UK/Euro Financial Market Daily Morning Briefing 05-01-2007

London shares slide in early deals as oils remain under pressure

Leading shares fell back in early deals, with further weakness across commodity prices knocking the oil sector again and outweighing last night's resilient performance by Wall Street, dealers said.
   
By 9.10 am, the FTSE 100 index was down 31.9 points at 6,255.1, while the broader indices were also lower.
   
Early volume was a touch below average, with 245.4 mln shares changing hands in 41,557 deals.
   
US stocks struggled to close higher last night as a bounce in technology stocks and sharply lower oil prices helped investors brush off concerns about sluggish festive retail reports, traders noted.
   
The DJIA closed 6.17 points higher at 12,480.69, recovering after an early 50 point fall.
   
Across Asia overnight, the Nikkei 225 index closed 262.08 points lower at 17,091.59, while the Hang Seng ended the week 185.70 points higher at 20,211.28.
   
Oil prices fell to their lowest levels since mid-2005 in Asian trading hours as the market reacted to high stockpiles in the US and unusually warm winter weather there, dealers said.
   
Light sweet crude for delivery in February drifted a further 0.14 usd to 55.45 usd a barrel on Nymex.
   
Oil stocks bore the brunt of the early selling in London this morning, with Cairn Energy topping the blue-chip fallers board once again, down 65 pence to 1,650, as the sliding crude price heightened concerns over next week's IPO of its Indian operations.
   
UBS also cut its target on the stock to 2,280 pence from 2,330 in a cautious note, in which it lowered its fourth quarter estimates and target prices across the sector, citing oil price weakness, refining margins and currency contributions.

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UBS also lowered its targets on Royal Dutch Shell and BP, to 2,050 pence from 2,150 and 675 pence from 700 respectively, although repeated its 'buy' stance for both.
  
BG was also weaker, down 16 pence at 658, with Goldman Sachs repeating its 'sell' recommendation on the shares, although raising its target to 650 pence from 640.
   
UK utility stocks also suffered after the Financial Times reported that Europe's biggest energy companies face a crackdown by the EU competition commissioner following an inquiry into the sector that found evidence of collusion and other severe market failings.
   
Scottish & Southern fell 16 pence to 1,529, while International Power fell 6-1/4 pence to 368-1/2.
   
Mining stocks turned higher however, as metal prices steadied in Asian trade, with copper recovering slightly after hitting 9 month lows last night.
   
Xstrata added 15 pence to 2,335, despite Goldman Sachs removing the miner from its 'Conviction Buy' list, citing concerns over the recent copper price slump.
   
Fellow copper play Antofagasta added 3-1/2 pence to 472-1/2, while Rio Tinto bounced 9 pence to 2,555 and Vedanta added 4 pence to 1,122.
   
ICI topped the early risers however, extending yesterday's speculative gains, after UBS this morning lifted its price target on the stock to 470 pence from 412.
   
The broker told clients that it has adjusted its earnings forecasts for ICI to reflect the announced disposal of Quest and although its EPS estimates have remained largely unchanged for 2006 and 2007, its 2008 forecast has increased by 5 pct.

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On the second line, Inmarsat added 16-1/2 pence to 391-3/4 after being upgraded to 'buy' from 'neutral' by Merrill Lynch.
   
The broker argued that Inmarsat's third-quarter results in November showed the core business is performing well across the board.
   
On the economic front, the UK housing market faltered slightly in December, according to HBOS unit Halifax.
   
In its monthly survey of house prices, Halifax said prices fell 1.0 pct in December from the previous month for a 9.9 pct annual rise, taking the average price to 186,035 stg.
   
This afternoon's US December non-farm payroll data will provide the main economic focus however. The market expects the data to show payrolls rose by 110,000 and unemployment held at 4.5 pct.

UK Diary of Events

For a diary of key UK financial and corporate events today, click here

US Summary

For a summary of US stocks at yesterday's close of trade, click here

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PARIS - Market data at 9.56 am:

Major indices:
   
CAC-40 down 28.25 points or 0.51 pct at 5,546.31
SBF-80 down 18.63 points or 0.28 pct at 6,710.22
SBF-120 down 19.32 points or 0.47 pct at 4,049.40

Volume: 700 mln eur
9 CAC-40 stocks up
30 CAC-40 stocks down
1 CAC-40 stock unchanged

Major gainers:
   
EADS, up 0.16 eur or 0.62 pct at 25.78, after AirAsia said it may buy another 100 Airbus A320s.
   
