UK/Euro Financial Market Daily Morning Briefing 16-03-2007

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London shares lower in early deals amid triple-witching; M&A talk remains

Leading shares fell back in early deals in what is expected to be a volatile session amid triple-witching in the UK markets and quadruple-witching on Wall Street later today, with Imperial Tobacco and Unilever both outperforming on M&A talk, dealers said.
   
At 8.46 am, the FTSE 100 index was down 31.5 points at 6,101.7, reversing some of yesterday's gains when M&A fever pushed the index to close up 132.5 points at 6,133.2.
   
The broader indices also traded in negative terrain, while early volume was firm, with 149.0 mln shares changing hands in 34,070 deals.
   
In the US overnight, Wall Street managed moderate gains, buoyed by signs of strength in corporate takeover activity, jobs and overseas markets, even as investors digested news of a sharp rise in wholesale inflation.
   
The Dow Jones closed 26.30 points ahead at 12,159.70, while the Nasdaq Composite ended 6.96 points firmer at 2,378.70 and the S&P 500 index took on 5.15 points at 1,392.30.
   
In Asia this morning, a mixed trading session saw Tokyo's Nikkei close lower amid profit-taking and caution over the US economy, while Hong Kong's Hang Seng returned to early session losses to also close in the red. The Nikkei 225 index closed down 116.24 points at 16,744.15 and the Hang Seng ended 15.94 points weaker at 18,953.50.
   
Turning to London, today's session is expected to be a volatile one, with investors worn out after a busy week and also rushing to square their options and futures orders ahead of the expiration of contracts for stock index futures, stock index options and stock options -- an event known as triple-witching when they occur on the same day.
   
Among the blue-chips, a number of stocks were hit by profit-taking following yesterday's M&A fever and recent earnings results, with J Sainsbury down 3-3/4 pence at 539 this morning, 3i Group 7-1/2 pence lower at 1,121-1/2 and Morrison Supermarkets slipping 5 pence at 308.
   
The latter was also under pressure following a critical report in The Times today of new chief executive Marc Bolland's review of the company.
   
The newspaper said the plans to reposition Morrisons as a "food specialist for everyone", and the lack of details regarding its intention to rebrand, are "half-baked".
   
Elsewhere, commodities issues weighed as oil prices remained below 58 usd a barrel, after OPEC ministers said they would maintain crude production at existing levels. The sector was also hit as base metals miners reversed yesterday's gains.
   
BP lost 5 pence at 511-1/2, Royal Dutch Shell dipped 15 pence at 1,632 and BG Group fell back 3-1/2 pence at 635-1/2.
   
Among the miners, Antofagasta dropped 6-1/2 pence at 469, Anglo American was 33 pence weaker at 2,455 and Xstrata slipped 26 pence at 2,399.

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On the upside, however, Unilever led the outperformers, taking on 31 pence at 1,515 amid rehashed talk the Anglo-Dutch consumer goods giant could be the latest group to fall prey to a private equity bid.
   
The Independent newspaper said the rumours first did the rounds a year ago but added that the majority of sector watchers laughed off the possibility of such a deal, which in dollar terms would be among the largest ever taken by private finance.
   
Meanwhile, other traders said sentiment may be lifted by hopes Unilever could come under pressure to demerge its food business after news yesterday that Cadbury Schweppes plans to split its confectionery and Americas Beverages operations.
   
Imperial Tobacco also rallied, 36 pence better at 2,258, extending yesterday's gains when it jumped more than 8.5 pct after confirming it had made an offer to buy Spanish peer Altadis at 45 eur per share.
   
Responding to yesterday's news, Dresdner Kleinwort today said Imperial's record gives it the credence to bid higher, noting it sees earnings enhancement even at 50 eur per share, although the broker added that the year-three return on invested capital (ROIC) level looks "challenging."
   
Peer Gallaher continued to ride on the back of the sector consolidation hopes, up 1 pence at 1,131 this morning.
   
On the second line, HMV Group dropped 5-3/4 pence to 120 after Morgan Stanley downgraded the music group to 'underweight' from 'equal-weight' with a reduced target of 100 pence, saying the firm's addressable market seems to be in terminal decline. The broker said it is advising investors to actively reduce exposure to the stock.
   
Debenhams was also on the back foot, losing 2-3/4 pence at 174-1/4 after the UK's second-largest department store group announced it has seen its underlying sales continue to fall, but it added that it expects first-half profits in line with internal hopes.
   
In response, Merrill Lynch cut its price objective to 210 pence from 220 and said the first half to the end of February closed with further slippage in like-for-like sales from around a drop of 4.5 pct to around 6 pct.
   
On the upside, meanwhile, Gyrus Group, PayPoint and AGA Foodservice Group were all in demand following this morning's trading updates.
   
PayPoint was the top mid-cap riser, up 34-1/2 pence at 606-1/2, after the UK cash and internet payments group said its 11 month to end-Feb trading has been ahead of analysts' forecasts with transaction volumes up 29 pct and revenues up 32 pct compared with same period last year.
   
The company also said it expects terminal growth to exceed its target of 17,000 by the end of the current financial year.
   
