UK/Euro Financial Market Daily Morning Briefing 06-07-2006

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London shares open higher on oil stocks rally ahead of BOE decision

Leading shares spiked higher at the open, ahead of the Bank of England rate decision, as oil heavyweights were boosted by record crude prices overnight amid escalating tensions with North Korea, dealers said.
   
At 9.07 am, the FTSE 100 was 42.5 points firmer at 5,869.2 with the broader indices all racking up gains.
   
US markets had closed lower, under pressure as concerns over North Korea's nuclear ambitions drove oil prices to record levels, hitting a new intraday record of 75.40 usd per barrel before slipping back to a settlement record of 75.19 usd.
   
Furthermore, stronger-than-expected US factory orders data stoked up investor fears over rising interest rates.
   
The DJIA ended the session down 76.20 at 11,151.82, with the S&P off 9.28 at 1,270.91 and the Nasdaq 37.09 lower at 2,153.34.
   
Across Asia, the mood was mixed as the Nikkei 225 ended 202.54 lower at 15,321.40, while the Hang Seng closed up 173.81 points at 16,440.99.
   
Still in Asia, oil prices eased back from yesterday's record levels with New York's main contract, light sweet crude for August delivery down 13 cents but still holding at around 75.06 usd.
   
Back in London, on the economic front, all eyes will be on the BoE Monetary Policy Committee which is poised to keep borrowing costs unchanged at 4.50 pct for the eleventh month running when it concludes its rate-setting meeting at noon.
   
Turning to equities, oil stocks were courted on the back of the crude price spike, with BP 7-1/2 pence firmer at 638-1/2, Royal Dutch Shell having gained 22 to 1926, BG up 9 at 741 and Cairn up 40 at 2135 -- the top blue chip riser.
   
Miners were also in demand as metal prices hit one-month highs, again in response to the stand-off with North Korea, with investors turning to gold as a safe-haven.
   
Lonmin took on 49 to 2,807, Antofagasta added 6-3/4 to 421-3/4, BHP rose 14 to 1040, Rio Tinto firmed 30 to 2846 and Xstrata was 15 to the good at 2008. 

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Sentiment was further boosted as Numis said a new level of merger and acquisition activity should lead mining valuations higher as takeover activity gathers pace.
   
Elsewhere, positive broker comment boosted Northern Rock, 18 firmer at 1049, as Merrill Lynch reiterated its 'buy' advice.
   
The broker said it is an "enthusiastic supporter" of Northern Rock, believing its shares have 21 pct upside from current levels.
   
Old Mutual advanced 1-1/2 at 163 after the insurer was upgraded to 'overweight' from 'equal weight' at Morgan Stanley.
   
The broker said the group offers a compelling mix of value, growth and cash generation, as it reiterated Old Mutual as its favourite UK large cap insurance stock.
   
In contrast, Aviva fell 10-1/2 to 739 after the Financial Times reported rumours the insurance group is looking to to raise 1 bln stg cash to fund an overseas acquisition.
   
Fellow faller Alliance & Leicester was down another 6 at 1078, still reeling from news French peer Credit Agricole has walked away from bidding for the UK mortgage bank.
   
At the same time, Morgan Stanley resumed coverage of A&L with an 'equal-weight' rating and 990 pence price target.
   
The broker said the shares are likely to trade in excess of what it considers a fair value due to ongoing bid speculation, but added falling margins and a slowdown in unsecured lending will start to weigh.
   
Morgan Stanley noted the stock now trades on a 10-15 pct premium to the other mortgage banks.
   
On the second-line, Woolworths took on 1 at 32-1/4 after the same broker initiated coverage of the retailer with an 'overweight' rating and 38 pence price target.
   
The broker told clients Woolworths was 'a hidden gem', saying although most investors still focus on its retail business, one-third of its profits now come from its little-known but highly successful media business.

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Rightmove was another winner, up 11-1/2 at 395 after the property website operator said it expects full year sales and pretax profit to come in at the top end of analyst's estimates.
   
In response, Panmure Gordon reiterated its 'buy' recommendation, saying the group had had a strong performance in London, particularly in the top-end of the market as Savills and Hamptons added to its list of agents.
   
RHM was also courted, 4-1/2 firmer at 272-1/2 after independent private equity firm Doughty Hanson said the pricing of the secondary placing in the bakery firm has been set at 266 pence per share.
   
Doughty Hanson, together with a number of co-investors, is placing around 93 mln ordinary shares in RHM, representing 26.6 pct.
   
M&A talk also lifted 888, 3-1/4 higher at 216 on on-going bid talk and First Choice took on 3-1/4 at 229-1/4 as the FT reported the merger talks between the travel group and Swiss peer Kuoni are suspended, not terminated.
   
Elsewhere, midcap oil stocks benefited from the oil price spike with Burren Energy, Tullow Oil and Premier Oil all making gains.
   
