UK/Euro Financial Market Daily Morning Briefing 14-08-2006

London shares spike higher at open as BA gains from cut in terror threat

LONDON - Leading shares spiked higher at open as news that the government lowered its terrorism alert level overnight added to a further drop in oil prices amid hopes a ceasefire in the Middle East will hold, dealers said.

At 9.06 am, the FTSE 100 was 21.7 points firmer at 5,852.3, with the broader indices all positive.

Meanwhile, Wall Street ended last week under pressure as investors feared stronger-than-expected retail sales could force the Federal Reserve to raise interest rates again later this year.

In response, the DJIA fell 36.34 points at 11,088.03, the S&P 500 was off 5.07 at 1,266.74, and the Nasdaq lost 14.03 at 2,057.71.

And interest rate worries are likely to overshadow the US markets this week with the release of wholesale-inflation figures on Tuesday followed by consumer data the following day.

Over in Asia the mood was mixed as the Nikkei index ended the morning up 237.26 at 15,802.28, while the Hang Sang started the afternoon session off 0.24 at 17,249.71.

Back in London, British Airways was an early gainer, up 3-1/2 at 373-1/2, as investors cheered news the government downgraded its security threat level from "critical" to "severe" as it appeared police apprehended all of the main figure
in last week's alleged transatlantic terror plot.

At the same time, the Department for Transport said passengers would now be allowed one piece of hand baggage, although the ban on carrying non-essential
liquids would remain.

But gains were capped after the national carrier said it has cancelled 20 pct of short-haul flights and five long-haul flights from London Heathrow today. The airline also said it also expects to cancel all domestic flights from London Gatwick airport, excluding flights to Jersey.

BP also found favour, 4 higher at 615, after the oil giant said it will keep part of its Prudhoe Bay oil field in Alaska working, guaranteeing about half the oil field capacity, despite major pipeline closures.

Peers Royal Dutch Shell took on 13 at 1,935 and Cairn added 27 at 2,045.

In turn the news helped to push crude prices lower overnight, alongside the start of an UN-brokered truce in Lebanon, paving the way for an Israeli withdrawal and the deployment of an international peacekeeping force.

Earlier this morning, New York's main contract, light sweet crude for delivery in September, was at 73.70 usd a barrel, down 0.65 usd from its close of 74.35 usd in the US Friday.

Elsewhere, PartyGaming rose 1 at 110 as small cap peer Betcorp Ltd turned in a strong rise in interim profits thanks to strong growth in customers and revenues.

This morning, Betcorp said it made a pretax profit of 4.6 mln usd compared to 1.9 mln a year earlier, while total gross revenue from players rose 75 pct to 22.0 mln usd.

But the group added that the recent legal upheaval in the US has prompted it to stop taking telephone bets from US residents.

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Broker comment also helped to drive sentiment, with Yell gaining 8 at 526 as UBS lifted its price aim on the directories group to 480 pence from 460, but kept its 'reduce' advice.

And Barclays took on 8 at 643-1/2 after Merrill Lynch added the bank to its Europe-1 portfolio list, with a 'buy' recommendation, after recent results confirmed its growth trajectory.

Likewise, Schroders firmed 10 at 831 as the fund manager was upgraded to 'overweight' by Bridgewell Securities as it recommended investors switch from peer Henderson Group.

The broker said that, although Schroders' interim results on Friday were mixed, the market's reaction to mark the shares down almost 10 pct was overdone.

Property stocks also continued their good run as investors bet on the mooted benefits of REIT status.

Liberty International took on 14 at 1,126, British Land gained 14 at 1,374 and Hammerson rose 14 at 1,263, further boosted by news it sold a retail park in Cardiff for 37.5 mln stg.

But in contrast, Vodafone lost 1 pence at 109, as the telecoms group was downgraded to 'hold' from 'buy' at Citigroup, hot on the heels of downgrades from ABN Amro and JP Morgan on Friday.

The US broker said the market is excessively sceptical of Vodafone's strategy and -- as the key management has been thinned out -- it believes the goals may not be reached as quickly as anticipated.

