UK/Euro Financial Market Daily Morning Briefing 04-10-2006

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London shares flat in early deals, weak oil and miners offsets M&A talk

Leading shares were little changed in early deals shrugging off a record close on Wall Street last night, as BP fell after a slightly disappointing trading update, while a weak resource sector offset renewed M&A talk.
   
At 9.10 am, the FTSE 100 was up 7.8 points at 5,945.6, with the broader indices mixed. Early volume was reasonable with 401 mln shares traded in 35,357 deals.
   
Last night on Wall Street, the Dow Jones index ended the session at 11,727.34, wiping out the previous record of 11,722.98. The Standard & Poor's 500 Index rose 2.79 points to finish at 1,334.11. The Nasdaq Composite Index gained 6.05 points to close at 2,243.65.
   
Crude for November delivery fell 2.35 usd to settle at 58.68 usd a barrel on the New York Mercantile Exchange, and a short while ago in Asian trade crude was down a further 31 cents at 58.37 usd.
   
Staying in Asia, the Nikkei 225 closed down 159.54 points or 0.98 pct at 16,082.55, while over in Hong Kong the Hang Seng was off 23.09 points at 17,583.44.
   
However, South Korean shares fell on Wednesday after North Korea said it planned to conduct its first nuclear test, prompting Chinese and US officials to urge restraint.
   
Back in the UK miners slipped back at the open after commodity prices fell last night as the lower oil price dipped below 59 usd thereby diminishing gold's appeal as a hedge against inflation.
   
Gold for December delivery closed down 21.80 usd at 581.50 an ounce on the New York Mercantile Exchange, while December silver fell 5.1 pct to end at 11.045 usd an ounce. December copper fell 4.3 pct to close at 3.2825 usd a pound.
   
In reaction, Rio Tinto eased 82 pence to 2400, BHP fell 28 to 886, Anglo American lost 64 to 2178 and Xstrata eased 63 to 2183.
   
British Energy dipped 14-1/2 pence to 577-1/2 after a negative broker from Credit Suisse argued that the impact in a 1 usd drop in the price of oil on the equity value of the European generators could be as high as 2.9 pct. Peer Drax fell 18 pence to 431.
   
Elsewhere, shares in BP slipped back 4-1/2 pence to 564 after the oil heavyweight said third-quarter production fell due to the partial shutdown of its Prudhoe Bay oilfield and following a further drop in crude prices.

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BP said output was 3.80 mln barrels of oil equivalent per day in the three months to September, as against 3.82 mln last time, and lower than most analysts' estimates of around 3.9-4.0 mln boepd.  It was also below the 4.018 mln BP pumped in the second quarter.
   
In response, Merrill Lynch reiterated its 'buy' advice on the group and said the trading statement was broadly in line with its expectations at the operating level.
     
BAE Systems ticked down a penny to 398 after shares in EADS spiraled lower in opening trading after the company revealed new delivery delays for its troubled Airbus A380 programme, which will take a major toll on EADS profits over the next several years.
   
BAE is still a major supplier to the Airbus project despite selling its stake in the joint venture for 1.9 bln stg back in September.  On the upside, renewed M&A talk lifted Brambles 13-1/2 to 497 and Corus 7-3/4 to 400.
   
Brambles Industries mirrored overnight strength in its Australian listing, amid persistent talk of a 15 aud (600 pence) per share bid from private equity. Other traders noted reports that US conglomerate General Electric is also mulling a possible bid for the Anglo-Australian listed support services group.
   
Meanwhile, shares in Corus Group gained as bid talk surrounding the Anglo-Dutch steel giant refused to die down.
   
The Independent reported that Tata Steel, India's largest private steelmaker, is "deep in discussions" with Corus' senior management. The paper said the talk suggests a 580 pence per share bid will be made before the end of this week.
   
Shares in Corus have been buoyed by continuing consolidation hopes after the successful conclusion of the 26 bln eur merger between peers Mittal Steel and Arcelor.
   
Shares in mobile phone giant Vodafone Group bucked the negative trend on the FTSE 100 following an upbeat presentation on its Spanish and Italian units.
   
Vodafone held an analyst and investor meeting in Milan yesterday, during which it suggested that the slowdown in growth in its core western European markets may not be as steep as investors had feared. The shares ran up 4-1/2 to 126-1/2.

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In other news, shares in Smith & Nephew were higher, up 3-3/4 pence at 488-1/4, after a Federal District Court for the Western District of Tennessee granted the UK firm's request for a permanent injunction directed at Synthes' Trochanteric Fixation Nail and Proximal Femoral Nail (PFN) products.
   
The ruling prevents Synthes from promoting, distributing or selling its TFN and PFN products, indicated for treatment of intertrochanteric fractures in the US.
   
On the second line, UK Software developer Northgate Information Solutions rose again, up 7 at 95 after saying it has received a number of unsolicited approaches that may or may not lead to a formal offer being made for the company.
   
UK consumer confidence made a modest recovery in September after slumping to all time lows the previous month, according to a survey from Nationwide, the UK's biggest building society.
   
The headline index rose by 6 points in September taking it up to 89, but stayed well below its two year average of 98. In August the index dropped 11 points after the Bank of England lifted borrowing costs unexpectedly.
   
In other macro news, house prices in the UK continued to register strong gains in September, indicating that the property market remains healthy, according to data from HBOS unit Halifax.
   
