UK/Euro Financial Market Daily Morning Briefing 07-02-2006

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London shares weak at open, as BP disappointment offsets good Aviva figs

The FTSE 100 edged lower in early deals, hit by weaker-than-expected earnings from BP,  though M&A excitement in the telecom sector together with strong results from Aviva helped provide some support,
traders said.
   
At 9.00 am, the FTSE 100 was down 0.8 at 5,771.8, having closed up 13.1
points yesterday at 5,772.4. The broader indices were higher.
   
Volume was solid, with 399 mln shares changing hands in 28,175 deals.
   
In New York last night, the major indices ended the session mixed, with the
DJIA rising 4.65 points to 10,798.27, the S&P 500 up 0.99 at 1,265.02, while the
Nasdaq Composite fell 3.78 points to 2,258.80.
   
On the downside, political tensions heightened in the Middle East, pushing
crude prices higher. On the upside meanwhile, Alcoa shares rose to an 11-month
high after JP Morgan said the company's earnings will benefit from surging
aluminium prices and upgraded the stock to 'overweight'.
   
After the closing bell Walt Disney shares rose on the back of better than
expected earnings in the fourth quarter.
   
General Motors stock was also higher after the company gave its biggest
shareholder a voice on its board of directors. Jerry York, who works closely
with Kirk Kerkorian at the billionaire investor's Tracinda Corp, will hold a
seat on the board.
   
In Asia, the Hang Seng index closed the morning down 68.68 points at
15,479.38, while the Nikkei 225 ended the day down 26 points at 16,720.99.
   
Back in London, BP shares fell 17 pence to 648-1/2 after the oil giant
reported a disappointing set of fourth-quarter earnings. Clean earnings for the
quarter at 4.895 bln usd were well below the forecast range of 5.4-6.0 bln usd.
   
"The main miss appears to be in refining and marketing," said a dealer at a
major US brokerage.

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"And the reserve replacement ratio at 100 pct is also disappointing. We had
been looking for a ratio of 110 pct."
   
Oil prices pulled back this morning, with March-dated Brent futures trading
down 0.32 usd at 64.79 usd a barrel.
   
Retail stocks were also under pressure as a leading retail lobby group
warned that the sharp pick-up in UK retail sales over Christmas came to an
abrupt halt during January.
   
In its monthly survey, the British Retail Consortium said like-for-like
sales increased by only 0.2 pct from January 2005 against expectations of a 1.5
pct improvement.
   
January's modest increase represents a sharp slowdown from the equivalent
2.6 pct rise recorded in December, and equates to the weakest start to the year
since the survey began in 1995.
   
Next fell 23 pence to 1,685, DSG International lost 2-1/52 pence to 173-1/4
and GUS was off 7-1/2 pence at 1,059.
   
Aerospace and defence stocks suffered, with Rolls Royce down 3 at 440-1/4
and Smiths Group dropped 12 to 956-1/2.   
   
Last night, the White House requested almost 440 bln usd for the Pentagon's
budget next year, almost 10 pct above the 2005 level. However, the Financial
Times reported today that The White House has cancelled an alternate engine for
the 240 bln usd Joint Strike Fighter that would have been built, in part, by
Rolls Royce.
    
Meanwhile, UBS downgraded Smiths Group to 'reduce' from 'neutral', cutting
its target price to 900 pence from 1,070.
   
The rating cut is based on significant concerns over the performance of
Smiths' Aerospace division and continuing worries over the strategic direction
of the Medical division, explained UBS.
   
Compass Group was another casualty this morning after the Daily Telegraph
reported hopes that the catering company had put its involvement in a United
Nations procurement scandal behind it have been shattered by the US House of
Representatives, which has refused to accept the findings of the company's own
internal investigation into the matter.
   
Compass fell 2 pence to 219-3/4.
   
On a more positive note, Aviva gained 15-1/2 pence to 743 after the UK's
biggest insurer posted solid full-year sales, buoyed by a continued strong
performance in continental Europe, and signs of faster growth in its domestic
market.

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In response, Merrill Lynch reiterated its 'buy' advice and said the UK sales
performance was at the top of expectations.
   
Amvescap, which reports full year results at midday, gained 6-3/4 pence to
514-1/4.
   
