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

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London shares weaker on softer commodity prices, offsets utility M&A talk

The FTSE 100 was lower in early deals as softer oil and metal prices dragged resource stocks down, offsetting consolidation speculation within the utility sector as investors brace themselves for a busy week of corporate and economic releases, dealers said.
   
At 9.00 am, the FTSE 100 was 25.1 points lower at 5,854.2, while the FTSE 250 was down 28.8 points at 9,577.5. The broader indices were mixed.
    
On Friday, the Dow Jones industrial average rose 60.67 to 11,392.11, while the Standard & Poor's 500 index was up 4.90 at 1,298.92, and the Nasdaq composite index rose 10.50 at 2,165.79.
   
Over in Asia, the Hang Seng Index ended the morning down 22.88 points or 0.13 pct at 17,122.88, while over in Tokyo the Nikkei 225 closed off 286.08 points at 15,794.38 on weaker-than-expected revised second quarter GDP.
   
In London this morning, miners and oilers dominated the fallers after commodity prices continued to weaken. Oil prices dipped again after reports of progress in last-ditch talks on Iran's nuclear program helped ease some concerns about the possible imposition of sanctions.
   
New York's main contract, light sweet crude for October delivery, was down 35 cents at 65.90 usd a barrel after closing at 66.25 in US trading Friday when it lost more than a dollar. Brent North Sea crude for October shed 37 cents to 64.96 usd.
   
Bearing the brunt of this, RDShell eased 24 pence to 1829, while BP fell 3 to 575 and BG dipped 8 to 669.
   
Meanwhile, base and precious metal prices also fell as gold was hit by weakening oil prices, dropping below the psychologically important 600 usd an ounce, to close at a 10-week low, while copper retreated from high levels seen last week.
   
In reaction, Antofagasta fell 10 pence to 450, Xstrata eased 78 to 2,256, Vedanta down 46 at 1,275 and Rio Tinto fell 77 to 2,595.
   
Shares in tobacco group Gallaher were also lower, with Citigroup reiterating its 'strong sell' recommendation. Gallaher shares edged 8 pence lower at 890.

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Citigroup said the group may be jeopardising its future by introducing a series of measures that are likely to boost the near future.
   
AB Foods fell 3 pence to 816 after investors failed to draw comfort after the food manufacturer reported the reduction in earnings in the second half of the year, predicted at the time of the company's first-half results in April, is in line with its expectations.
   
On the upside, shares in European utilities were active in early deals as M&A hopes in the sector were heightened by a report Scottish Power and Scottish & Southern Energy held talks over a 20 bln stg merger.
   
According to the Daily Telegraph, the UK groups fielded preliminary discussions over a nil-premium combination earlier this summer.
   
The paper added although the talks were subsequently aborted without any agreement being reached, they could be revived.
   
And Scottish & Southern (SSE) were also benefiting after Goldman Sachs upgraded its stance on the group to 'equal-weight' from 'underweight' in a note on the European Utility sector.
   
The broker said SSE is the most balanced and fuel diverse of the UK suppliers and can use its cost advantage on electricity generation to subsidise gas supply. SSE shares were up 9 pence at 1,247 pence, Drax was off 11 at 885, SP rose 5-1/2 at 635, and National Grid gained 2-1/2 at 641.
   
UK insurer Prudential gained 8 pence to 591 after Swiss peer Swiss Re was reported to have approached its smaller British rival to buy its 1.5 bln stg UK closed-life fund business, according to a report in the Sunday Times.
   
Swiss Re made the approach in the past month after Mark Tucker, Prudential's chief executive, announced plans to shake up the insurer's underperforming UK operations in July, said the report.
   
Meanwhile, Vodafone gained a penny to 114 after signing a deal with BT enabling the mobile phone giant to offer broadband internet access to its customers in the UK.
   
GUS also outperformed, up 10 pence at 982, after US peer Equifax raised its guidance.
   
BAE Systems gained 0-1/2 pence to 380-1/2 after The Business reports that the company has won a major new contract worth 2.5 bln stg to upgrade Saudi Arabia's ageing fleet of Tornado fighter planes.

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On the second tier, life sciences company Whatman slipped 12 pence to 310 as profit takers emerged after the group announced continued strong profit with a 47 pct hike in half year pretax and said it is on track to achieve its 6-8 pct revenue targets for the full year.
   
In the six months to June, sales rose to 58.7 mln stg from 53.1 mln the year before while on a constant exchange rates, sales were up 8.1 pct. Sales growth was driven by strong demand from major LabSciences distributors and good performance from BioScience business, notably FTA in Europe.
   
Remaining on an earnings theme, Hiscox dipped 5 pence to 234 after it saw first half pretax profits to end-June fall to 61.3 mln stg compared to the 88.1 mln stg in the first half of 2005 due to the weak US dollar and growing competition in sectors not affected by natural catastrophes.
   
The result was well below analysts' consensus forecast of 75 mln stg.
  
Finally, shares in Stanley Leisure gained after the UK casino group confirmed it agreed an 860 pence per share offer by Genting International Ltd, valuing the group at 639 mln stg.
   
