UK/Euro Financial Market Daily Morning Briefing 05-11-2007

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London shares open lower, Sainsbury drops after Delta Two pulls bid

Leading shares opened lower amid caution ahead of the key UK interest rate decision on Thursday and as investors remain jittery about the state of the credit markets, with Sainsbury slumping after Delta Two
pulled out of takeover talks.
   
At 8.57 am, the FTSE 100 index was down 40 points at 6490.6, having closed last week 55.5 points lower at 6,530.6, while the FTSE 100 index was down 50.9 points at 11,391.8. Volume was average with 244.9 mln shares changing hands in 55,289 deals.
   
Mark Priest, head of equity sales at Tradindex, said: "While the FTSE 100 index is down it is holding up reasonably well in light of the news concerning the Sainsbury bid being pulled and the Citigroup write downs with its CEO quitting, in comparison to the falls in Asia."
   
Across the pond, Wall Street ended a turbulent week marginally higher.
   
Last week, US markets were hit not only by bad news from the financial sector but also by spiking commodity prices and hints from the Federal Reserve that it might be less generous with interest rate cuts in the coming months.
   
The Dow Jones Industrial Average index rose 27.23 to 13,595.10, while the Standard & Poor's 500 index was 1.21 higher at 1,509.65 and the Nasdaq composite index was up 15.55 to 2,810.38.
   
In the US, it is a relatively quiet week for economic data with Thursday's weekly jobless claims and Friday's preliminary Michigan consumer sentiment index the two main points of interest.
   
But today will see the latest monthly services survey from the Chartered Institute of Purchasing and Supply. This is expected to show another modest decline, due to the less favourable lending environment following this summer's credit crunch.
   
Economists polled by Thomson expect the index to drop to 54.0, compared with the previous reading of 54.8.
   
On Asian markets, stocks were weighed down by renewed concerns about the subprime sector meltdown in the US after the head of Citigroup, Charles Prince, quit and the bank announced up to 11 bln usd in additional writedowns.
   
The Hang Seng index ended the morning down 915.56 points at 29,552.78, while the Nikkei 225 Stock Average closes down 248.56 points at 16,268.92.

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In Asian trading hours, oil eased from closing record levels ahead of a crucial US-Turkey meeting aimed at resolving a crisis over Kurdish rebels in northern Iraq.
   
New York's main contract, light sweet crude for December delivery, was off 80 cents at 95.13 usd a barrel from its closing record high of 95.93 in US trade Friday. Brent North Sea crude for December delivery dropped 58 cents to 91.50 usd.
   
In the UK, the main focus this week will be on the Bank of England and whether it will follow in the footsteps of the Federal Reserve and cut interest rates.
   
The Monetary Policy Committee will decide on Thursday whether to cut rates, although most economists believe it will keep its key rate on hold at 5.75 pct.
   
Today investors will be waiting for the release of UK September industrial production figures and UK October services PMI.
   
Turning to the UK markets, Sainsbury was the biggest faller, dropping 104 pence, or 18.74 pct, at 450-1/4 after Delta Two, the Qatari-backed investment fund, has pulled out of talks over a possible 10.6 bln stg takeover of the group.
   
Delta said, since its original proposal was submitted to Sainsbury's board, the required funding and cost of capital has increased significantly, adversely affecting the investment case.
   
Its peer Morrison WM was also off 8-1/2 at 283-3/4 and Tesco was down 7-1/2 at 479-1/2.
   
Banking stocks were lower on renewed credit fears. Barclays was off 11-1/2, Alliance & Leicester was down 11 at 719.5, Northern Rock fell back 4.8 at 166.5 and HBOS was 14-1/2 lower at 810.5.
   
Elsewhere, miners fell back as prices eased. BHP Billiton edged 53 lower at 1,702, Antofagasta was down 21 at 782, Xstrata fell back 80 at 3,227, Lonmin was off 65 at 3,222 and Vedanta Resources was 39 lower at 2,147.
   
And British Airways was off 6-1/4 at 142 after ABN Amro cut its rating to 'sell' from 'hold'.
   
Turning to the upside, shares in Carphone Warehouse were in demand, up 3-3/4 at 348-3/4, after Lehman Brothers upgraded the group to 'overweight' from 'equal-weight' with a price target of 425 pence.

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Lehman Brothers said the upgrade for Carphone Warehouse is driven by two key areas - core mobile retail and US expansion.
   
Looking at the midcaps, on the downside, WS Atkins was off 31 at 1,169 after Merrill Lynch initiated the group as 'sell' with a 1,075 pence fair value.
   
Merrill Lynch said although it believes WS Atkins is a well-managed business with strong market positions, it sees potential risks that are not reflected in the current valuation.
   
Also in broker generated news, Ladbrokes was 7-1/2 lower at 394 after Morgan Stanley downgraded the group to 'underweight' from 'equal-weight'.
   
LogicaCMG also fell back, 3-1/4 at 152-1/2, after the group warned full-year revenue growth will be lower than expected due to "strong comparatives" in the final quarter.
   
In an interim management statement for the three months to September 30, Logica said it now expects revenue growth of 3 pct for the full year compared to previous guidance for growth in the lower range of 4-6 pct.
   
On the upside, Spirent Communications gained 1-1/2 at 72-1/4 after the group said it had identified a further 7.3 mln stg in cost savings through its strategic review, bringing the total to 28.3 mln stg, and intends to return 65 mln stg to shareholders through share buybacks by the next AGM.
   