On the downside, HMV fell 4-3/4 to 168-1/2 after the struggling books and music retailer unveiled another steep downturn in trading during the early summer.
   
The owner of the Waterstone's bookstore chain and the eponymous CD and DVD retailer said like-for-like sales for the 9 weeks to July 1 fell 10.1 pct as the June heatwave and the football World Cup kept customers out of its stores.
   
A downbeat trading update knocked John Laing, off 3-1/2 at 279-1/2, after the construction and support services group said interim numbers from its Chiltern Railways franchise would be hit a seven week closure on the line.

Diary of Events

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AMSTERDAM - Market data at 10.26 am:

Major indices

AEX index             441.88, up 2.73 points
AMX Midcap index      590.89, up 4.44 points
Govt bonds            unchanged to slightly lower

Major gainers:
   
Hagemeyer put on 3.78 pct at 3.84 after Rabo Securities upgraded the stock to 'buy' from 'hold' with a raised price target of 4.85 eur from 4.75
   
Oce, up 1.98 pct at 12.35, extended yesterday's gains after the printer and photocopier maker posted well-received second-quarter earnings. Local broker Kempen & Co upgraded the stock to 'buy' from 'hold'
   
Staffing groups were lifted by a strong second-quarter trading update from peer Michael Page, with Randstad adding 1.82 pct at 47.53, Vedior firming 1.27 pct at 16.73 and USG People 1.09 pct higher at 60.35
   
Exact climbed 2.88 pct at 24.69 after Goldman Sachs upgraded the IT services group to 'buy' from 'neutral' based on a "compelling" valuation

Major losers:
   
ASMI shed 1.83 pct at 12.34 after a downgrade to 'reduce' from 'hold' by Dresdner Kleinwort on the back of expected order weakness
   
Publishers were all lower, with VNU off 0.27 pct at 29.51, Reed Elsevier slipping 0.6 pct at 11.67 and Wolters Kluwer falling 0.76 pct at 18.27
   
Numico shed 0.4 pct at 35.18

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FRANKFURT - Market data at 10.21 am

Major indices:
   
DAX 30 - 5,662.42, up 36.79 points or 0.65 pct
MDAX - 7,853.47, up 35.11 points or 0.45 pct
TecDAX - 657.67, up 3.88 points or 0.59 pct
DAX future - 5,691.50, up 33.50 points or 0.59 pct

Major gainers:
    
SAP, up 3.56 eur or 2.18 pct at 167.00, as Merrill Lynch reiterated its 'buy' rating for the issue and raised its price target to 230 eur from 200.
   
Hypo Real Estate, up 0.75 eur or 1.60 pct at 47.59 
   
Deutsche Boerse, up 1.68 eur or 1.58 pct at 108.24, as an article in the Sueddetusche Zeitung reported that the exchange was interested in creating an alliance with the Chicago Mercantile Exchange (CME).
   
Daimler Chrylser up 0.50 eur or 1.32 pct to 38.48, as chief executive Dieter Zetsche said he is open to joint production and technical developments with other carmakers, but cautioned that the benefits of such deals can take a long time to materialise, according to Boersen-Zeitung.   
   
Adidas, up 0.46 eur or 1.23 pct to 37.74
   
BMW, up 0.44 eur or 1.14 pct to 38.94, as Merrill Lynch reiterated its 'buy' rating and price target of 50 eur. 

Major losers:
   
Bayer, down 0.37 eur or 1.04 pct to 35.31
   
ThyssenKrupp, down 0.10 eur or 0.36 pct to 27.50
   
Fresenius Medical Care, down 0.19 eur or 0.21 pct to 88.85
   
Deutsche Telekom, down 0.01 eur or 0.08 pct to 12.53

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PARIS - Market data at 9.50 am:

Major indices:
   
CAC-40 up 25.17 points or 0.51 pct at 4,946.47
SBF-80 up 31.95 points or 0.57 pct at 5,678.60
SBF-120 up 19.42 points or 0.54 pct at 3,588.58

Volume: 349 mln eur
31 CAC-40 stocks up
7 CAC-40 stocks down
1 CAC-40 stock unchanged
(Arcelor temporarily suspended from CAC-40)

Major gainers:
   
Total, up 0.70 eur or 1.37 pct at 51.75, as the crisis over North Korea's missile launches put renewed upward pressure on oil prices.
   
Essilor, up 0.80 eur or 1.02 pct at 79.00
   
EADS, up 0.27 eur or 1.32 pct at 20.80, after posting the largest losses in the CAC-40 in the last two sessions.

Major losers:
   
Veolia Environnement, down 0.63 eur or 1.55 pct at 40.09, after Vivendi sold its remaining 5.3 pct stake.
   
Electricite de France, down 0.43 eur or 1.05 pct at 40.60
   
Lafarge, down 0.25 eur or 0.26 pct at 95.60

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