UK/Euro Financial Market Daily Morning Briefing 07-08-2006

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Leading shares opened lower this morning, with sentiment hit by a spike in oil prices, following a shutdown at BP's Alaskan operations and as the conflict in the Middle East raged, dealers said.

By 9.10 am, the FTSE 100 index was down 46.7 points at 5,843.3, while the broader indices were also under pressure.

Volume was below average, with 122 mln shares changing hands in 23,501 deals.

US stocks ended slightly lower on Friday night, with cautious investors dragging indices well below their opening highs, unwilling to trust that a benign monthly employment report was enough to keep the Fed from raising interest rates this week, traders said.

The Dow Jones Industrial Average closed down 2.24 at 11,240.35, a 104-point swing from its intraday high, while the Nasdaq fell 7.29 to 2,085.05.

Overnight in Asia, the Nikkei 225 index closed 345.12 points lower at 15,154.06, while the Hang Seng stood 20.65 points lower at 16,867.15 at midday. 

Oil prices jumped back above 76 usd per barrel in Asian trading, boosted by news that BP Exploration Alaska has cut daily oil output from its North Slope production site in half, following the discovery of severe corrosion in a Prudhoe Bay oil transit line.

BP said oil production will be reduced by 400,000 barrels a day, which is close to 8 pct of US oil production and comes at an already worrisome time for the oil industry in the middle of the hurricane season and amid instability in the Middle East, dealers noted.

September crude was up 1.25 usd a barrel at 76.01 on Nymex. In London, BP shares fell 12 pence to 624, while Royal Dutch Shell lost 12 pence to 1923 and BG eased 6-1/2 pence to 723-1/2.

Mining stocks also pulled back, with the sector ignoring firm commodity prices, as fears of an imminent strike at the Escondida copper mine in Chile heightened concerns over rising costs in the industry.

Workers are expected to down tools at Escondida at noon today after last-ditch pay talks collapsed over the weekend.

Kazakhmys fell 12 pence to 1232, Vedanta dropped 22 pence to 1273, Rio Tinto lost 47 pence to 2759.

Pure copper play Antofagasta was alone in welcoming a near 2 pct rise in copper prices, adding 2-1/4 pence to 425-3/4.

Also on the upside, ITV shares gained 0-1/4 pence to 102 ahead of the broadcaster's interim results on Wednesday, although the results are expected to overshadowed by any confirmation of CEO Charles Allen's future.

Newspaper reports suggest that the under-fire chief executive will offer his resignation at a crunch board meeting tomorrow, with his departure to be announced alongside the interim figures.

On the second line, Premier Foods added 0-3/4 pence to 316-3/4 after a pleasing set of interim results. 

The maker of Typhoo tea and Branston pickle saw first-half earnings more than double, boosted by the contribution from the acquisitions of Quorn and Cauldron.

In reaction, UBS repeated its 'buy' recommendation.

Morgan Sindall was also in favour, up 23 pence to 1100, as the market welcomed a record set of interim figures.

The construction group announced pretax profits growth of 17 pct in the half year to 30 June, with revenue up 9 pct to 674 mln stg.

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Reacting to the numbers, Altium Securities reiterated its 'buy' recommendation, praising the "strong" numbers.

Spirent was the top riser once again however, up another 1 pence to 38-3/4, amid rumours that US peer Agilent is busy building a stake.

On the downside, F&C Asset Management lost 5 pence to 186 as the market digested a set of "broadly in-line" interim results this morning which saw pretax losses widen.

In response to the results, Bridgewell Securities said the results were "broadly in line" with its expectations, but noted that despite good evidence of cost control, it sees continued pressure on the top line exacerbated by weaker equity markets.

On the economic front, the Fed's decision on interest rates will likely be the top economic story and market mover of the week, although Thursday's trade deficit data and Friday's retail sales for July should also be followed.

Back across the Atlantic, the Bank of England's projections for growth and inflation, due on Wednesday, will likely take centre stage this week and investors will be hoping that the new figures will help settle market nerves.

