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

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Leading shares edged higher at opening, bouncing back from yesterday's lows, as growing confidence the US will keep rates on hold and a rally in miners offset ongoing jitters over the high oil price, dealers said.

At 9.05 am, the FTSE 100 was 14.4 points firmer at 5,843.2, with the broader indices all positive.

US stocks ended the session lower as crude prices surged over 2 usd to 76.98 usd on supply fears after BP shut a key oil field in Alaska for repairs.

The news added to ongoing investor caution ahead of the Federal Reserve's interest rate decision today.

The DJIA fell 20.97 to 11,219.38, The S&P eased 3.59 to 1,275.77 and the Nasdaq was off 12.55 to 2,072.50.

And today, all eyes will be on the rate decision with most pundits expecting the FOMC to keep the price of borrowing unchanged at 5.25 pct following data pointing to soft jobs growth.

But the mood was more upbeat in Asia, with the Nikkei 225 closing 310.60 points higher at 15,464.66, while the Hang Seng was 61.66 better at 17,015.21 by midday.

Back in London, miners helped to fuel blue chip gains amid supply fears after BHP Billiton reportedly declared a force majeure on delivery of copper from its Escondida mine in Chile.

Workers at the world's biggest copper mine, which accounts for about 8 pct of the world's copper output, downed tools yesterday in a dispute over wages.

In response, Vedanta took on 16 pence at 1,273, Kazakhmys gained 14 pence at 1,237, Antofagasta firmed 4-1/4 pence at 425-1/4 and BHP rose 8 pence to 1,011.

In earnings, Friend Provident reversed initial losses to trade 1 pence higher at 182 as lower than expected interim profits at the insurer were offset by good news on sales volumes and margins.

This morning, the group said underlying interim pretax profit came in at 247 mln stg on a European Embedded Value basis, down 9 pct on the same period last year, and below the consensus analyst forecast of 253 mln stg.

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But in response, Merrill Lynch said on the whole the results were "mildly positive" as it reiterated its 'neutral' stance and raised its fair value to 192 pence from 187.

Other insurers gained in sympathy, with Prudential up 7 pence at 568, Royal & SunAlliance 1-1/2 higher at 135-3/4,and Aviva 7-1/2 better at 733-1/2. 
 
Still in financials, Standard Chartered took on 16 at 1,326, ahead of results this morning, with the emerging markets bank expected to deliver a 11.5 pct increase in interim profits, lifted by strong income growth in its Asian markets.

Elsewhere, sector consolidation hopes boosted steel group Corus, up 4-1/4 at 396, after German peer Salzgitter said it will sell its 17 pct stake in France's Vallourec to increase flexibility for "forthcoming opportunities".

And ITV was also courted, 1 pence higher at 102-1/2, with Charles Allen, chief executive of the troubled broadcaster, announcing he will step down.

But on the downside, BP was still reeling from news it had shut down a major oil field in Alaska for repairs -- down a further 1 at 621-1/2.  Late last night, the group said it could take months to replace 16 miles of pipeline at its Prudhoe Bay oil field in Alaska, further hitting the already dented reputation of the group and increasing global supply fears.

But Scottish & Newcastle lead the blue chip fallers, down 11-1/2 at 521, after the UK's biggest brewer posted first-half results that topped expectations but offered little reason to buy into the stock.

S&N announced pre-exceptional pretax profits of 120 mln stg versus 113 mln in the previous year, on sales up 2.5 pct year-on-year at 1.61 bln stg.

In response, Deutsche Bank reiterated its 'hold' rating, saying the results were marginally ahead of its forecasts, although the broker's estimates had been at the low end of consensus.

And still on the downside, GUS slipped after Morgan Stanley cuts its price target on the retailer and credit checking group to 985 pence from 1,045 following demerger plans.

On the second line, broker comment helped to drive sentiment with Dana Petroleum up 53-1/2 at 1273-1/2 after the oil explorer was initiated 'overweight' by Morgan Stanley with a 1,560 pence target, dealers said.

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The US broker told clients Dana has the greatest leverage to exploration among its peers and its mix of international and UK prospects provides a balanced risk profile.

Like-wise, peer Venture Production took on 25-1/2 at 835 after UBS initiated the group with a 'buy' and 1,010 pence price target.

The broker said E&P stocks are the most geared play to oil and gas prices, and added the sector is in aggregate discounting 43 usd per barrel in the long term.

The same broker provided a fillip to Rank, 6 to the good at 198, after it upgraded the stock to 'buy' from 'neutral' on expectations of reduced overheads and future prospects at the leisure group.

And Cable & Wireless firmed 4-1/2 to 121-3/4 as Citigroup lifted its stance on the telecoms group to 'buy' from 'hold', with a raised target of 160 pence from 110. 

Meanwhile, M&A hopes continued to underpin Morgan Crucible after the engineering group confirmed just before the close yesterday it was the target of a bid approach, but did not name its suitor.