Gyrus took on 13-1/4 pence at 442-1/4 after the medical devices maker reported 20 pct growth in underlying earnings for 2006, a touch better than forecast, and predicted further improvement in profit margins this year.

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Adjusted earnings per share climbed to 17.1 pence from 14.2 pence the previous year. Analysts were expecting 16.16 pence, according to an average of six forecasts collated by Thomson Financial.
   
And finally, AGA added 12-1/2 pence at 421-1/2 after the producer of premium range cookers and refrigerators said it saw its pretax profit for the year to Dec 31 2006 rise 7.7 pct to 46.0 mln stg, with group revenues up 15.2 pct to 47.7 mln stg and EPS up 8.7 pct to 28.7 pence.
   
The company said it will pay a 50 pence dividend -- including a 43 pence special dividend and 7 pence final dividend -- at a cost of 65 mln stg.
   
On the economic front, no UK data of note is due for release today, but in the US a raft of key indicators will keep investors occupied.
   
Retail inflation is seen rising 0.3 pct, as measured by the Labor Department's Consumer Price Index. Excluding volatile food and energy prices, 'core inflation' is seen rising 0.2 pct in February for the third month in a row.
   
"Growth in non-energy commodity prices has been remarkably low and stable, even falling slightly over the past two years," said IFR Markets analyst Jeoff Hall.
   
Meanwhile, industrial production is seen rising 0.3 pct after falling 0.5 pct in the prior month, while capacity utilization is expected to have risen a tick to 81.3 pct.
   
And finally, consumer sentiment, as measured by the University of Michigan, is seen falling slightly to 89.4 in early March from 91.3 in late February. Hall expects the current situation index to drop due to high oil prices and the sudden dip in stocks.

US Summary

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UK Diary of Events

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Paris shares AFX at a glance outlook

Forthcoming Events
   
Today
   
Jan current account balance, 0745 GMT
   
EADS' Airbus workers to protest restructuring plan at various sites
   
Deadline for presidential candidates to submit signatures from 500 local authorities to get on ballot
   
Monday
   
Ipsen FY results
   
BioMerieux FY results
   
Constitutional Council to confirm which presidential candidates will be on ballot (Mar 19 or later)

Company News
   
SKorea's POSCO taking steps to prevent takeover, no talks with Arcelor Mittal
   
Clarins FY net 223.3 mln eur vs 96.7 mln
   
Stallergenes FY net 14.6 mln eur vs 13.8 mln
   
Zodiac H1 sales 1.179 bln eur, up 8.5 pct
   
SKorea's Kyobo Life confirms sale of its online auto insurance unit to AXA
   
Total CEO sees cost of Iranian Pars rising; LNG project 'not ready' yet
   
Imerys offer for UCM extended to March 22
   
Sanofi-Aventis to launch easier-to-use insulin pen next month
   
Sarkozy says shareholder structure EADS' main problem; to seek new shareholders

Market Sentiment
   
Total upgraded to 'overweight' vs 'equal-weight' at Morgan Stanley
   
Gemalto cut to 'neutral' vs 'buy' at Goldman Sachs

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AMSTERDAM - Market data at 10.19 am

Major indices
   
AEX                 482.84, down 0.55 point
AMX Midcap          691.11, up 0.05 point
Government bonds    mainly unchanged

Major losers:   
   
Arcelor Mittal slid 0.97 pct to 37.92.
   
Royal Dutch Shell was down 0.83 pct to 23.98.
   
Financials were lower, with ABN Amro down 0.84 pct to 27.23, Aegon 0.57 pct lower to 31.21, ING off 0.53 pct to 30.09 and Fortis losing 0.54 pct to 31.22. Van der Moolen fell 1.73 pct to 3.97 and Binckbank weakened 1.44 pct to 13.65.
  
Buhrmann shed 10.29 pct to 10.23 after Citigroup cut its price target on the issue to 13 eur from 14.

Major gainers:
   
Getronics soared 6.92 pct to 6.64 amid rumours the company is preparing itself for a takeover by KPN. KPN put on 0.44 pct to 11.36 following the reports.
   
The telecom said it has no definite comment to make on the report, although it confirmed it was looking to expand in the ICT sector. Analysts said the takeover rumour was highly speculative. 
   
Unilever rose 3.06 pct to 21.55 amid a renewal of rumours the Anglo-Dutch consumer goods giant could be the latest to fall prey to a private equity bid, dealers said.
   
Rodamco Europe lifted 1.31 pct to 101.75.
   
Randstad added 0.94 pct at 54.90 after ING upped its target for the issue to 65 eur from 64.
   
TNT edged 0.21 pct higher to 32.66 after joint venture Spring Global Sales handed over responsibility for its US distribution operations to Pitney Bowes, and said it will concentrate on its Europe and Asia operations. 
   
Ahold rose 0.25 pct to 7.93 as investors shrugged off an upgrade to 'add' vs 'hold' at Dresdner Kleinwort.

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German shares AFX at a glance outlook

Forthcoming events

Today
   
Allianz publishes annual report

Monday March 19
   
Deutsche Postbank FY results and annual news conference, Frankfurt (0800)

Market News
   
RHEINMETALL UPGRADED TO 'BUY' VS 'HOLD' AT DEUTSCHE BANK 
 
Forex

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