UK/Euro Financial Market Daily Morning Briefing 14-03-2007

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London shares sink in opening deals after weak session on Wall St, M&A in focus

Leading shares slid in opening deals after a very weak session on Wall Street overnight on ongoing woes about the subprime market, which dragged financial  and insurance stocks lower in London, offsetting another spurt of M&A market talk, dealers said.
   
At 8.56 am, the FTSE 100 index ran back 93.2 points at 6,068.0 while the FTSE 250 index sank by 244.4 points at 11,016.2. Volume was quite strong as investors exit the wobbly equities market, with 455 mln shares exchanging hands in 75,310 deals.
   
US indexes plunged overnight, with the DJIA sliding by more than 240 points, its second-biggest drop in almost four years, as troubles piled up for subprime lenders.
   
All three major stock indexes were knocked down about 2 pct.   The DJIA fell 242.66 points to 12,075.96; while broader stock indicators also fell by their largest amounts in two weeks; with the Standard & Poor's 500 index down 28.65, or 2.04 pct, to 1,377.95 and the tech-dominated Nasdaq Composite index was off 51.72, or 2.15 pct, to 2,350.57.
   
The repercussions continued in morning trade in Asia. The region's biggest bourse, the Tokyo Stock Exchange, saw its Nikkei 225 stock index close down 501.95 points at 16,676.89, while Hong Kong's Hang Seng Index ended the session 496.21 points lower at 18,836.93.   
   
Oil prices turned higher as markets focused on expected falls in US fuel stocks and after the IEA warned yesterday about falling stocks in the OECD region, dealers said. Crude oil prices were up 0.31 usd per barrel to 58.21.
   
Over in London on the economics front, market watchers expect January earnings growth to remain modest, with headline average earnings including bonuses, up 4.0 pct in the three months to January from the year before. 
   
Meanwhile, the underlying rate is expected to rise slightly to 3.8 pct from 3.7 pct.
   
However, Royal Bank of Scotland analyst Geoff Dicks noted that the three-month nature of these headline rates and fairly demanding base effects mean that getting a rise in headline earnings growth in January is a "tall order".
    
Elsewhere in the labour market report, analysts expect the claimant count measure of unemployment to fall by 9,000 in February. That follows the 13,500 decline in January. Analysts said the fall reflects the healthy economic outlook.
   
Among the biggest casualties on the downside today were financial and insurance stocks, sinking after the fresh drop in equity markets overnight on ongoing concerns about the US subprime mortgage market.
   
A London-based dealer said UK and Spanish banks could suffer the most from the US subprime worries as "most of their income is fee based and the mortgage sector expanded enormously in the past few years on the back of a real estate boom".

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Man Group shares slid 20 pence to 493-1/2, while Royal Sun Alliance gave up 6 pence at 158, Old Mutual shed 5-3/4 pence at 161-1/4, Amvescap lost 15 pence at 571-1/2 while HBOS gave up 39 pence at 1,040 and Royal Bank of Scotland gave up 58 pence at 1,090.
   
Legal & General shares were down 3 pct to 149 pence, dragged lower after the falls in equity markets overnight, despite posting expectations-beating full year pretax profits.
   
L&G, the UK's fourth-biggest life insurer, reported pretax operating profit for the year to Dec 31 of 1.233 bln stg on a European Embedded Value basis, up from 1.092 bln stg in 2005 and above consensus expectations of 1.177 bln stg.
   
"The profit numbers look OK," Sanford Bernstein wrote in a note, "they are roughly ahead of consensus estimates but nothing major."
   
Mining issues were also under the cosh as metal prices fell overnight. Antofagasta was 15-1/2 pence lower at 453-1/2, Anglo American fell by 80 pence to 2,402, Xstrata gave up 71 pence at 2,296 and Rio Tinto lost 71 pence at 2,610, while BHP Billiton was 27 pence worse off at 997-1/2.
   
M&A talk seems to be a leitmotif this morning, with Cadbury Schweppes eyed again as US activist investor Nelson Peltz -- who said yesterday he had built a 2.98 pct stake in the company -- is expected to try to persuade the chocolate and drinks group to spin off its drinks business, according to press reports.
   
Newspaper reports earlier suggested Cadbury Schweppes could be mulling a 12.6 bln stg break-up of the company, likely to involve the sale of its 6.5 bln stg drinks business, at Peltz's suggestion, as a way of extracting greater value for shareholders.
   
This prompted Goldman Sachs to raise its recommendation to 'neutral' from 'sell' but the shares failed to benefit in the falling market, down 9 pence at 593.
   
Alliance Boots was eyed on ongoing M&A interest, inching just half a penny lower pence to 1,017, after rebuffing the 9.7 bln stg offer earlier this week from Stefano Pessina and KKR.
   
The stock was eyed after press reports Merrill Lynch is stepping down as broker to the health and beauty retailer to work as an adviser to Stefano Pessina and Kohlberg Kravis Roberts.
   
The FT says the move will add to expectations that the consortium is planning to raise its offer after its indicative approach, worth 10 stg per share, was rejected by the Alliance Boots board.
  
