UK/Euro Financial Market Daily Morning Briefing 13-10-2006

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London shares retreat from brink of 5-yr highs in early deals, banks fall

Leading shares slipped into negative territory in early deals, pulling back from the brink of fresh 5 year highs, as miners turned lower and cautious broker comment weighed on the banking sector.
   
By 9.10 am, the FTSE 100 index was down 12.3 points at 6,109.0, having risen to 6,128.5 in opening deals, while the broader indices were mixed. Early volume was moderate, with 296.4 mln shares changing hands in 39,660 deals.
   
US stocks leapt higher on Wall Street last night, with weaker oil prices and upbeat earnings news from PepsiCo, McDonalds and CostCo combining to push the Dow to all-time highs and within sight of the 12,000 mark, traders said.
   
The DJIA closed 95.57 points higher at 11,947.70, while the Nasdaq leapt 37.91 points to 2,346.18.
   
Overnight across Asia, the Nikkei 225 index closed 167.73 points higher at 16,536.54, helped by the Bank of Japan's decision to keep interest rates unchanged at 0.25 pct.
   
The Hang Seng was also higher, up 182.97 points at 18.056.06.
   
Crude oil prices rebounded from year lows in Asian trade, supported by news of a sharper-than-expected drop in US heating fuel stocks ahead of an anticipated pick-up in demand during the Northern hemisphere winter, traders said.
   
New York's main contract, light sweet crude for November delivery, was up 35 cents at 58.21 usd a barrel from 57.86 usd in late US trade overnight.
   
In the UK, banking stocks were under pressure this morning, with HBOS and Barclays both weaker after being downgraded by Goldman Sachs and HSBC respectively.

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HBOS fell 10 pence to 1083 and Barclays dropped 4 pence to 718, while Alliance & Leicester was also in the doldrums after being cut to 'reduce' from 'hold' by Dresdner Kleinwort.
   
Lloyds TSB however, bucked the trend, adding 5-1/2 pence to 564-1/2 after HSBC raised its rating to 'neutral' from 'underweight'.
   
Amvescap was the top faller however, down 15 pence to 622, as rumours of a bid from Goldman Sachs faded somewhat, although fellow potential prey Man Group remained in demand, up 3-1/2 pence at 479-1/2.
   
Unilever shares were also lower, down 14 pence to 1314, after Citigroup downgraded to 'hold' from 'buy' on valuation.
   
The broker noted that the stock has outperformed a strong European food sector since mid-July and that it no longer appears to be 'a value play'.
   
Corus Group was also lower, dropping a further 6-1/2 pence to 472-1/2 after the Financial Times reported that Evraz, Russia's second biggest steelmaker, yesterday said it had "no interest" in linking up with the Anglo-Dutch steel business.
   
Mining stocks also slipped back from opening highs, with the Japanese rate hike and some mixed economic data from China encouraging investors to take profits after a strong week.
   
Vedanta Resources lost 7 pence to 1355, while BHP Billiton eased 1 pence to 976, Rio Tinto moved 8 pence lower to 2,699 and Antofagasta slipped 1 pence to 492.
   
On the upside, BP topped the risers with a gain of 6-1/2 pence to 587-1/2, lifted by bullish comment from Deutsche Bank, which repeated its 'buy' advice and 680 pence target following a visit to Azerbaijan.
   
"In what is a portfolio business, we find the company's largest single (10 bln usd) asset in rude health." The broker told clients, adding that reserves "are substantial and cash flow to BP is about to surge."

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On the second line, shares in Carphone Warehouse slid once again, down 23-1/2 at 286-1/2, on news that, following yesterday's Vodafone contract loss, telecoms peer Orange looks set to follow suit.
   
A downgrade from Morgan Stanley also hit sentiment, with the broker lowering its stance to 'equal-weight' from 'overweight'.
   
Shares in Renishaw also slumped, down 52 pence, over 8 pct, at 747-1/2, after the UK engineering group warned full-year profits may fall by as much as 5 mln stg due to currency movements.
   
On the economic front, UK business confidence data should be closely eyed.
   
Across the Atlantic, US consumer sentiment, as measured by the University of Michigan, is expected to have risen slightly to 86 in early October from 85.4 in late September.
   
Retail sales meanwhile, are expected to have risen 0.7 pct in September after rising 0.2 pct in the prior month.

US Summary

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

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PARIS - Market data at 9.44 am:

Major indices:
   
CAC-40 down 3.00 points or 0.06 pct at 5,358.47
SBF-80 up 0.52 or 0.01 pct at 6,103.64
SBF-120 down 0.76 or 0.02 pct at 3,879.74

Volume: 420 mln eur
19 CAC-40 stocks up
18 CAC-40 stocks down
3 CAC-40 stocks unchanged

Major gainers:
   
Michelin up 2.25 or 2.10 pct at 60.80, Deutsche Bank hikes target to 78 vs 63 in anticipation of margin recovery
   
Alstom up 0.65 or 0.93 pct at 70.30
   
Rhodia up 0.07 or 3.57 pct at 2.03

Major losers:
   
L'Oreal down 2.20 or 2.90 pct at 75.40 as 9-mth sales disappoint, UBS downgrades
   
Renault down 0.80 or 0.88 pct at 90.20
   

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FRANKFURT - Market data at 10.06 am   

Major indices:
   
DAX 30 - up 4.38 points or 0.07 pct at 6,164.66
MDAX - down 1.68 points or 0.02 pct at 8,696.39
TecDAX - up 4.19 points or 0.62 pct at 679.29
DAX future - up 4.0 points or 0.06 pct at 6,203.50

Major gainers:

Commerzbank, up 0.39 eur or 1.41 pct at 28.07.
   
SAP, up 1.78 eur or 1.10 pct to 163.72, as investors buy into the shares ahead of the company's Oct 19 earnings announcement.
   
Infineon, up 0.09 eur or 0.92 pct at 9.85, after semiconductor shares surged in New York and Asia, dealers said.
   
MAN, up 0.30 eur or 0.43 pct to 70.11.
   
Fresenius Medical Care, up 0.42 eur or 0.42 pct at 101.32.
   
Major losers:
   
Henkel, down 1.06 eur or 0.99 pct at 106.43, after French rival L'Oreal reported below-concensus 9-mths figures.
   
Continental, down 0.68 eur or 0.73 pct at 92.50
   
Adidas, down 0.23 eur or 0.61 pct at 37.56
   
Deutsche Boerse, down 0.68 eur or 0.53 pct to 128.11, after Borsa Italiana signed a letter of intent with the operator of the Frankfurt Stock Exchange which offers Euronext a pan-European alternative to its planned merger with the NYSE
   
Siemens, down 0.36 eur or 0.53 pct at 67.45 eur, as investors took profits after the shares rose yesterday on the conglomerate's restructuring plans.

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