The central bank's first rate hike in two years last Thursday and decidedly hawkish accompanying statement spooked markets, and investors will be looking to the Monetary Policy Committee to clarify its thinking and justify why the hike was warranted.

UK Diary of Events

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

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Major indices:
CAC-40 down 49.95 points at 4,991.00
SBF-80 down 17.87 at 5,521.05
SBF-120 down 31.88 at 3,602.66

Volume: 472 mln eur
2 CAC-40 stocks up
37 CAC-40 stocks down
Arcelor has been removed from index following Mittal Steel takeover, no replacement yet.

Major gainers:
EDF, up 0.28 eur or 0.6 pct at 44.52 after the Financial Times Deutscheland reported that Germany's EnBW, in which EDF holds a 45 pct stake, plans to sell its waste disposal unit U-Plus Umweltservice. The stock had already surged 6 pct on Friday on hopes of government authorisation of a 1.7 pct tariff hike in France.

SES Global, up 0.33 or 3.2 pct at 10.62 after the satellite operator boosted its full year operating profit forecast as it reported an 18 pct rise in second quarter EBITDA to 272.3 mln eur.

Major losers:
Air France-KLM, down 0.05 at 19.68 after the airline announced a 4.9 pct rise in July passenger trafic.

Sanofi-Aventis, down 0.65 at 70.40 and adding to Friday's 2.9 pct slide on continued worries about the impact of an expected launch of generic Plavix in the US, which has also stoked investor concerns about the other generic threats facing major Sanofi drugs, dealers said.

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Market data at 10.10 am

MAJOR INDICES

AEX                450.99, down 4.81 points
AMX Midcap         572.53, down 5.48 points
Government bonds   Flat

MAJOR GAINERS

TomTom rose 0.77 pct to 28.80 eur
KPN added 0.21 pct to 9.40 eur
USG People rose 0.56 pct to 53.80 eur
Wereldhave gained 0.12 pct to 85 eur
       
MAJOR DECLINERS
Numico was down 1.66 pct to 36.84 eur following a downgrade to 'hold' from
'buy' at ABN Amro

Ten Cate was down 4.91 pct to 20.91 eur following first half-year earnings

Unilever dropped 1.87 pct to 17.88 eur
Philips was down 1.34 pct to 25.80 eur
Fortis lost 1.62 pct to 28 eur
Pharming dropped 3.06 pct to 3.49 eur

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German shares market data at 10.20 am

Major indices:

DAX 30 - 5,660.26, down 62.07 points or 1.09 pct
MDAX - 7,921.84, down 60.61 points or 0.76 pct
TecDAX - 638.93, down 5.14 points or 0.80 pct
DAX future - 5,677.5, down 59.50 points or 1.00 pct

Major risers/outperformers:

Altana, up 0.12 eur, or 0.27 pct, at 45.19, after Wirtschaftswoche
reported that the pharmaceuticals and chemicals hybrid wants to conclude talks
with potential buyers of its pharma operations and receive bids by mid-
September, indicating that the planned divestment process is picking up
its pace

TUI, down 0.02 eur, or 0.13 pct, at 15.60
Henkel, down 0.15 eur, or 0.16 pct, at 95.65
Lufthansa, down 0.03 eur, or 0.20 pct, at 14.78
Deutsche Boerse, down 0.72 eur, or 0.64 pct, at 110.91
   
Major fallers:

Continental AG, down 1.80 eur, or 2.30 pct, at 76.39
FMC, down 1.87 eur, or 1.94 pct, at 94.41
E.ON, down 1.71 eur, or 1.77 pct, at 94.74, as the the Daily Telegraph
reported that the European Commission has fired off a letter to the Spanish
government giving it "five working days" to halt its opposition to E.ON's
takeover bid for Endesa.

MAN, down 1.00 eur, or 1.73 pct, at 56.60
Siemens, down 0.93 eur, or 1.47 pct, at 62.47

Forex:

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