UK/Euro Financial Market Daily Morning Briefing 05-03-2007

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London shares open lower but HSBC drags blue chips above 6,000 level

Leading shares were sharply lower in opening deals, mirroring the continued global sell-off in equities, but reassuring results from HSBC helped to drag blue chips back above the key 6,000 level, dealers said.
   
At 9.05 am, the FTSE 100 was down 80.9 points or 1.34 pct at 6,036.0, having lost 4.72 pct last week, but still off an early low of 5,999.8. The wider markets were also under the cosh: the FTSE 250 was down a further 229.1 at 10,835.0 in heavy volume, with 392 mln shares changing hands in 81,778 deals.
   
"The fact the FTSE closed Friday's session virtually unchanged may have left some thinking that the recent slide in equity markets may be at an end," Matt Buckland, trader at CMC Markets said.
   
"But triple-digit losses on the Dow ahead of the weekend break have already taken their toll on Asian markets in early trade and the impact is likely to be significant for European stocks as the week's trade commences."
   
Meanwhile, Wall Street stumbled yet again on Friday as the yen continued to rally against the dollar and fears over the the US economy pushed the DJIA to its worst weekly performance in more than four years.
   
The Dow fell a further 120.24 points to 12,114.10, widening its losses for the week to 3.3 pct. The S&P lost 16.00 to 1,387.17, a 4.4 pct drop on the week, and the Nasdaq slid 36.21 to 2,368.00.
   
Meanwhile, in Asia, Japan's Nikkei closed down 575.68 at 16,642.25 as the yen continued to rally against the dollar, hitting three-month highs, and the Hang Seng closed for lunch off 581.65 at 18,860.36. The high yen has fuelled worries that the stronger currency would erode exporters' earnings and hasten foreign investors unwinding carry trades.
   
Back in London, heavyweight miners continued to bear the brunt of the falls as copper slumped 4 pct in Asian trade and gold extended Friday's 3 pct losses with investors fearing a slowdown in China could hit demand.
   
Xstrata lost 105 pence at 2,258, Vedanta fell 45 at 1,170, BHP was down 37-1/2 at 965-1/2, Rio Tinto was off 82 at 2,603 and Kazakhmys was 31 lower at 1,055.
   
Still in commodities, oil stocks also weighed as crude prices fell back overnight as shock waves from the turmoil in equities markets kept investors sidelined.
   
Earlier, this morning, the New York Mercantile Exchange's main oil futures contract, light sweet crude for delivery in April, had fallen by 0.65 usd to 60.99 usd a barrel.
   
But British Airways was the top faller, off 32-1/2 at 499, after the national carrier confirmed reports it has completed the sale of its regional operator, BA Connect, to privately owned Exeter-based Flybe. BA said the charge for the disposal will rise by about 20 mln stg because of losses incurred by BA Connect up to Feb 28.

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But HSBC bucked the negative trend, up 10-1/2 at 896-1/2 after the UK's biggest bank delivered a 5 pct increase in full-year profit, with strong revenue growth offsetting a surge in bad debts at its US mortgage lending business.
   
HSBC said pretax profit for the year to Dec 31 2006 came in at 22.086 bln usd, up from 20.966 bln usd the previous year, and compared to an expected consensus figure of 22.760 bln usd compiled by AFX News.
   
In response, Dresdner Kleinwort reiterated its 'add' advice and said EPS was up 3 pct year-on-year and 1 pct above consensus, so the "Feb 7 profits warning warning adequately communicated the scale of the hit from Household".
   
The broker said the 2007 consensus looks 1-2 pct too low, but following a few days of market turbulence in which HSBC has characteristically outperformed, they don't expect today's results to have any transformational impact on sentiment.
   
The only other blue chip gainer was Royal & Sun Alliance, 1-1/2 firmer at 149-3.4, lifted by the disposal of its troubled US operation and positive broker comment.
   
This morning, the insurer said the sale ends its exposure to asbestos-related claims potentially worth hundreds of mlns of dollars although it expects to incur a net pretax loss of 443 mln stg from the deal.
   
At the same time, Merrill Lynch upgraded its stance to 'neutral' from 'sell' and said a detailed analysis of its UK reserves suggests positive claims development will continue in the next two years and believes there is room for the cost ratio to further improve. The broker added the US exit means that the group is now able to review its dividend policy.
   
On the second-line, William Hill lost 13-1/2 at 621-1/2, dragged down by a sharply lower broader market, despite solid full-year results and an upbeat trading statement. The bookmaker posted full-year earnings which were in line with market expectations and said it remains comfortable with consensus expectations for the current year.
   