It also said positive catalysts are likely to be fewer in the near term than they have been in the recent past.

On the second line, Bodycote firmed 11 at 241-1/2 after UBS upgraded the engineer to 'buy' from 'neutral' by Merrill Lynch and raised earnings estimates.

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The US-owned broker pointed out that the mechanical engineer's shares have gone through a three-month period of underperformance, while the broker's 275 pence per share aim price implies over 20 pct upside for the shares.

It added it remains confident industrial production volumes will continue to grow through 2007, and believes Bodycote represents the best play on this trend out of the UK engineering stocks.

And M&A hopes lifted Stanley Leisure, 14-1/2 to the good after a report in the Sunday Times said Harrah's Entertainment is mulling a move into the UK casino market.

The paper said the world's largest gaming group is studying a proposal to buy Stanley Leisure and London Clubs International.

On the downside, Interserve sank 78 to 278 after the support services group suspended six senior staff after discovering accounting irregularities.

Earlier today, the group said it suspended six members of senior staff after unveiling accounting fraud in the Industrials division that will result in a 25 mln stg cut in net assets in interim results.

In earnings, shares in Michael Page edged lower in opening deals as the market digested a set of slightly disappointing first half results, while Bridgewell Securities retained a 'buy' recommendation, dealers said.

At 8.10 am, Michael Page shed 15-3/4 pence at 310 after the UK's second biggest recruitment firm posted interim results slightly below expectations.

In response, Bridgewell Securities reiterated its 'buy' stance on the stock, but noted the results were towards the lower end of a narrow range of forecasts, with the main culprit being Australia.

And finally, kitchen equipment Enodis slipped 5-1/2 at 163-1/2 as expectations grew US peer Middelby will walk away from a bid for the kitchen equipment ahead of its 'put up or shut up' deadline at noon today.

But the Financial Times reported that the decline in Enodis' share price following the collapse of talks could yet ignite interest from other buyers.

Diary:

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Paris shares at a glance outlook

PARIS - Shares are expected to open slightly higher in scant trading, as the few investors active on the market cover positions after the declines seen last week, dealers said.

On Friday, the CAC-40 edged up 8.88 points to close at 4,985.52, but the benchmark index fell 1.1 pct on the week amid fresh terror attack fears and worries about the likelihood of further interest rate hikes in the US.

This morning on the Matif, August CAC-40 futures were trading 40 points firmer at 5,029 ahead of the official opening, and the euro stood at 1.2752 usd compared with 1.2769 usd late on Friday.

FORTHCOMING EVENTS TODAY
-Rodriguez Group Q3 sales

TOMORROW
-French bank holiday for Assumption Day; markets open

COMPANY NEWS
-nil

POLITICS/MACROECONOMIC/MISCELLANEOUS
-Finance Minister Thierry Breton says sharp ECB rate hikes unnecessary, French economic growth on track to hit top end of government's 2-2.5 pct target.

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Amsterdam shares market data at 9.59 am - up, Ahold leads gains

AMSTERDAM - Market data at 9.59 am:

Major indices
AEX                454.36, up 2.60 points
AMX Midcap         566.78, up 1.33 point
Government bonds  flat to lower

Major gainers:
-Ahold shot up 2.67 pct to 7.31 in after reports stated that a group of investors headed by Centaurus is preparing to make an 11 bln eur bid for the Dutch food retailer. SNS Securities believes the hedge funds will press for fundamental changes at the Dutch food retailer, including selling major parts of it.

-Aalberts Industries rose 2.30 pct to 62.40 after the Dutch engineering group was upgraded by ING Securities and CA Cheuvreux in the wake of the company's better than expected first half results.
-Midcapper BAM went 1.70 pct higher to 15.55 after German peer Hocht ef reported in-line second quarter sales, and said sales in Germany were developing
well, a good augury also for BAM.
-Rodamco Europe put on 1.37 pct to 84.05 after the company came out with strong first half results.
-Philips lifted 1.11 pct to 25.47 and Getronics advanced 1.38 pct to 5.16.
-Hagemeyer increased 0.78 pct to 3.88, with investors disregarding ING lowering its aim price on the company to 4.25 eur from 4.50, on its more cautious sales scenarios, limited visibility on a potential economic slowdown and on copper prices.
-Royal Dutch Shell was up 0.51 pct to 27.70.