Meanwhile, shares in Yell Group rose 3-1/2 pence to 545-1/4 after the UK
directories group reported solid third-quarter results and said it was on track
to meet full-year expectations.
   
In response, Merrill Lynch reiterated its 'buy' advice and raised its price
objective to 605 pence. Merrill said the Yell investment case remains compelling
as the company remains one of the highest quality organic growth stories in the
sector, yet trades on an undemanding valuation.
   
Peer Prudential was up 6 pence at 573.
   
Telecom stocks were buoyed by ongoing sector consolidation hopes, with Cable
& Wireless up 1 at 102-1/4, BT up 1-3/4 at 209 and Vodafone up 1 at 117.
   
Portugal Telecom jumped 20 pct this morning after Sonae launched an
audacious 10.7 bln eur bid for the group at 9.50 eur per share, 16 pct above
PT's closing price last night and valuing the target at more than four times
Sonae's own market capitalisation.
   
WestLB noted that Sonae's offer is the equivalent of C&W bidding for BT, or
Arcor bidding for Deutsche Telecom, except that Sonae, in addition to being the
key competitor to PT is also a large conglomerate with enough fire power to pull
it off.
    
The Guardian reported speculation that C&W is being targeted by Orascom,
the Egyptian telecoms business that owns Italian mobile phone operator Wind.
   
Mining stocks were another positive feature after Anglo American said it is
to spend 6.1 bln usd expanding platinum mines in South Africa. Traders noted
Anglo is bullish on metal prices going forward and has said that all the
indications are that the current cycle is going to be in place for a lot longer
than people estimate.
   
Anglo rose 7 to 2,155 , Xstrata was up 20 pence at 1,621 and Rio Tinto
gained 31 to 2,924.

On the second line, Corus moved up 1 at 74-3/4 after US Steel rallied 6 pct
last night amid speculation that Arcelor may launch a takeover bid. Arcelor is
attempting to thwart a hostile bid from Mittal Steel for the Luxembourg-based
steel group.
   
Among the midcap fallers, easyJet lost 5 pence to 377 as January traffic
figures disappointment. Passenger numbers rose 11.2 pct versus the consensus
forecast of 13 pct.
   
Finally, Computacenter fell 9-1/4 pence to 278-3/4 as Deutsche Bank
downgraded the stock to 'hold' from 'buy' at Deutsche Bank on valuation grounds.

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Diary of Events

For a look at key financial events in the UK today, click here

US Summary

For a summary of US stocks at the close of trade, click here

Paris

Paris shares at a glance outlook

Shares are expected to open higher, following modest gains on
Wall Street overnight, dealers said.
   
On Monday the CAC-40 closed down 0.06 pct or 2.97 eur at 4,934.59
Among CAC-40 stocks 19 closed lower and 21 closed up.Volume for the day was 4.41 bln eur
   
On the Matif, CAC-40 futures were trading 12.5 points higher at 4,950.0
   

TODAY
   
Avenir Telecom Q2 sales
   
Nexity Q4 sales
   
Publicis FY sales, after close
   
December budget data, 8.45 am

   
TOMORROW
   
Pages Jaunes FY results, before open
   
Peugeot FY results, before open
   
Lagardere Q4 sales, after close; board meeting

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German shares at a glance outlook

German shares are seen opening modestly higher after the
DJIA closed up 0.04 pct yesterday and merger speculation pushes steel issues up, dealers said.
   
Brokerage Lang & Schwarz said the DAX 30 index is expected to open at about 5,679.00, up from Monday's close of 5,666.78.

   
FORTHCOMING EVENTS

   
TODAY
   

O2 Germany press conference on CeBIT 2006 preview in Hamburg (9.00 am)
   

Banking World 2006 conference in Frankfurt (day 2)

   
TOMORROW
   

Banking World 2006 workshops in Frankfurt
  
First day of 2-day Symposium on Sparkassen savings banks and state-owned
Landesbanken; Bundesbank board member Edgar Meister, DekaBank CEO Franz Waas,
BayernLB CEO Werner Schmidt, HSH Nordbank CEO Alexander Stuhlmann et al to speak
   
Allianz EGM to finalise merger with RAS
   

Douglas Q1
   
German Dec, FY current account/trade (0700)
   
German Jan crude steel output (0700)
   
Bundesbank board member Edgar Meister to speak on banking supervision,
Berlin (0845)

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