The deal comes hot on the heels of Harrah's bid for London Clubs International, where Genting holds almost 30 pct, and the price represents a  26 pct premium to the Stanley share price on the day before news of an approach.
   
According to Merrill Lynch, the agreed price represents about 28 times the price earnings ratio to April 2007 and 14.4 times EV/EBITDA.
   
As it reiterated its 'sell' advice, the broker said Genting says it sees the UK as an attractive investment location and that it is making strategic investments to take advantage of deregulation.
   
On the economics front today, UK Aug producer price data, July trade data and the government's July house prices are all due at 9.30 am.

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 ast Friday's close of trade, click here

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FRANKFURT - Market data at 10.05 am

Major indices:
   
DAX 30 - 5,767.12, down 28.14 points or 0.49 pct
MDAX - 8,104.23, down 22.71 points or 0.28 pct
TecDAX - 636.10, down 2.08 points or 0.33 pct
DAX future - 5,769.00, down 39.00 points or 0.67 pct

Major gainers:
   
Infineon, up 0.10 eur or 1.09 pct at 9.26
   
Lufthansa, up 0.13 eur or 0.85 pct at 15.44, as Barron's reported that the flag carrier's shares might reach as high as 20 eur within a year as the airline attracts more premium customers, reduces expenses and manages fuel costs.
   
Deutsche Telekom, up 0.06 eur or 0.53 pct at 11.29
   
Munich Re, up 0.34 eur or 0.29 pct at 117.05, as its chief executive Nikolaus von Bomhard said that the reinsurance giant is not interested in acquiring Bermuda-based life reinsurer Scottish Re.
   
MAN, up 0.13 eur or 0.22 pct at 59.59

Major losers:
   
Volkswagen, down 0.71 eur or 1.14 pct at 61.44, as Credit Suisse put it on 'trading sell' -- a short-term trading opportunity based on market events and
catalysts -- while raising its target to 55 eur from 47 and reiterating its longer-term 'neutral' rating.
   
SAP, down 1.50 eur or 1.03 pct at 144.10
   
Commerzbank, down 0.28 eur or 1.03 pct at 26.78
   
BASF, down 0.63 eur or 0.99 pct at 62.71
   
Fresenius Medical Care, down 0.99 eur or 0.99 pct at 98.76

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PARIS - Market data at 9.23 am:

Major indices:
   
CAC-40 down 24.73 points at 5,048.84
SBF-80 down 11.30 at 5,728.73
SBF-120 down 16.77 at 3,654.02

Volume: 230 mln eur
3 CAC-40 stocks up
34 CAC-40 stocks down
2 unchanged
Arcelor-Mittal enters the index from Sept 18.

Major gainers:
   
Safran, up 0.36 eur or 2.2 pct at 16.80 after Les Echos reported the company has agreed to sell its mobile equipment business to Motorola, as part of a strategic revamp to be presented at a board meeting tomorrow.
   
Michelin, up 1.50 eur or 2.9 pct at 53.40 and one of few blue chips resisting the downtrend after UBS upgraded to 'buy' from 'neutral' and raised its price target to 60 eur from 46 eur, on expectations of easing raw material costs.
   
Sopra Group, up 0.60 at 56.45 ahead of its release of first half earnings.

Major losers:
   
Peugeot, down 0.48 or 1.1 pct at 42.83 as investors take profits from Friday's sharp gains, seen after surprise resignation of CEO Jean-Martin Folz.
   
Schneider Electric, down 0.25 at 67.35 after announcing the acquisition of UK wiring group GET for 2.60 stg per share in cash.
   
Total, down 0.50 or 1 pct at 50.50 and weighing heavily on the CAC-40 index, as oil prices continue to retreat.

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Dollar firmer vs yen in Singapore afternoon trade after weak Japan data

SINGAPORE  - The US dollar rebounded against the yen in late afternoon trading here, with sentiment in the Japanese currency undermined following the release of weak Japan core private-sector machinery orders, but the greenback also weakened slightly against the euro ahead of speeches by Federal Reserve Board officials later tonight and a raft of US data due for release this week.
   
As of 4.00 pm (0810 GMT), the dollar was at  117.18 yen, up from 116.71 in Sydney earlier, while the euro was at 1.2697 usd, up from 1.2675 in Sydney.
    
Tonight, Boston Federal Reserve Bank President Cathy Minehan and St. Louis Federal Reserve Bank President William Poole will both be speaking and market participants will be looking for clues on Fed policy direction.
   
US data due out this week include the July trade balance Tuesday, August retail sales Thursday and August CPI on Friday. In addition, the IMF and World Bank Annual Meetings start this week in Singapore with the G7 meeting of finance ministers and central bankers to be held Saturday.
   
Dealers said the yen rallied this morning after the release of Japan's revised second-quarter GDP data, which saw the quarterly growth rate revised slightly, pushing up the annualized rate slightly to 1 pct from the preliminary reading of 0.8 pct.
    
But the dollar rebounded after the initial flurry faded around midmorning, with some dealers saying the release of weaker-than-expected Japanese core machinery orders data --  which fell a seasonally adjusted 16.7 pct in July from a month earlier after an 8.5 pct increase in June and much larger than the consensus call of a 5.5 pct drop -- contributed to the yen's decline against the dollar.

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