Major decliners:
-Aegon was down 1.89 pct to 13.48.
-Wolters Kluwer was off 0.11 pct to 18.25.
-Midcapper Ordina was 1.03 pct lower to 16.35.
-Corus was 0.87 pct lower to 5.73.
-Oce lost 0.77 pct to 12.95.
-Randstad slid 0.45 pct to 37.94 after US peer Michael Page came out with disappointing first half results.

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German shares close flat on weak Wall St; ThyssenKrupp leads fallers

Shares closed flat as Wall Street remained lower in early trade, with the DAX dragged down as ThyssenKrupp slumped on news it plans 2.3 bln eur of US plant investments and as Deutsche Telekom slid on a UBS downgrade and a raft of aim price cuts.

The DAX 30 index closed 2.59 points or 0.05 pct lower at 5,628.37, having moved between a low of 5,602.30 and a high of 5,673.20 so far this session.

The MDAX was at 7,849.55, up 7.53 points or 0.10 pct, while the TecDAX was at 627.51, up 6.30 points or 1.01 pct.

The DAX futures contract was at 5,645.50, down 28.50 points, while the bund future was at 116.30, down 0.43 points.

The euro last traded at 1.2761 usd, against 1.2727 in London morning trade. 

ThyssenKrupp was the worst performer, slumping 2.17 eur or 7.68 pct to 26.10, extending earlier losses, as news it plans to build a steelworks unit and a stainless steel processing plant in the US at a total cost of some 2.3 bln eur sparked fears of a capital increase.

ThyssenKrupp already fell in morning trade as investors locked in profits after the steel conglomerate's stock rose ahead of today's solid third quarter earnings and t raised sales guidance, which some analysts said came as no surprise.

Deutsche Telekom was also deep in the red, sliding 0.33 or 2.95 pct 10.84, as UBS downgraded its rating on the telecoms giant to 'neutral' from 'buy' and lowered its price target to 12 eur versus 15.30.

Hot on its heels, JP Morgan cut its target on the telecoms giant to 10.50 eur versus 12.50, reiterating its 'underweight' rating, on the back of yesterday's profit warning, while Deutsche Bank lowered its target to 12 eur from 17, reiterating its 'buy' stance.

Lehman Brothers also cut its price target to 13 eur and Citigroup to 11.50 eur.

Commenting on its downgrade, UBS said that Deutsche Telekom's guidance cut was more severe than it had expected.

TUI was another weak spot, dipping 0.170 or 1.14 pct to 14.76, extending yesterday's solid losses, after a raft of brokers cut their price targets on the stock following yesterday's profit warning, with Goldman Sachs lowering its target to 11.60 eur from 13.40 and reiterating its 'sell' rating.

At the other end of the market, Deutsche Boerse added 2.91 eur or 2.61 pct to 114.34, while Hypo Real Estate rose 0.64 eur or 1.43 pct to 45.40.

Allianz jumped 1.44  eur or 1.13 pct  128.60, after its French subsidiary, Assurances Generales de France, posted first half results exceeding market expectations, and with Exane BNP Paribas upgrading AGF to 'outperform' from 'neutral'.
   
Peer Munich Re gained 1.28 or 1.13 pct to 114.07.

On the MDAX, Vivacon climbed 0.74 eur or 4.39 pct to 17.60, while EADS dipped 0.77 eur or 3.30 pct to 22.55.

Forex Sterling Exchange Rates

US dollar
yen 116.42 up from 116.30
sfr 1.2388 unchanged

Euro
usd 1.2757 up from 1.2742
stg 0.6735 up from 0.67428
yen 148.48 up from 148.23
sfr 1.5796 up from 1.5790

Sterling
usd 1.8931 down from 1.8935
yen 220.38 up from 220.28
sfr 2.3445 down from 2.3467

Australian dollar
usd 0.7672 up from 0.7671
stg 0.4051 up from 0.4050
yen 89.33 up from 89.25

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