This morning, The Times thinks a US trade bidder is possible, while The Guardian says France's Saint Gobain could be interested. 

In reaction, Bridgewell retained its 'overweight' recommendation and said  the group's strong balance sheet and potential margin upside suggest a generous exit price, maybe up to 400 pence.

On the downside, iSOFT fell 2-1/2 at 57 as the troubled healthcare software supplier suspended its commercial director after an initial investigation found evidence of accounting irregularities in the 2004 and 2005 financial years.

In response, Panmure Gordon reiterated its 'sell' stance with a target of 40 pence, dealers said.

But Topps Tiles was the worst performing midcap, off 6-1/2 at 249 after Dresdner Kleinwort cut its stance on the retailer to 'add' from 'buy' on valuation.

In a research note published this morning, the German-owned broker said it has softened its stance on the tile retailer as the share price strength means the stock now trades within 5 pct of the broker's target price. 

US Summary Report

For a summary of yesterday's trading in new york, click here

Diary of Events

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Major indices:

CAC-40 up 19.27 points at 4,975.61, recovering from yesterday's broad sell-off.
SBF-80 up 6.69 at 5,510.36
SBF-120 up 12.12 at 3,591.02

Volume: 464 mln eur
27 CAC-40 stocks up
11 CAC-40 stocks down
1 CAC-40 stock unchanged
Arcelor has been removed from index following Mittal Steel takeover, no replacement yet.

Major gainers:

Bouygues, up 0.53 eur or 1.4 pct at 39.12 and leading gains among blue chips, after France's telecoms regulator reported that its Bouygues Telecom mobile unit won 190,000 new clients in the second quarter, far outpacing its rivals France Telecom (+87,000) and Vivendi's SFR (+68,000), analysts said.

Schneider Electric, up 0.80 at 82.05 and benefiting from a positive analyst note from CIC Securities, which estimates the stock is still underrated even after the increases seen in the wake of a solid first half earnings report in July.

Major losers:

Vallourec, down 7.30 or 4.4 pct at 157.2 after Salzgitter announced it is selling off its entire 17 pct stake in the French steel tubes maker for around 1.5 bln eur, dealers said.

L'Oreal, down 0.75 at 78.15

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Major indices:

DAX 30 - 5,662.56, up 35.89 points or 0.64 pct
MDAX - 7,933.87, up 41.27 points or 0.52 pct
TecDAX - 638.63, up 2.57 points or 0.40 pct
DAX future - 5,683.00, up 21.50 points or 0.38 pct

Major risers:

Hypo Real Estate, up 1.37 eur, or 3.10 pct, at 45.62, ahead of tomorrow's Q2 figures

ThyssenKrupp, up 0.43 eur, or 1.56 pct, at 28.08, amid sector consolidation

FMC, up 1.07 eur, or 1.13 pct, at 95.40, as ING upgraded its rating on the stock to 'buy' from 'hold' with a 113 eur price target

MAN, up 0.59 eur, or 1.05 pct, at 56.67

Allianz, up 1.28 eur, or 1.02 pct, at 127.08

Major fallers:

Infineon, down 0.13 eur, or 1.54 pct, at 8.29

Altana, down 0.16 eur, or 0.36 pct, at 44.91 

Metro, down 0.14 eur, or 0.31 pct, at 44.71

Schering, down 0.09 eur, or 0.10 pct, at 90.40

Deutsche Post, down 0.02 eur or 0.11 pct at 18.90   

Other movers:

Salzgitter, up 3.07 eur, or 4.94 pct, at 65.18, as the market welcomed the timing of its move to sell its entire 17 pct stake in French steel tube manufacturer Vallourec for around 1.5 bln eur and as the sale sparked expectations of a dividend hike and further share buybacks

Hannover Re, up 0.38 eur, or 1.37 pct, at 28.14, after reporting consensus-beating second quarter results, which prompted HVB to reiterate its 'outperform' rating and 32 eur price target    

Fraport, down 0.46 eur, or 0.80 pct, at 57.04, after investors reacted with caution to the airport operator's warning that passenger growth at its Frankfurt hub would be lower than the 2 pct given in prior guidance, prompting mixed broker reaction

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Shares are expected to open flat to slightly higher as investors await US interest rate decision expected later today, with most believing rates will remain unchanged, dealers said.

Yesterday, the AEX closed down 4.71 points or 1.03 pct to 450.54.

TODAY'S PRESS

Vietnam's Incombank files civil lawsuit against ABN Amro accused of speculative foreign currency trading (FT)

ABN Amro, ING Bank, Postbank, Fortis up base tarifs for businesses, making it more expensive for cos to be in red or take a loan (Het Financieele Dagblad).

COMPANY NEWS

Akzo Nobel forms new 50/50 jv w China's Feixiang Chemicals

Heineken sells Spanish brewery site, to take 329 mln eur pretax book gain in H2

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