UK/Euro Financial Market Daily Morning Briefing 09-11-2006

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London shares slip back in early deals, BT, RSA disappoint, BoE eyed

Leading shares eased back in early deals, swiftly giving up opening gains, as investors grappled with disappointing earnings statements from BT and Royal & Sun Alliance and nervously awaited what looks like being a near-certain rate rise by the BoE at lunchtime, dealers said.

By 9.15 am, the FTSE 100 index was down 3.9 points at 6,235.1, after climbing to a fresh 5-1/2 year high of 6,250.4 in opening trades.

The broader indices were higher, although well below early levels, while volume was moderate, with 293 mln shares changing hands in 36,149.

Wall Street rose for a third straight session last night, with the DJIA reaching another record close as investors grew more confident that a huge victory by Democrats in congressional elections would result in gridlock and keep lawmakers out of the way of business interests, traders noted.

The Democrats have reportedly gained control of the Senate after Jim Webb was said it have won the state of Virginia overnight with victory over Republican incumbent George Allen.

The DJIA ended up 19.77 points at a record close of 12,176.54, while the Nasdaq finished 9.06 points higher at 2,384.94, just below a six-year peak.

Across Asia overnight, the Nikkei 225 index closed 17.17 points lower at 16,198.57, while the Hang Seng was up 121.10 points at 18,932.34.

The UK earnings season rumbled on today, with another raft of companies posting results, although it will undoubtedly be the BoE's interest rate announcement at midday which remains at the forefront of traders' minds.

The Bank of England is poised to raise the borrowing rate by a quarter point to 5.00 pct, its highest level for over five years.

BT Group stood out with an early fall of 6-1/2 pence to 287-1/4, after the telecom giant warned that intensifying competition has begun to erode its position in the UK's fast-growing broadband market.

BT said its Retail unit grabbed a 25 pct share of new UK broadband subscribers in the three months to the end of September, down sharply from the 30 pct portion it claimed in the previous quarter and a more marked fall than analysts had expected.

On the second-quarter results, the broker said group revenues of 4.94 bln stg beat its expectations, while overall EPS excluding leavers of 6.0 pence came in 11 pct ahead of its forecast, mainly due to a lower-than-expected depreciation charge.

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Remaining on the downside, pharmaceutical shares were under pressure again today, hit by concerns over the Democrats near certain control of the US Senate and their plans for the US drug industry.

California Rep Nancy Pelosi, who is in line to become speaker, has promised legislation that would allow the government to negotiate directly with drug companies to purchase medicines for Medicare, a process the drug industry equates to price controls, according to market commentators.

AstraZeneca shares fell 66 pence to 3,096, while GlaxoSmithkline lost 19 pence to 1,385.

Back with earnings news, Royal & Sun Alliance shares fell 2-1/4 pence at 151-1/4, after the insurer posted a slightly disappointing set of third quarter numbers.

The group said that its operating profit for the nine months to end-September rose 21 pct to 590 mln stg from 488 mln in the same period of 2005, although was marginally below analysts expectations.

The broker noted that the performance at the underwriting level was a little light as weather and large loss experience turned out worse than expected.

The news knocked the sector lower, with Standard Life easing 2-3/4 pence to 289-1/2, Aviva off 6 pence to 784 and Legal & General down 0-3/4 pence to 148.

The mining sector was also under pressure, giving up some of its recent gains, with commodity prices pulling back slightly overnight and encouraging investors to take some profits.

Xstrata eased 28 pence to 2,371, while Rio Tinto fell 37 pence to 2,953, BHP Billiton gave up 9 pence to 1,038 and Kazakhmys dropped 12 pence to 1,230.

On a more positive note, Scottish Power shares topped the blue-chip risers once again this morning amid heightened speculation as to the identity of the energy group's suitor, with Spanish utility Iberdrola the name bandied about today.

Scottish Power shares were up 25 pence to 755, nearing the rumoured 800 pence a share bid price.

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Scottish & Southern Energy meanwhile, added 27 pence to 1,437, while International Power added 4-1/4 pence at 348-1/2 after robust third quarter results.

The Energy generator said it expects strong growth for the full year after posting a 66 pct rise in operating profit for the first nine months of the year to 564 mln stg.

The company announced that pretax profits rose to 426 mln stg from 258 mln stg last year, on group revenues of 1.85 bln stg from 1.3 bln stg.

SABMiller shares were also higher after results, up 9 pnce at 1066.

Reporting its results for the six months to end-September, the international brewer said profit before tax climbed 22 pct to 1.38 bln usd on revenues up 33 pct to 9.3 bln usd.

In response, JP Morgan said the numbers were slightly above market expectations with headline EBITA of 1.78 bln usd around 2 pct above consensus and the broker's flagged 1.765 bln.

