UK/Euro Financial Market Daily Morning Briefing 16-05-2007

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London shares lower early on, ahead of BoE inflation report; NY mixed

Leading shares were weaker in early deals, amid caution before today's quarterly inflation report from the Bank of England (BoE), and following a mixed close on Wall overnight, with UK retailers and Land Securities under pressure this morning, dealers said.
   
At 9.21 am, the FTSE 100 index was down 12.5 points at 6,556.1.8, while the broader indices were also higher. Volume was fair with 289 mln shares changing hands in 65,189 deals.
   
In the US overnight, Wall Street was mixed at the close, it had earlier given up a huge advance after an unimpressive snapshot of the housing market unsettled investors.
   
US stocks followed a months-long pattern of rising on upbeat economic data only to give back gains on the latest report of a decline in housing.
   
The Dow Jones closed up 37 points at 13,383.80, while the Nasdaq Composite fell 21.15 points at 2,525.29, and the S&P 500 index lost 1.95 points at 1,501.20.
   
In Asia this morning, Tokyo's Nikkei 225 index closed up 16.02 points at 17,529.00, and Hong Kong's Hang Seng was 35.78 points at 20,903.93 by midday. Still in Asia, oil prices were lower as the market looked ahead to an expected easing of tight gasoline supplies in a weekly US energy inventory report.
   
In London, on the macro front, today's quarterly Inflation Report by the BoE will be a closely watched affair with the fresh economic data likely to determine whether interest rates will have to rise again in the coming months.
   
Last week, the BoE hiked rates by a quarter of point to a six-year high of 5.50 pct to try and curb inflationary pressures. Most economists believe the BoE will modestly raise its CPI inflation forecasts for the near-term because of increased pricing power, firm oil prices and buoyant money supply growth.
   
In other news out today, the claimant count measure of unemployment is expected to fall by 5,000 in April with the rate remaining unchanged at 2.9 pct.
   
Average earnings -- including bonuses -- are expected to rise 4.8 pct, while growth is expected to remain unchanged from March at 3.6 pct once bonuses are stripped out.

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On the corporate front, DSG International lost 3.0 pence to 172.7, as the company said it sees full-year underlying operating profit in line with expectations, but this was offset by the retailer flagging restructuring and impairment charges of 180-200 mln stg, relating to the impairment of its Italian operations, the planned closure of PC City France and the sale of Genesis Communications, with Bridgewell reiterated its 'underweight' recommendation on the company.
   
Also in the retail sector, Sainsbury's, slipped back 2 at 556, after its better-than-expected full-year numbers were overshadowed by property valuation concerns.
   
Citigroup said the supermarket group's property comments will disappoint the optimists.
   
The broker noted Sainsbury today said its freehold property was worth 8.6 bln stg based on an 'investment basis valuation', but the broker pointed out this is still some way short of the speculated 10 bln stg.
   
Land Securities Group, down 60 at 1,958, after it reported a fall in full-year pretax profit but said the business is prospering and it looks to the future with confidence.
   
The commercial property group that earlier this year converted its 14.8 bln stg UK portfolio into a real estate investment trust (REIT), and reported a full-year pretax profit of 1.98 bln stg compared with 2.36 bln stg year ago.
   
In response, KBC Peel Hunt highlighted the company's cautionary comments, with retail markets 'in equilibrium' and demand still strong for offices but slightly less so. The broker said the stock is still at least 10 pct below fair value, but said it thinks British Land and Hammerson are more exciting.
   
On the upside, Vedanta Resources made headway, up 24 at 1,419, as the company's full-year EBITDA jumped to a record 2.703 bln usd, beating expectations. The copper and aluminium producer said its full-year results more than doubled, helped by higher production and metal prices. The news, prompted Cazenove to upgrade its recommendation to 'outperform' from 'underperform'
   
The good news from Vedanta, also fuelled interest in other mining stocks, with Lonmin up 61 at 3,820, while Rio Tinto gained 42 at 3,522.
   
Fellow miner BHP Billiton also gained, up 9 to 1,216, after announcing it has agreed to sell its Elouera mine, which is a part of the group's Illawarra Coal business located in the Australian state of New South Wales, to India's Gujarat NRE FCGL.

Lafite 1998:  06-07.. +91%  v  House Price Index:  06-07..  +7%
Latour 1996: 06-07.. +72%  v  Dow Jones:  06-07..  +14%
Liv-ex 100:   06-07.. +45%  v  Ftse 100:  06-07..  + 9%
CGT - 0% vs CGT- 40%

Source: The Times, December 2006. Free Information Pack Click Here

Also making good progress, Enterprise Inns, was up 8-1/2 at 778, having been upgraded to 'outperform' from 'underperform' at Credit Suisse, with the broker saying the possibility of full company conversion into a real estate investment trust (REIT) "changes everything", dealers said.
   
