the broader indices were also in negative terrain.   
   
On Wall Street overnight, US stocks closed in the red after the Dow Jones Industrial Average flirted early in the day with its all-time high close. 
    
The DJIA closed 8.80 points lower at 11,670.30, while the Nasdaq Composite index lost 20.83 points at 2,237.60 and the S&P 500 was down 5.55 points at 1,330.30 at the close.   
   
The US markets largely shrugged off the day's economic data, which presented a mixed picture of the economy, and stocks were initially helped by falling oil prices.    
   
A barrel of light crude settled at 61.03 usd, down 1.88 usd, on the New York Mercantile Exchange. Oil prices have fallen more than 20 pct since July, helping drive gains in stocks in the third quarter.   
   
Meanwhile, this morning in Asia, the Nikkei 225 index began its afternoon session down 66.73 points at 16,187.56, while Hong Kong's Hang Seng index returned to trade in negative terrain after yesterday's holiday, 43.72 points easier at 17,499.33.   
   
In the UK, Man Group was among the main blue chip fallers, down 7-3/4 pence at 437-1/2, hit by a Citigroup downgrade to 'hold' from 'buy' on valuation grounds, with the broker saying its increased price target of 490 pence is only 9 pct above the current share price following the stock's recent strong performance.   
   
However, the main weight on the index was applied by commodity plays following an overnight decline in both metals and oil prices.   
   
Gold was almost 2 usd lower at 601.4 an ounce this morning, while crude oil futures dipped below the 61 usd a barrel mark in Asian trade.    

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BP lost 9-1/2 pence at 573 and Royal Dutch Shell dipped 18 pence at 1,785, while Kazakhmys fell back 20 pence at 1,118, Lonmin slipped 47 pence at 2,557 and Rio Tinto dropped 40 pence at 2,529.   
   
However, on the upside, miner Xstrata bucked its sector's downward trend and instead headed up the leaderboard, rising 56 pence at 2,254.   
   
Xstrata this morning announced that it is to raise 2.9 bln stg in a 1-for-3 rights issue of 235.8 mln new shares at 12.65 stg each, the proceeds of which will be used to partly refinance a 7 bln usd loan which the group secured to fund the acquisition of Canadian miner Falconbridge Ltd in August.   
   
Also featuring among the top performers was Tesco, 2-1/2 pence to the good at 368, after the supermarkets group said first-half pretax profit topped the 1 bln stg mark as 26-week like-for-like sales grew 12.7 pct, while underlying profit rose 21.8 pct to 1.15 bln stg.   
   
In response, Merrill Lynch said the figures were above expectations, boosted by forecast-busting property sales in the interim, and added that they revealed a marked change in Tesco's UK profit and loss fortunes with a turnaround in the group's margins.   
   
The firm's strong results also boosted peers Morrison Supermarkets, up 1-3/4 pence at 244-1/2, and J Sainsbury, 0-3/4 pence firmer at 377-3/4.   
   
Meanwhile, Severn Trent took on 3 pence at 1,366 as its in line trading update added to increased bid speculation surrounding the UK utility group.   
   
Yesterday, shares in the group soared on the back of consolidation hopes after second-line peer AWG confirmed it accepted a 1,555 pence per share offer from Osprey Acquisitions, a newly formed consortium of mainly Canadian pension funds.   
   
And today both Citigroup and Merrill Lynch highlighted Severn Trent's own attractions as a takeover target.   
   
On the second line, technology plays CSR and Wolfson Microelectronics were the main casualties, extending recent declines following yet more negative news from the sector after Nordic headset maker GN Store Nord yesterday reduced its full-year forecasts for its GN NetCom headsets.   
   
CSR's decline this morning was compounded by Lehman Brothers slashing its target to 800 pence from 1,200 and reiterating its 'underweight' rating on the bluetooth chip designer.    
   