In reaction, Morgan Stanley described the figures as "strong" and the trading statement as "upbeat", noting that with the good start to the year, it believes risks to its forecasts are on the upside.
   
Still in earnings, Taylor Nelson Sofres fell foul to the sell-off after the market research group posted in-line full year numbers. TNS reported a 9.4 pct fall in full year profits, owing to a disappointing performance in its US custom business, but said it has taken significant strides in turning round the operations and expects 2007 to be "a year of rebuilding".
   
In response, Deutsche Bank reiterated its 'buy' advice and said the group's adjusted pretax was slightly ahead of its 83.6 mln stg estimate.

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IMI was also lower, down 7 at 510-1/2, after the engineer posted a 21 pct rise in annual pretax profits before exceptionals and amortisation to 194.9 mln. At the same time, it said the outlook is positive despite "some short-term issues" in US trucks and drinks dispensing.
   
In response, Citigroup reiterated its 'hold' advice and said the results were slightly ahead of expectations, with the outlook statement encouraging despite some headwinds.
   
In contrast, M&A hopes lifted Countrywide, 22-1/2 at 602-1/2, as both The Telegraph and the Times highlighted the prospects of a bidding war for the estate agency as 3i mulls a rival offer to Apollo's cash and stock bid.
   
And Amlin added 6-1/2 at 316-1/2 after the Lloyd's insurer's full year profits beat expectations.
   
Full-year pretax profits rose to 342.7 mln stg from 186.7 mln in 2005, an increase of 84 pct, thanks to a low level of natural catastrophes and a strong contribution from its new Bermudan unit.
   
The results beat analysts' expectations of 300.13 mln stg, according to a forecast supplied by the company.

US Summary

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

UK Diary of Events

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

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*Source The Times, December 15th 2006

Amsterdam shares AFX at a glance outlook

Today's Press
   
Dutch companies should pay more attention to worker's rights in China when hiring third-party suppliers, Dutch union says (Financieele Dagblad)

Company News
   
ABN Amro buys Pakistan's Prime Bank for 127 mln eur
   
Imtech buys US' Seacoast Electronics for 4.5 mln eur in cash
   
Arcadis FY results beat guidance

Market Sentiment
   
CSM upgraded to 'hold' from 'sell' at ING, price target 25.90 eur
   
Getronics price target upped to 6.20 eur from 5.80 at ING
   
Getronics upgraded to 'buy' from 'hold' at Rabo, price target 7 eur

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FRANKFURT - market data at 10.34 am

Major indices:
   
DAX - down 148.33 points or 2.25 pct at 6,454.99
MDAX - down 273.60 points or 2.87 pct at 9,259.86
TecDAX - down 30.98 points or 3.89 pct to 764.9,
DAX futures - down 89.50 points or 1.37 pct to 6,463.50
   
Major losers:
    
Deutsche Lufthansa, down 0.69 eur or 3.36 pct at 19.86. The airline denied a newspaper report suggesting its Germanwings unit is considering an alliance with other budget airlines and the Cologne/Bonn airport on a flight reservation system
   
Hypo Real Estate, down 1.49 eur or 3.13 pct at 46.13
   
Thyssenkrupp down 1.09 eur or 2.95 pct at 35.92, and MDAX-listed Salzgitter AG, down 3.34 eur or 3.57 pct at 90.26, after Japanese and Chinese steel stocks closed sharply lower earlier today
   
MAN, down 2.31 eur or 2.86 at 78.39, after a Financial Times Deutschland report said that VW supervisory board chairman Ferdinand Piech's chances of getting a seat on MAN's supervisory board have risen. Analysts say this could reduce the chance of a break-up of the truck manufacturer further. Piech earlier assured MAN labour representatives of his support in safeguarding of their jobs after any merger with Swedish truck maker Scania.
   
Adidas, down 1.03 eur or 2.83 pct at 35.42

Other Major Movers:
   
Altana, down 0.27 eur or 0.59 pct at 45.33, outperforming the market
   
EON, down 1.25 eur or 1.30 pct at 95.15, also outperforming the market as investors speculate whether the utility company might increase its stake in Italian utility Enel to put pressure on it to release its 22 pct stake in EON's takeover target Endesa. Investors are also carefully watching for signs that EON might ask the Spanish CNMV regulator for clearance to buy shares in Endesa on the market.
    
Henkel, down 2.93 eur or 2.78 pct at 102.64, after being downgraded to 'buy' from 'neutral' by Merrill Lynch as the broker sees no near-term catalysts
   
MDAX-List EADS, down 0.55 eur or 2.33 pct at 23.07, after co-chief executive Thomas Enders has warned unions of the damage any strikes will have on the aerospace and defence conglomerate.

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