UK/Euro Financial Market Daily Morning Briefing 12-05-2006

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London shares open lower as mining sell off adds to Wall St slump

Leading shares opened lower, mirroring sharp falls on Wall Street overnight, with miners and crude stocks hit by profit taking as oil and commodity prices came off recent highs, dealers said.
   
At 9.00 am, the FTSE 100 was off 31.0 points at 6012.0, with the broader indices all in the red.
   
Meanwhile, US stocks also ended lower, logging their biggest one-day fall since January, on concerns that sky-high commodity prices will fuel inflation and prompt the Federal Reserve to rise interest rates again in June.
   
The Dow Jones Industrial Average snapped a five-session winning streak to end down 141.92 points at 11,500.73.
   
The Nasdaq Composite Index fell 48.04 points to 2,272.70, while the S&P 500 Index fell 16.93 points to 1,305.92.
   
And today, all eyes will be on the Michigan consumers sentiment for May.
   
The March trade deficit will also garner attention -- expected to widen slightly to 66.8 bln usd from 65.7 bln in February.
   
The downbeat mood spilled over into Asia overnight, with the Nikkei 225 ending down 260.36 points at 16,601.78 and the Hang Seng started the afternoon session 223.56 lower at 16,917.22.
   
Still in Asia, oil prices fell on profit-taking after the latest spike overnight following news of fresh abductions of oil workers in Nigeria.
  
In late morning trade, New York's main contract, light sweet crude for June delivery, was at 72.86 usd a barrel, down 46 cents.
   
Back in London, miners were under the cosh as investors cashed in on recent stellar gains as commodity prices came off recent record highs.
   
Kazakhmys was down 20 at 1350, Anglo American fell 28 at 2519, Rio Tinto was off 22 at 3300, BHP eased 20-1/2 at 1191 and Antofagasta fell 18 at 2535.
   
Rio Tinto was further hit by rumours it has recruited advisors to investigate a possible bid for Phelps Dodge.

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In response, Numis said whilst such a bid is possible, it thinks it is somewhat unlikely.
   
Oil Majors were also lower, with BP down 4 at 669-1/2, Royal Dutch Shell lost 10 at 1920, Cairn was 24 off at 2391 and BG fell 1 at 730.
   
Profit-taking was the order of the day, with insurers sold off after recent gains -- Friends Provident fell 2-1/2 at 192-1/4, Legal & General was down 1/4 at 139 and Prudential slipped 3 at 643.
   
Other financials were also weak with Standard Chartered 17 lower at 1438 after recent bid hopes inspired gains, Amvescap edged 9-1/2 lower at 581-1/2 and Old Mutual fell 2-3/4 at 187.
   
In contrast, Next took on 3 at 1754 after the retailer was  upped to 'buy' from 'hold' with an increased price target of 1,950 pence from 1,800 by Deutsche Bank, traders noted.
   
The broker said Next is attacking market concerns with the new womens wear buying process helping it hit current fashion vogue.
   
Broker comment also provided the fillip for British Land as JP Morgan adjusted six ratings across the sector, highlighting its preference for UK companies.
   
It noted that it expects the full-year results from British Land, Land Securities and Great Portland to beat expectations and feels that companies with exposure to Paris and London office space should show the best results.
   
Overall, it upgraded Derwent Valley and Great Portland Estates to 'overweight' from 'neutral' and 'underweight' respectively.
   
British Land added 9 at 1314 and midcap Derwent Valley gained 18 at 1593.
   
Enodis was the top midcap riser, up 11-3/4 at 177 as recent results from US food giant MacDonalds boosted the catering equipment firm.
   
Still on the second-line, Electrocomponents was 9-1/2 to the good at 270-1/4 after UBS upgraded the stock to 'buy' from 'neutral' at UBS with the price target raised to 310 pence from 270 previously.
   
The broker said Electrocomponents' share price and trading prospects both show strong correlation with the UK's industrial production which swung back into positive year-on-year growth in March for the first time since December 2004.

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UBS also highlighted Electrocomponents' accelerating growth in continental Europe and said industry data points to sustained double-digit growth for Electrocomponents in the US.
   
Bid hopes boosted AB Ports, after the Daily Mail said Goldman Sachs is still keen and is putting the finishing touches to an improved bid.
   
The paper claimed management is holding out for an 800 pence per share offer after a previous punt of 730 pence was rejected.
   
On the downside, Tullow Oil and JKX Oil and Gas were hit by the easing oil price -- off 15-3/4 at 419 and 12-1/4 and 394 respectively.
   
Tullow Oil was further hit as the group said natural gas production started from its Bangora-1 well in Bangladesh on May 9, but added that two exploration wells in Pakistan and Gabon were plugged and abandoned.
   