However, Xchanging was the top riser, up 10-1/2 at 280 following announcing that it plans a secondary placing of 15.23 mln shares, or about 7 pct of its share capital, at 280 pence each.

Diary of Events

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

US Summary

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

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PARIS - Market data at 10.30 am:

Major indices:
   
CAC-40 down 44.31 points or 0.77 pct at 5,676.42
SBF-80 down 35.15 or 0.52 pct at 6,781.87
SBF-120 down 30.20 or 0.72 pct at 4,137.33

6 CAC-40 stocks up
34 CAC-40 stocks down

Major gainers:
   
STMicroelectronics, up 0.20 eur or 1.72 pct at 11.86, after announcing the finalisation of its 3G chipset deal with Nokia
   
M6, up 0.28 or 1.39 pct at 20.41 after an upgrade to 'buy' from 'hold' at SG Securities
   
Klepierre, 1.84 or 5.20 pct ahead at 37.25. UBS upgraded the group to 'buy' from 'neutral' in a note this morning

Major losers:
   
EADS, down 0.79 or 3.45 pct at 22.10 after announcing higher than expected charges relates to delays to the A400M aircraft
   
Dexia, down 0.36 or 1.81 pct at 19.48; BNP Paribas, down 1.50 or 2.10 pct at 70.02; Societe Generale, down 1.97 or 1.81 pct at 106.77. Banks stocks across Europe are under continuing pressure amid concerns over additional subprime losses at US investment banks
   
Air France-KLM, down 0.52 or 2.10 pct at 24.26, hit by fears over the impact of rising oil prices
   
Most active stocks:
   
EADS, 2.31 mln shares traded
   
France Telecom, down 0.09 or 0.35 pct at 25.56. 1.42 mln shares traded

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FRANKFURT - Market data at 10.17 am

DAX - down 46.56 points, or 0.59 pct, at 7,802.93
MDAX - down 79.72 points, or 0.77 pct, at 10,399.80
TecDAX - up 0.31 points, or 0.03 pct, at 1,010.46
DAX futures - down 67.50 points, or 0.85 pct, at 7,842.00

Major Decliners:
   
Deutsche Bank, down 2.45 eur, or 2.82 pct, at 84.55, due to mounting pressure on the financial sector after Citigroup chief executive Charles Prince stepped down yesterday as the bank announced larger-than-expected future write-downs for subprime losses.
   
Deutsche Postbank, down 1.28 eur, or 2.71 pct, at 45.87, also due to pressure on the financial sector.
   
Volkswagen, down 4.39 eur, or 2.30 pct, at 186.70, after a report in Der Spiegel said that Porsche AG plans to delay increasing its stake in Europe's largest automaker to over 50 pct because of the resistance from workers' councils and the current strength of Volkswagen's share price.
   
Continental, down 1.81 eur, or 1.75 pct, at 101.34.
   
Hypo Real Estate, down 0.66 eur, or 1.68 pct, at 35.58, due to pressure on the financial sector.
   
Major Advancers:
   
Siemens, up 0.67 eur, or 0.72 pct, at 93.58
   
Deutsche Telekom, up 0.04 eur, or 0.29 pct, at 13.94
   
Merck KGaA, up 0.17 eur, or 0.20 pct, at 84.92
   
RWE, up 0.15 eur, or 0.16 pct, at 93.63
   
Henkel, up 0.03 eur, or 0.087 pct, at 35.52
   
Other Stocks in Focus:
   
Munich RE, down 1.52 eur, or 1.16 pct, at 129.11, after the world's second-largest reinsurer released third-quarter figures this morning which traders said were very close to expectations, with no big surprises.
   
MDAX-listed Symrise AG, flat at 20.70, after the fragrance and flavourings supplier released third-quarter earnings figures that came in above expectations.
   
MDAX-listed Hugo Boss, down 0.02 eur, or 0.04 pct, at 47.88, after Deutsche Bank resumed coverage of its shares in with a 'buy' rating and a 55 eur target.
   
MDAX-listed Heidelberger Druck, down 0.36 eur, or 1.30 pct, at 27.28 after Commerzbank cut its stance shares in the printing specialist to 'hold' from 'buy' and reduced its target for the group to 29 eur from 40 eur.

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AMSTERDAM - market data at 10.33 am

Major indices
   
AEX               535.32, down 1.89 points
AMX Midcap        719.29, down 4.21 points
Government bonds  higher

Major decliners
   
Wavin fell 10.56 pct to 9.99 eur after issuing a full year profit warning
   
Aegon shed 1.80 pct to 13.61 eur
   
TNT lost 1.54 pct to 28.16 eur
   
TomTom lost 1.57 pct to 53.42 eur amid continued worries that the company may raise its earlier 21.25 eur per share takeover bid on Tele Atlas
   
Fortis lost 1.82 pct to 20 eur
   
LogicaCMG lost 2.22 pct to 2.20 eur after it lowered its full year growth forecast

Major gainers
   
Binckbank added 3.29 pct to 16.34 eur as investors picked up the stock now that the online bank is to double in size due to the takeover of peer Alex
   
Philips added 2.62 pct to 29.72 eur
   
Randstad rose 1.50 pct to 37.15 eur
   
Brunel shed 4.38 pct to 18.78 eur

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