UK/Euro Financial Market Daily Morning Briefing 14-07-2006

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London shares down in early deals dented by Middle East conflict

London shares remained lower in early deals, mimicking heavy losses on Wall Street last night as heightening tensions in the Middle East pushed the price of oil to fresh record highs, dealers said.
   
At 9.08 am the FTSE 100 index was down 21.8 points at 5,743.2, retreating from early lows of 5,717.7. The wider market was also in the red.
   
Yesterday the FTSE 100 index closed 95.6 points lower at 5,765, with the wider market also down sharply.
   
Overnight on Wall Street, US stocks took another pounding as tension in the Middle East continued to soar with Israel unrelenting in its aerial assault on Lebanon, traders noted.
   
The DJIA finished the session down 166.90 points at 10,846.30 while the NASDAQ sunk 36.13 points to 2,054.11.
   
The dollar increased slightly against the euro, but fell against the other major currencies after data showed a jump in the number of Americans filing new claims for jobless benefits.
   
Meanwhile, the market downturn continued in Asia with Japan's Nikkei Index closing down 252.71 points at 14,845.24, while Hong Kong's Hang Seng finished the morning down 179.68 points at 16,125.80.
   
Remaining in Asia, The Bank of Japan raised interest rates for the first time in six years, a move widely expected by the market, and said it will further lift rates gradually amid strong signs that the economy is on the mend and deflation is history.
   
In a unanimous vote, the central bank's nine policy board members agreed to raise the overnight call rate target to 0.25 pct from zero pct. But the BoJ said that it will keep interest rates at "very low" levels for the time being, implying that it would not rush the second increase.
   
Meanwhile, oil prices stayed above 78 usd in Asian trading hours as Israel's offensive in Lebanon and the Iran nuclear issue sparked fears of a wider Middle East conflict, dealers said.

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They added that oil now looked set to break 80 usd soon, with the upcoming September contract already quoted at above 79 usd as the market tightens on a series of geopolitical concerns from the Middle East to North Korea.
   
New York's main contract, light sweet crude for delivery in August, was quoted at 78.10 usd per barrel, up 1.40 usd from its last settlement of 76.70 in New York overnight.
   
Oil hit an all-time high of 78.40 usd in after-hours electronic trade before some profit-taking took it off that level.
   
UK oil majors stood out in a falling market in early deals. Royal Dutch climbed 16 pence to 1,922, BP increased 5 to 646 while BG Group was up 2 at 726.
   
Also providing a boost to the sector this morning, was talk that shares in Rosneft are set to be priced at 7.55 usd a share, according to sources in London this morning.
   
This would be towards the upper end of the indicated range of between 7.15 usd and 7.85 usd a share.
   
The Russian oil giant, which is due to announce allocation details later today, is due to start trading next week, although rival group OAO Yukos has asked Britain's High Court for an interim injunction to stop the flotation.
   
It has asked for a judicial review to challenge the listing and an interim order that could, if it were granted, prevent the start of trading of billions of dollars in Rosneft stock at the end of next week, according to newspaper reports in London today.
   
Commodity prices were also higher as investors sought out safe havens, with gold, silver and platinum all higher.
   
Miners failed to benefit however, with the sector dented once again by the threat of further rate hikes in China, a market that the miners are greatly exposed to.

Yesterday China reported another robust set of economic figures - according to unofficial first-half economic figures published in Thursday's Chinese state-run newspaper Securities Times, the country's GDP grew at a rate of 10.5-10.9 pct in the first half of this year, up from the 10.3 pct increase recorded in the first quarter.
   
On the back of the news, Lonmin dropped 107 pence to 2,670, BHP Billiton was down 21 at 1,030, Rio Tinto eased 62 to 2,748, Kazakhmys was lighter by 24 at 1,183 and Xstrata purged 32 at 2,055.

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Meanwhile ITV was another key loser, down 2-3/4 at 97, after reports today in The Financial Times that the company's advertising bookings are declining at a rate of between 10-12 pct year-on-year.
   