In response, Numis said given Tullow's track record, it is difficult to see where a premium will come and the share price is too far ahead of events, as it reiterated its 'reduce' rating.
  
Fellow faller, MFI was off 3-1/4 at 116-1/4 after the retailer was downgraded to 'sell' from 'hold' at Deutsche Bank after the shares rose around 70 pct in the past three months.
   
In a note to clients, the broker said the valuation is extremely stretched, adding at the current price the implied valuation of MFI's UK Retail business is "approximately zero".
    
Finally, Drax was hit by profit taking, down 21 at 829 as the power station operator said it plans to return surplus cash to shareholders through a special dividend and to refinance 57.5 mln stg of debt.

US Summary

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Diary of Events

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FRANKFURT - Market data at 10.10 am

Major indices:
   
DAX 30 - 6,038.78, down 15.94 points or 0.26 pct
MDAX - 9,004.62, down 60.10 points or 0.66 pct
TecDAX - 746.56, down 7.28 points or 0.97 pct
DAX future - 6,056.50, up 9.50 points or 0.16 pct

Major gainers:
   
ThyssenKrupp, up 1.44 eur or 5.05 pct at 29.97, after the German steel conglomerate reported second-quarter results that surpassed even the most optimistic analysts forecast and hiked its full-year guidance. The earnings statement prompted an upgrade to 'buy' from 'add' and a price target hike to 36 eur from 27.5 at WestLB, and an upgrade to 'hold' from 'sell' at Merck Finck
   
Deutsche Boerse, up 1.79 eur or 1.44 pct at 125.84, on the back of increasing hopes of a merger with Euronext NV after a newspaper report said  the German exchange operator has offered to spin off its clearing house Clearstream in order to clear the way for a deal
   
Siemens, up 0.55 eur or 0.77 pct at 71.95
   
Metro, up 0.35 eur or 0.74 pct at 47.75
   
Munich Re, up 0.68 eur or 0.60 pct at 113.96

Major losers:
   
BMW, down 0.88 eur or 2.06 pct at 41.80, DaimlerChrysler, down 0.63 eur or 1.44 pct at 43.17, Volkswagen, down 0.77 eur or 1.27 pct at 59.70 as the euro strenghtened against the dollar, and amid oil prices concern after the price of crude spiked overnight
   
SAP, down 1.50 eur or 0.88 pct at 169.10
   
Continental, down 0.74 eur or 0.79 pct at 92.40

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AMSTERDAM - Market data at 10.19 am:

Major indices   

AEX index             463.27, down 3.61 points
AMX Midcap index      640.54, down 9.77 points
Government bonds      unchanged to slightly lower

   
Major losers:
   
Staffing groups were among the leading decliners. Vedior was down 1.94 pct at 18.19, USG People shed 2.2 pct at 71.05 and Randstad lost 3.3 pct or 1.8 eur at 52.70, ex-dividend of 84 cents
   
Fugro also traded ex-dividend, of 60 cents, losing 1.29 eur or 3.54 pct at 35.10
   
Hunter Douglas fell 2.2 pct at 60.15
   
ASML lost 1.71 pct at 16.07, Philips gave up 1.45 pct at 25.77
   
Financials were also lower, with ABN Amro down 1.26 pct at 22.80, Fortis losing 1.11 pct at 29.36, Aegon off 0.77 pct at 14.15 and ING 0.79 pct lower at 32.83

Major gainers:
   
VNU put on 0.03 pct at 29.19, Unilever was up 0.09 pct at 54.05, the only AEX stocks to trade higher
   
Stork was up 0.39 pct at 48.71, still benefiting from yesterday's news of a futher large JSF order
   
CSM edged up 0.04 pct at 24.55

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PARIS - Market data at 10.13 am:

Major indices:
  
CAC-40 down 25.54 points or 0.49 pct at 5,237.40
SBF-80 down 68.21 points or 1.10 pct at 6,139.89
SBF-120 down 22.02 points or 0.57 pct at 3,810.66

Volume: 750 mln eur
9 CAC-40 stocks up
30 CAC-40 stocks down
1 CAC-40 stock unchanged

Major gainers:
   
Capgemini, up 0.47 eur or 1.02 pct at 46.64
   
Veolia, up 0.28 eur or 0.58 pct at 48.41
   
Thomson, up 0.03 eur or 0.19 pct at 15.98   

Major losers:
   
Renault, down 1.50 eur or 1.59 pct at 93.10. Automakers and others relying on steel were leading the blue chips lower. Arcelor and Thyssenkrupp reported sustained demand for steel, and Arcelor expects an acceleration that will lead to further price rises.
   
Michelin, down 0.90 eur or 1.51 pct at 58.65
   
Peugeot, down 0.85 eur or 1.60 pct at 52.40
   
Alstom, down 2.65 eur or 3.31 pct at 77.35

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