The broker told clients it believes that the 25 pct fall in CSR's stock price post its September warning adequately reflects the reduced growth outlook of the company.   

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CSR slipped 33 pence at 781, while Wolfson fell back 14-3/4 at 436.       
   
Elsewhere, Shanks Group enjoyed pole position among the midcap risers, 4-1/4 pence to the better at 189-3/4, thanks to an ABN Amro upgrade to 'buy' from 'add' with an improved price target of 205 pence versus 180 previously.   
   
In a note to clients this morning, the broker said Shanks delivered a 'solidly reassuring' pre-close update for the first half of 2007, undepinning the broker's expectations for this year, and added that, even more importantly, the group has provided encouraging signs for next year.   
   
Upbeat broker comment also boosted Misys, 2-1/2 pence stronger at 187-1/2 after being upgraded to 'buy' from 'neutral' by UBS, which also cut its price target to 216 pence from 245. The broker said it believes yesterday's severe share price drop could attract renewed interest in the software group.   
   
On the economic front, a full calendar of releases will keep investors busy.
   
In the early hours of the morning the CBI/PriceWaterhouseCoopers' survey revealed that UK financial services firms saw growth in business volumes slow sharply in the third quarter but stayed optimistic that business will recover.
   
The past quarter saw income fall for the first time in two years, profitability growth level out and recruitment slacken - broadly as expected in June.   
   
But the three months ahead look far more upbeat. Income and business volumes are expected to recover and profitability to strengthen, even if modest job cuts are predicted and marketing and investment plans for the year ahead have been scaled back.

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PARIS - Market data at 9.45 am:

Major indices:
   
CAC-40 down 34.46 or 0.65 pct at 5,209.07
SBF-80 down 29.46 or 0.49 pct at 5,968.37
SBF-120 down 24.81 or 0.65 pct sat 3,772.64

Volume: 425 mln eur
2 CAC-40 stocks up
38 CAC-40 stocks down

Major gainers:
   
Publicis up 0.05 at 30.97
   
Air France-KLM up 0.10 at 23.81 as oil price drops
   
JCDecaux up 0.02 at 21.13 after new street furniture contract win

Major losers:
   
Accor down 1.00 or 1.87 pct at 52.50
   
Peugeot down 2.30 or 1.42 pct at 159.70, cut to 'reduce' from 'neutral' by UBS
   
Renault down 1.40 or 1.53 pct at 90.40 cut to 'neutral' from 'outperform' at Credit Suisse
   
Total down 0.55 or 1.07 pct at 51.00, cut to 'hold' from 'buy' at SG Securities after the broker cut its oil price forecasts in sector
   
Technip down 1.08 or 2.42 pct at 43.61

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AMSTERDAM - Market data at 10.02 am:

Major indices
   
AEX                 480.05, down 2.85 points
AMX Midcap          585.93, down 3.59 points
Government bonds    narrowly mixed

Major losers:
   
SBM Offshore was down 1.53 pct at 21.21, Royal Dutch Shell slipped 0.89 pct at 25.74
   
Philips gave up 1.17 pct at 27.11
   
KPN was 0.99 pct lower at 9.98 amid news Dutch telecoms watchdog Opta is forcing the company to keep its existing fixed network open to competitors for the next five years
   
Aegon fell 0.95 pct at 14.59, ING shed 0.72 pct at 34.32
   
Oce gave up 0.96 pct at 12.37 after reporting disappointing third-quarter results
   
Biotech stocks led midcap fallers, Crucell losing 1.55 pct at 18.39 and Pharming off 1.34 pct at 3.69

Major gainers:
   
TomTom was the only AEX stock to trade up, rising 0.15 pct at 33.0
   
Among second-liners, Univar was a notable gainer, climbing 2.54 pct at 36.51, with traders unable to give a specific reason
   
Hunter Douglas was up 1.82 pct at 56.0 and Van der Moolen firmed 0.59 pct at 5.11, the only other midcap gainers.

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