On the bright side, M&A hopes inspired gains among a few blue chips this morning, with Sainsbury topping the gainers board, up 7 pence at 527-3/4 on press reports CVC Capital Partners advisers have held talks with the supermarket chain about a cash offer of over 550 pence per share. The stock slid this week after KKR appeared to switch its attentions to health and beauty retailer Alliance Boots.

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Home Retail Group shares also inched higher, up 4 pence at 424-1/2 as the Argos and Homebase retailer, which demerged from GUS last October, said it now expects year to March 3 underlying pretax profit to be "slightly ahead" of the current market consensus after a better-than-expected trading performance in the final eight weeks of the period.
   
But the group said it remains "cautious" on a UK retail environment that is still expected to be "challenging".
   
Merrill Lynch reiterated its 'buy' recommendation and 455 pence target, arguing that like-for-like sales trends at both Argos and Homebase were above expectations, while gross margins at both formats showed progress.
   
Second liner property consultant Savills gave up 24 pence to 635, down with the wider market despite unveiling full-year underlying group pretax profit of 75 mln stg, up 31 pct, beating analyst expectations of 68 mln.
   
The group said full-year underlying EPS was up 23 pct at 40.8 pence, while revenue climbed 38 pct to 517.6 mln stg.
   
Savills said the UK registered an "exceptional performance", exploiting the opportunities of rising commercial and residential markets.
   
On the bright side, Stagecoach Group was one of the few gainers, up  3-1/4 at 164 after the bus and rail operator announced plans to return about 700 mln stg to shareholders and said its prospects for the year to April 2008 are ahead of its previous expectations.
   
Looking ahead to Wall Street, banking issues should react to what is expected to be a strong set of full year numbers from Lehman Brothers before the bell, with EPS forecast at 1.95 usd compared to 1.83 usd.
 
On the US economics front, investors expect the current account deficit to narrow to 203.3 bln usd in the fourth quarter, down sharply from the 225.6 bln usd in the third quarter.
   
Import prices are seen rising in February by 0.7 pct after falling by 1.2 pct in the prior month. Oil stocks will also be in focus ahead of the weekly petroleum inventories update from the Energy Department.

UK Diary of Events

For a diary of key UK financial and corporate events today, click here

US Summary

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

Home Retail

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PARIS - Market data at 10.09 am:

Major indices:
   
CAC-40 down 77.54 points or 1.43 pct at 5,355.40
SBF-80 down 156.12 points or 2.31 pct at 6,612.06
SBF-120 down 62.09 points or 1.56 pct at 3,921.72

Volume: 1.7 bln eur
1 CAC-40 stock up
39 CAC-40 stocks down

Major gainers:
   
Carrefour, up 0.91 eur or 1.73 pct at 53.51, after an upgrade to 'overweight' from 'equal weight' by Morgan Stanley. Separately, a financial news website said Carrefour's largest shareholder, the Halley family, wants to sell out at 55-60 eur per share.

Major losers:
   
Vallourec, down 5.56 eur or 3.31 pct at 162.60
   
Arcelor Mittal, down 1.23 eur or 3.17 pct at 37.58
   
Credit Agricole, down 0.83 eur or 2.80 pct at 28.85, as financial shares underperformed amid the developing problems with US subprime lending.

Most active stocks:
   
Total, down 0.58 eur or 1.17 pct at 49.12
   
BNP Paribas, 135 mln eur, down 1.79 eur or 2.29 pct at 76.33
   
Axa, 126 mln eur, down 0.81 eur or 2.60 pct at 30.32

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Amsterdam shares AFX at a glance outlook
 
Forthcoming Events
   
Today
   
SNS Reaal news conference (9.30 am)
   
Today's Press
   
ABN Amro buys UK waste collection company Cory Environmental in joint venture with banks Santander and Finpro (Het Financieele Dagblad)

Company News
   
Philips buys Canadian solid state lighting company TIR Systems for 49 mln eur
   
Corus to reduce emissions of carcinogens in agreement with union - report

Macroeconomic News
   
Finance Minister Wouter Bos to investigate claims Dutch banks are breaching privacy laws in passing on customer data to US authorities.
  
Market Sentiment
   
Shell keeps 'hold' rating at ING, target reduced to 26.5 eur from 28.2

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FRANKFURT - Market data at 10.29 am

Major indices:
   
DAX - down 111.45 points or 1.68 pct at 6,512.54
MDAX - down 258.66 points or 2.68 pct at 9,399.09
TecDAX - down 25.38 points or 3.11 pct to 791.30
DAX futures - down 33.50 points or 0.51 pct to 6,516.00

Major losers:
   
Deutsche Bank down 3.38 eur or 3.50 pct at 93.08, as banking issues slumped on the news that the NYSE is moving to de-list subprime mortgage sector lender New Century Financial Corp, dealers said.
   
Commerzbank down 0.93 eur or 3.01 pct at 29.93.
   
Hypo Real Estate, down 1.15 eur or 2.49 pct at 44.95.
   
Allianz down 3.75 eur or 2.42 pct at 151.00.
   
MAN down 1.93 eur or 2.27 pct at 108.70 after rival DaimlerChrysler Freightliner head said second quarter US sales will be weak.
   
Major gainers:
   
Altana up 0.24 eur or 0.51 pct to 47.21 as investors continued to buy into the shares after it announced a special dividend of 33 eur per share along with its regular payment, dealers said.

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