The broker said it has raised its price target to 850 pence from 610, and that it now estimates fair value of 743 pence if the REIT does not go ahead, but 1,071 pence if it does (based on a full-year 2008 dividend yield of 4.75 pct).
   
On the second line, Easyjet fell 15-1/2 to 576, having been downgraded to 'sell' from 'neutral' at Goldman Sachs, following last week's first-half results, although the broker hiked its target by 48.2 pct to 563 pence from 380.
   
Returning to economic news, in the US later today, housing starts in April are set to fall to 1.480 mln usd from 1.518 mln usd the previous month, while building permits are set to dip to 1.523 mln usd from 1.544 mln.
   
Industrial production in the US is expected to have risen by 0.2 pct in April from the previous month, offsetting the equivalent fall in March. Meanwhile, capacity utilisation is expected to have edged up to 81.5 pct from 81.4 pct.

UK Diary of Events

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

US Summary

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

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PARIS - Market data at 10.02 am:

Major indices:
   
CAC-40 down 26.00 points or 0.43 pct at 6,023.76
SBF-80 down 32.08 points or 0.44 pct at 7,257.62
SBF-120 down 18.88 points or 0.43 pct at 4,394.87

Volume: 683 mln eur
9 CAC-40 stocks up
31 CAC-40 stocks down

Major gainers:
   
Alstom, up 1.90 eur or 1.69 pct at 114.18
   
Vivendi, up 0.43 eur or 1.39 pct at 31.28, after posting stronger than expected first quarter results.
   
Accor, up 0.26 eur or 0.38 pct at 68.68. It said Monday is plans no big takeovers and expects to complete the sale of Italian foodservice unit Italie Gemeaz Cusin before the end of the first half.
   
Major losers:
   
Credit Agricole, down 1.15 eur or 3.49 pct at 31.80, after its first quarter net profit fell short of consensus.
   
Societe Generale, down 1.89 eur or 1.22 pct at 152.68
   
Renault, down 0.88 eur or 0.84 pct at 102.10, after data from an industry association showed Renault's European sales in April dropped 9.4 pct from a year earlier.
   
Most active stocks:
   
Arcelor Mittal, 87 mln eur, down 0.16 eur or 0.38 pct at 42.33
   
Vivendi, 84 mln eur
   
Credit Agricole, 64 mln eur

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FRANKFURT - market data at 9.58 am
   
Major indices
   
DAX - down 31.58 points or 0.42 pct at 7,473.77
MDAX - down 35.23 points or 0.33 pct at 10,768.64
TecDAX - down 3.84 points or 0.45 pct at 854.64
DAX futures - down 23.50 points, or 0.31 pct, at 7,499.00

Major Decliners:
   
FMC, down 2.06 eur or 1.79 pct at 111.47 as the shares traded ex-dividend
   
BMW, down 0.77 eur or 1.52 pct at 49.85, as the shares traded ex-dividend
   
Deutsche Boerse, down 1.73 eur or 1.04 pct at 164.38
   
Allianz, down 1.58 eur or 0.98 pct at 160.06
   
Continental, down 0.96 eur or 0.91 pct at 104.94

Major Advancers:
    
Deutsche Post, up 0.32 eur or 1.36 pct at 23.88, after HSBC upgraded the shares to 'overweight' from 'neutral' after its first quarter figures beat expectations yesterday.
   
Siemens, up 0.11 eur or 0.13 pct at 87.66, after WestLB upgraded the shares to 'buy' from 'add' citing the company's "improved medium term prospects" for its core divisions despite the current boardroom turmoil.
   
DaimlerChrysler, up 0.15 eur or 0.25 pct at 63.66.

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MILAN - Milan shares TFN market data at 9.53 am

Main indices
   
Mibtel at 33,970 points, down 0.18 pct
S&P/Mib at 43,926 points, down 0.22 pct

Main S&P/Mib gainers
   
Bulgari added 3.87 pct to 11.39 eur after the release of an above-consensus set of first-quarter results yesterday following market close.
   
BMPS gained 1.29 pct to 5.175 after a newspaper report said the bank could seek a tie-up with BBVA.
   
Main S&P/Mib losers
   
Alitalia fell 3.13 pct to 0.8705 after media reports said that investors ready to buy the company are not willing to pay more than 0.4 eur per share.
   
Finmeccanica slipped 1.23 pct to 21.64.
   
Other stocks in the news
  
ERG added 0.75 pct at 19.71. The stock was upgraded to 'buy' from 'hold' at Citigroup, with a target of 23.0 eur.
   
Geox added 1.21 pct to 13.28 after being upgraded to 'buy' from 'hold' at Deutsche Bank with a target of 14.8 eur.
   
Valentino was suspended and is due to resume trading at 10.30 am. In the meantime, Permira said it could bid for the company at 35 eur per share after buying a nearly 30 pct stake in the company.

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