UK/Euro Financial Market Daily Morning Briefing 07-09-2006

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London shares weak in early deals after NY, Asia falls; UK rate decision

UK blue chips dropped back in early deals, extending yesterday's sharp falls after weakness in New York overnight and in Asia today, with nervousness also seen ahead of today's UK interest rate decision although no change is expected this month, dealers said.
   
At 9.15 am, the FTSE 100 index was 44.3 points lower at 5,885.0 All the broader FTSE indices were also weaker, with the FTSE 250 index down sharply, off 81.4 points at 9,619.5. Early volume was fair, with 264.6 mln shares changing hands in 38,617 deals.
   
Overnight on Wall street, Wall Street closed sharply lower after a series of economic reports left investors questioning whether the Federal Reserve might resume its string of interest rate hikes when it meets later this month.
   
The DJIA closed 63.08 points lower at 11,406.20, while the Nasdaq composite index dropped 37.86 points to 2,167.84, in part as Intel Corp declined following a widely expected announcement of job cuts.
   
After-hours in the US, shares of Palm fell back after it warned of lower-than-expected revenue in the first quarter due to a decline in retail shipments of its Treo smart phones.
   
Today in Asia, the Nikkei 225 index closed 271.68 points lower at 16,012.41, while the Hang Seng ended its morning session 124.99 points weaker at 17,133.52.
   
Meanwhile oil prices were little changed in Asian trade, with the tone easier as the market takes a more relaxed view on the Iran nuclear stand-off and overall Middle East issues, dealers said.
   
New York's main contract, light sweet crude for October delivery, was down 3 cents at 67.47 usd a barrel from 67.50 usd in late US trade. Brent North Sea crude for October was up 4 cents at 66.97 usd.
   
In London, the main focus today will be on the UK interest rate decision, due at midday, although the Bank of England Monetary Policy Committee is expected to vote to keep the key repo rate unchanged at 4.75 pct, following last month's surprise rate hike.
   
On the corporate front, BAE Systems was a notable feature, down 6-1/2 pence to 371 after the defence group last night advised its shareholders to back the sale of it's 20 pct stake in Airbus to EADS for 2.75 bln eur.
   
"It (BAE) considers that the proposed disposal is in the best interest of the company and its shareholders as a whole," BAE said in a statement which noted that Airbus was "facing a challenging short to medium-term outlook, in particular with respect to certain of its principal programmes."

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In July, an independent assessment by investment bank Rothschild put the value of the holding at 2.75 bln eur, far less than the company's own estimate.
   
Plumbing firm Wolseley was the top blue chip faller, however, in early deals, shedding 26 pence at 1,124 knocked back by worries over the US housing market after KB Homes last night cut its EPS forecasts.
   
The US home builder now expects an earnings decline and third-quarter profit below Wall Street targets. The US housing worries also impacted construction products blue chip Hanson, down 6-1/4 pence to 661.
   
Elsewhere, fund management firms ran in to profit-taking in reaction to the retreat by equity markets, with Amvescap losing 10 pence 524, while Old Mutual lost 3 pence at 163, and Man Group shed 4-1/2 pence at 431-1/2 unable to be buoyed by an ending of succession issues at the firm.
   
The hedge fund manager today announced that its finance director, Peter Clarke, will replace chief executive Stanley Fink on April 1 next year.
   
Fink, who has led the company since 2000, will become non-executive deputy chairman, and a new finance director will be appointed "in due course."
   
Schroders also suffered from the sector malaise, losing 10 pence at 911 with the fund manager also knocked by confirmation last night that it is to be demoted to the FTSE 250 index later this month.
   
Rentokil Initial, down 1-1/4 pence at 150 will also lose its blue chip status as a results of yesterday's FTSE indices quarterly review, with insurers Standard Life and Resolution to be promoted to the top flight although neither shares showed an benefit today. 
   
And mobile telecom heavyweight Vodafone was also a blue chip faller, down 1-1/2 pence to 112-3/4 after Lehman cut its stance to 'equal-weight' from 'overweight' with a reduced target of 135 pence, down from 155 pence.
   
As part of a sector note entitled 'Telecom Services - Dividends coming under pressure', the US-owned broker argued that it has been cautious on mobile fundamentals since last October and feels that ongoing competition in core European markets points to further significant tariff cuts.
   
There were only a handful of FTSE 100 risers early on but Yell Group easily stood out, jumping over 7.4 pct in value with a 39-1/2 pence leap to 572-1/2 after the UK's competition regulator this morning loosened price controls on directories publisher.
   
The Competition Commission said that Yell will be allowed to raise the price of advertising in its directories in line with inflation from April 2008.
   
Also on the upside, shares in Scottish & Southern Energy added 4 pence at 1,219 after being upgraded to 'buy' from 'hold' due to benefits from generation and supply by Citigroup.