Back on the upside, Aviva found investor favour, up 1-1/2 at 691-1/2, having been upgraded to 'buy' from 'neutral' at Merrill Lynch on valuation after its shares slumped on news the insurer raised 900 mln stg to bankroll the acquisition of US peer AmerUS.
   
On the second tier EMI came under increased pressure, down 7-1/2 at 270-1/4, following a price target cut by Credit Suisse to 300 pence from 310. The broker stuck with its 'outperform' recommendation.
   
Yesterday the music firm was hit by news that, in a surprise ruling, the second-highest European court overturned a European Commission approval of a merger between the music units of Sony and Bertelsmann. The court ruled regulators did not show that a monopoly did not already or would not exist as a result of the deal.
   
The companies will have to request antitrust clearance for the deal again.
   
This could affect the possibility of a proposed merger between EMI and US peer Warner Music.
   
Babcock also slipped with the wider market, down 6-1/2 at 324-1/2. The weak overshadowed the firm's statement that trading is in line with its expectations.
   
On a brighter note, Kitchen equipment maker Enodis was up 18-1/4 pence at 217, taking it to the top of the 250 index risers, after it said it has received a revised proposal from US firm The Manitowoc Company to buy Enodis for 220 pence per share in cash.

The board of Enodis said it is considering this revised proposal, which is an increase from the 210 pence Enodis rejected last month, which valued the group at 850 mln stg.

UK Diary of Events

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

US Summary

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

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PARIS - Market data at 9.22 am:

Major indices:
   
CAC-40 down 52.53 points or 1.08 pct at 4,799.99
SBF-80 down 50.67 points or 0.92 pct at 5,429.67
SBF-120 down 36.19 points or 1.03 pct at 3,476.74

Volume: 286 mln eur
2 CAC-40 stocks up
37 CAC-40 stocks down
(Arcelor temporarily suspended from CAC-40)

Major gainers:
   
Remy Cointreau, up 1.06 eur or 2.86 pct at 38.09, ahead of next week's report of first quarter sales.
  
Total, up 0.20 eur or 0.39 pct at 51.80, as crude prices rose to new highs amid escalating tensions in the Middle East.
   
EADS, up 0.05 eur or 0.29 pct at 21.10. Long-awaited news about the Airbus A350 revamp is expected during next week's Farnborough Air Show.

Major losers:
   
Iliad, down 2.15 eur or 3.45 pct at 60.25 after a downgrade to 'underperform' from 'neutral' at Credit Suisse.
   
Alstom, down 1.50 eur or 2.27 pct at 64.65
   
LVMH, down 1.70 eur or 2.27 pct at 73.05
   
Renault, down 1.70 eur or 2.08 pct at 79.90, ahead of today's meeting between CEO Ghosn and GM chairman Wagoner to explore a possible alliance.

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AMSTERDAM - Market data at 10.44 am:

Major indices
   
AEX index             431.12, down 3.29 points
AMX Midcap index      574.33, down 5.14 points
Govt bonds            unchanged to slightly higher

Major losers:
   
Staffing groups led fallers, with Vedior giving up 1.63 pct at 15.74, Randstad down 2.4 pct at 44.70 and USG People losing 1.7 pct at 57.85
   
Financials continued their slide, Aegon shedding 1.33 pct to 12.59,  Fortis slipping 1.46 pct to 26.31, ING giving up 1.12 pct to 30.04 and ABN Amro 0.67 pct lower at 20.79
   
Hagemeyer shed 1.6 pct at 3.69
   
Philips was down 1.14 pct at 22.54 before second-quarter results, due on Monday, ASML dropped 1.13 pct to 14.86 and TomTom fell 1.31 pct to 27.82
   
       
Major gainers:
   
Oil-related stocks were the only gainers among blue chips as crude prices surged, with SBM Offshore adding 0.14 pct at 21.48 and Royal Dutch Shell edging up 1 cent at 26.66
   
Construction company Ballast Nedam climbed 1.2 pct to 32.70 after strong first-half results

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