3i Group also posted a pleasing set of interim results, with a net asset value of 792 pence near the top end of market expectations an d a bullish outlook.

The private equity and venture capital firm said its total return for the first half rose 9.3 pct to 374 mln stg.

In response, Merrill Lynch repeated its 'buy' recommendation and told clients that while it is unlikely to make material changes to numbers, it regards these results as constructive and the outlook statement encouraging.

On the second line, Invensys jumped nearly 9 pct in early deals, up 21 pence at 259, after the engineering group reported a move to profit in the first half from the previous year's losses.

Across the Atlantic, import prices are seen falling in October by 1.1 pct after falling by 2.1 pct in the prior month, while the US international trade deficit is expected to narrow in September to 66.1 bln usd from 69.9 bln usd in the previous month.

Consumer sentiment, as measured by the University of Michigan, is expected to rise slightly in early November to 93.7 from 93.6 in late October.

Wholesale inventories meanwhile, are expected to have risen 0.6 pct in September, after having risen 1.1 pct in August.

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PARIS - Market data at 9.20 am:

Major indices:

CAC-40 up 3.66 points or 0.07 pct at 5,440.82
SBF-80 up 24.37 points or 0.38 pct at 6,460.93
SBF-120 up 4.76 points or 0.12 pct at 3,962.01

Volume: 218 mln eur

23 CAC-40 stocks up
15 CAC-40 stocks down
2 CAC-40 stocks unchanged

Major gainers:

-Alcatel, up 0.12 eur or 1.16 pct at 10.44

-ST Microelectronics, up 0.08 eur or 0.58 pct at 13.88

-EADS, up 0.20 eur or 0.94 pct at 21.53

Major losers:

-Societe Generale, down 1.44 eur or 1.90 pct at 130.0, following mixed third
quarter results.

-Air Liquide, down 1.10 eur or 0.58 pct at 172.00 eur

-Cap Gemini, down 0.24 eur or 0.51 pct at 46.57 eur

Most active stocks:

-Societe Generale, 27.98 mln eur

-Total, 25.30 mln eur, up 0.30 eur or 0.64 pct at 55.20 eur

-Alcatel, 23.59 mln eur

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German shares market data at 9.18 am

Major indices:

DAX up 0.10 pct or 6.27 points at 6,355.53
MDAX up 0.09 pct or 8.23 at 8,839.23
TecDAX up 0.21 pct or 1.64 at 704.25
Euro/dollar - 1.2782 usd up .00026

Top DAX risers:

-Siemens AG up 2.03 pct or 1.46 at 73.28, third quarter results beat analysts'
expectations

-Deutsche Boerse up 0.84 pct or 1.07 at 127.80

-RWE up 0.70 pct or 0.54 at 78.13, raises its net guidance for the year, 9-mths
operating profit up 15 pct

-Commerzbank up 0.28 pct or 0.08 at 28.81

-Infineon Technologies up 0.31 pct or 0.03 at 9.57

Top DAX fallers:

-Adidas down 7.51 pct or 3.08 at 37.92, downgraded to 'hold' by WestLB 

-Man AG down 0.52 pct or 0.38 at 72.62, reaction to lower-than-expected pretax
gains in third quarter

-Volkswagen down 0.44 pct or 0.35 at 79.65, continued investor unrest following
surprise step-down of CEO

-Deutsche Lufthansa down 0.38 pct or 0.07 at 18.47,

-Deutsche Telekom down 0.45 pct or 0.06 at 13.39, profit taking after period of
continued strength

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Amsterdam shares market data at 9.51 am

MAJOR INDICES:

AEX 498.13, up 0.62 points
AMX Midcap 635.29, up 2.08 points  
Government bonds   flat to higher

MAJOR GAINERS:

-Numico led gainers, adding 5.05 pct to 38.29 eur, after reporting in-line third quarter earnings

-Getronics added 3.04 pct to 6.11 eur after yesterday's strong results from software and IT services market peer Cisco

-Heineken gained 1.97 pct to 37.26 eur after better-than-expected earnings from market peer InBev

-Corio added 1.07 pct to 56.80 eur

-Heijmans put on 0.47 pct to 40.29 eur following news of a takeover

-Local issue Endemol gained 0.92 pct to 15.42 eur after a strong trading update

-Wolters Kluwer lifted 0.54 pct to 22.32 eur after several brokerages raised their price targets on the stock

MAJOR DECLINERS:

-Fortis shed 0.87 pct to 32.98 eur after a mixed bag of third-quarter earnings

-ING lost 1.13 pct to 34.99 eur as third-quarter earnings were at the low end of expectations

-Aegon dropped 1.48 pct to 14.62 eur after reporting weak underlying figures in its third quarter earnings

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