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And supermarket blue chips pushed higher as the sector cheered strong results from European peers Carrefour and Ahold - Tesco gained 2-1/4 pence at 373-1/4, Sainsbury added 0-1/4 pence at 3567, and Wm. Morrison firmed 0-3/4 pence to 220-3/4.
   
Tesco also benefited from the launch of its Tesco Direct catalogue business, which goes live today.
   
On the second, Tomkins was the main casualty, shedding 32 pence at 251, an 11 pct drop in value after the engineering and manufacturing group warned that its underlying profits will be lower than expected for the third quarter due to poor trading in July and August.
   
In response, Goldman Sachs pointed out that, due to cost savings and new contracts, Tomkins had indicated at the second quarter results that second half profits should be substantially above those in the first half.
     
Fellow engineers suffered in sympathy, with GKN losing 8-1/2 pence to 292-1/4, Laird Group down 17 pence to 393, and FKI off 4 pence at 93.
   
Also on the downside with mid caps, results disappointments weighed on Abbott Group, down 13-1/4 pence at 283-1/4, Premier Farnell, off 8 pence at 188-1/4, and Spirax-Sarco, down 25 pence at 905.
   
easyJet, meanwhile lost 9-1/2 pence at 457-1/2 after its latest traffic figures failed to inspire.
   
Topping the mid cap risers board, however, were Soco International shares, up 21 pence to 1,350 after the oil explorer saw its profit jump 72 pct in the first half, propelled by sky-high oil prices and increased volumes.
   
And Cable & Wireless shares gained 0-1/2 pence at 565 as investors welcomed news of the disposal of its Bulldog broadband database to small cap Pipex for 12 mln stg.
   
On the economics front, the latest NIESR UK GDP forecasts were released overnight.
   
The think-tank concluded that the UK economy is expected to have expanded by 0.8 pct in the three months to August compared with the previous three months, making another UK rate increase likely over the coming months. The UK economy grew by 0.8 pct in the second quarter and by 0.7 pct in the first.

UK Diary of Events

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

US Summary

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

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PARIS - Market data at 10.10 am:

Major indices:
   
CAC-40 down 44.24 at 5,071.28
SBF-80 down 37.94 at 5,735.61
SBF-120 down 31.90 at 3,668.30

Volume: 1.0 bln eur
4 CAC-40 stocks up
35 CAC-40 stocks down

Major gainers:
   
Carrefour up 0.50 or 1.05 pct at 48.05 EBIT at high end of analyst range
   
PPR up 0.70 or 0.65 pct at 108.70, H1 EBIT beats consensus, luxury ops surge
   
Vivendi up 0.12 or 0.44 pct at 27.17
   
Sanofi-Aventis up 0.15 or 0.22 pct at 68.85
   
Iliad up 1.20 or 1.92 pct at 63.85  H1 net jumps 143 pct

Major losers:
   
LVMH Moet Hennessy Louis Vuitton down 2.75 or 3.42 pct at 77.65, H1 EBIT misses consensus
   
Essilor International down 1.75 or 2.17 pct at 79.00 financial charges widen in H1
   
EADS down 0.41 or 1.80 pct at 22.38

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FRANKFURT - Market data at 9.56 am

Major indices:
   
DAX 30 - 5,777.13, down 35.93 points or 0.62 pct
MDAX - 8,123.53, down 68.23 points or 0.83 pct
TecDAX - 637.64, down 5.61 points or 0.87 pct
DAX future - 5,782.50, down 23.50 points or 0.40 pct

Major gainers:
   
Bayer, up 0.16 eur or 0.42 pct at 38.06, as it late yesterday afternoon said new studies show its top-selling drug Avelox (moxifloxacin) taken alone is as effective for hospitalised patients with community-acquired pneumonia as the combination of treatments ceftriaxone and levofloxacin
   
Henkel, up 0.25 eur or 0.25 pct at 98.54
   
Munich Re, up 0.23 eur or 0.20 pct at 115.94
   
Schering, up 0.15 eur or 0.17 pct at 90.75
   
Lufthansa, up 0.01 eur or 0.06 pct at 15.47

Major losers:
   
MAN, down 1.18 eur or 1.93 pct at 60.08, falling after recent gains
   
Continental AG, down 1.43 eur or 1.75 pct at 80.38
   
DaimlerChrysler, down 0.46 eur or 1.13 pct at 40.13, after its Chrysler unit said overnight it was recalling about 145,000 2006 Dodge Ram 1500 pickups to replace the passenger air bag pack and reprogram the air bag's computer system, though dealers said this was unlikely to affect full-year 2006 earnings    

ThyssenKrupp, down 0.28 eur or 1.05 pct at 26.46
   
Fresenius Medical Care, down 1.05 eur or 1.04 pct at 99.70

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