It said house prices rose by 1.0 pct in September from August for an annual increase of 8.0 pct, taking the average house price up to 181,186 stg.
   
Despite the big monthly rise, the annual rate has now eased for the third straight month due to the strong gains seen over the same months last year. Additionally, the latest figures are above expectations of 0.8 pct and 7.9 pct respectively.

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PARIS - Market data at 9.58 am:

Major indices:
   
CAC-40 up 5.56 points at 5,225.35
SBF-80 up 2.49 at 5,957.40
SBF-120 up 3.14 at 3,782.24

Volume: 737 mln eur
24 CAC-40 stocks up
16 CAC-40 stocks down

Major gainers:
   
AGF, up 4.90 eur or 4.8 pct at 107.60; JP Morgan reiterated its 'overweight' rating on the stock this morning, as it believes parent company Allianz could soon launch a minority buyout offer for the company now that it has completed a similar takeover of its RAS subsidiary in Italy.
   
Sodexho Alliance, up 0.57 or 1.3 pct at 44, after posting full year sales growth of 9.4 pct to 12.8 bln eur, and raised its operating margin forecast to slightly above 6 pct -- previously the target had been just 6 pct.
   
Alten, up 0.92 or 3.8 pct at 25.12 after the IT consulting group confirmed its 2006 organic sales growth target of at least 15 pct, as it posted first half net profit of 22.7 mln eur, up 22.7 pct.

Major losers:
   
EADS, down 1.68 or 7.4 pct at 20.97 after persistent production problems for the Airbus A380 superjumbo forced it to announce new delivery delays, putting the programme a full two years behind schedule. The new delays will cost another 2.8 bln eur at the EBIT line, bringing the total EBIT shortfall to 4.8 bln eur.
   
Lagardere, down 1 or 1.8 pct at 56; the company owns a 7.5 pct stake in EADS.
   
Safran, down 0.19 at 15.39 and Zodiac, 0.59 lower at 46.54; both companies supply aircraft components to EADS.

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FRANKFURT - Market data at 9.34 am

Major indices:
   
DAX 30 - up 10.78 points or 0.18 pct at 6,003.00
MDAX - down 10.02 points or 0.12 pct at 8,489.92
TecDAX - down 3.58 points or 0.55 pct at 649.00
DAX future - up 14.5 points or 0.24 pct at 6,044.50

Major risers:
   
Infineon, up 0.22 points or 2.38 pct at 9.47, after Goldman Sachs upgrades to 'buy' from 'hold'.
   
Deutsche Telecom, up 0.18 points or 1.08 pct at 16.83. Deutsche Bank cut Deutsche Telekom shares to 'hold' from 'buy'.
   
Allianz, up 1.12 points or 0.82 pct at 137.26
   
Deutsche Bank, up 0.72 points or 0.76 pct at 95.64
   
Fresenius Medical Care, up 0.65 points or 0.65 pct at 101.19

Major decliners:
   
Man, down 1.56 points or 2.11 pct at 72.44, after LRP downgrades to 'marketperformer' from 'outperformer'.
   
BMW, down 0.40 points or 0.96 pct to 41.47
   
DaimlerChrysler, down 0.27 points or 0.69 pct to 38.92
   
Hypo Real Estate, down 0.24 points or 0.49 pct to 48.38
   
ThyssenKrupp, down 0.11 points or 0.42 pct to 26.08   

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AMSTERDAM - Market data at 10.02 am:

Major indices
   
AEX                 485.11, up 3.46 points
AMX Midcap          587.87, up 1.01 point
Government bonds    flat to lower

Major gainers:
   
Wegener soared 3.71 pct to 10.06 eur as analysts noted the publisher is in exclusive talks regarding the sale of its loss-making Direct Marketing division.
   
SBM Offshore put on 2.09 pct to 21.53 following its announcement late yesterday of an order worth 1.2 bln usd, and as Kempen & Co raised its target to 28.0 eur from 27.50.
   
ASMI was up 1.94 pct to 14.18 after Rabo Securities raised its recommendation to 'buy' from 'hold' and its price target to 17.5 eur from 14.0.
   
Crucell added 1.76 pct at 17.50.
   
Buhrmann was up 2.01 pct at 12.08 and Hagemeyer advanced 1.60 pct to 3.82.
   
KPN strengthened 0.60 pct to 10.12 after the telecom bought Enterprise Networks from Siemens.
   
TNT went up 0.60 pct to 30.13 after TNT Express won a five-year contract worth about 120 mln eur from France's GeoPost.

Major decliners:
   
Oce fell 1.88 pct to 11.98 as analysts cut price targets and lowered earnings per share estimates following yesterday's weak third quarter results and cautious 2007 forecasts. ABN Amro downgraded the issue to 'hold'.
   
Getronics was down 0.77 pct to 5.16 after executive vice president Stuart Appleton resigned as of April 30, for personal reasons.
   
Univar shed 1.23 pct higher to 36.05 after its Univar China Ltd unit bought Shanhai Jixing Chemical Company for an undisclosed cash amount.
   
Corio lost 0.80 pct to 55.95 following the resignation of chief financial officer John Kuik as a result of "differences of opinion regarding policy matters".
   
Royal Dutch Shell slid 0.27 pct to 25.57.

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