Sanofi-Aventis, up 0.35 eur or 0.50 pct at 70.65, amid speculation it will bid for Merck's generic drugs business
   
Essilor, up 0.55 eur or 0.68 pct at 81.00

Major losers:
   
Alstom, down 4.20 eur or 4.23 pct at 95.20, after a downgrade to 'sell' from 'hold' at Citigroup.
   
Total, down 0.80 eur or 1.50 pct at 52.65, as crude oil prices fell further.
   
Alcatel-Lucent, down 0.14 eur or 1.22 pct at 11.38, as peer Motorola issued a profit warning and Thales shareholders prepare to vote on a tie up that would cause Alcatel-Lucent to issue more shares in payment.

Most active stocks:
   
Total, 88 mln eur
   
Alstom, 72 mln eur
   
BNP Paribas, 47 mln eur, down 0.85 eur or 1.00 pct at 84.40

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AMSTERDAM - Market data at 10.10 am:

Major indices
   
AEX                498.56, down 1.77 point
AMX Midcap         681.98, down 1.86 point
Government bonds   flat to higher

Major losers
   
SBM Offshore fell 1.59 pct to 24.80, Royal Dutch Shell went 1.44 pct lower to 26.03 after UBS cut its price target to 2,050 pence and Fugro slipped 1.0 pct to 35.54. All share prices were hit by continuing lower oil prices.
   
Midcap stock Pharming was down 2.46 pct to 3.97.
   
Back on the AEX, Philips slid 1.01 pct to 28.39 and Unilever weakened 0.96 pct to 20.66.
   
ABN Amro was off 0.44 pct at 24.66 after Delta Lloyd Securities downgraded the issue to 'accumulate' from 'buy', on the back of its strong performance of more than 10 pct in the past month. The Dutch broker maintained his price target at 25.75 eur.
   
Fortis was off 0.27 pct at 32.93 with investors disregarding news the banking group launched a new life insurance company in Russia.

Major gainers
   
KPN rose 0.98 pct to 11.37 and ASML lifted 0.64 pct to 18.84.
   
Crucell was up 0.70 pct at 20.06 and DSM flat at 37.05 after the two companies signed a PER C6 licensing agreement with Biotecnol of Portugal.

Rabobank analysts Mark van der Geest and Niels de Zwart estimate the license agreement will result in a one time payment of 50,000 eur, split between DSM and Crucell.
   
Local issue Imtech was up 0.27 pct at 49.13 after Dutch broker Rabo Securitites upped its price target for the issue to 56.0 eur from 50.0, while keeping its recommendation at 'buy'.

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FRANKFURT - Market data at 10.01 am

Major indices:

DAX - down 38.65 points or 0.58 pct at 6,635.75
MDAX - down 61.64 points or 0.65 pct at 9,425.21
TecDAX - down 2.92 points or 0.38 pct at 763.04
DAX futures - down 41.00 points or 0.61 pct at 6,683.50
   
Major losers:
   
EON, down 2.33 eur or 2.29 pct at 99.36, as German utilities continue their losses from yesterday -- traders point to several year-end studies that recommend divesting from utilities, and an unusually warm winter
   
RWE, down 1.43 eur or 1.71 pct to 82.36, on the same reasons as peer EON
   
Deutsche Boerse, down 2.03 eur or 1.45 pct to 138.33, after Merrill Lynch cut its rating to 'neutral' from 'buy' on valuation issues
  
ThyssenKrupp, down 0.39 eur or 1.12 pct to 22.98, extending losses over recent days, as Japanese steel stocks prices fall
   
Deutsche Post, down 0.26 eur or 1.12 pct to 22.98, on profit taking and price correction after 3 days of gains.
     
Major gainers:
  
Lufthansa, up 0.68 eur or 2.69 pct to 22.55, after HSBC raised its target to 24 eur per share from 22 eur, while maintaining its 'overweight' stance
   
SAP, up 0.16 eur or 0.39 pct to 40.80   
   
Deutsche Postbank, up 0.20 eur or 0.31 pct to 65.40
   
BASF, up 0.19 eur or 0.26 pct at 73.85
   
Henkel, up 0.23 eur or 0.20 pct to 113.83

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