UK/Euro Financial Market Daily Morning Briefing 16-08-2006

London shares weak in early deals, retreating after NY leap ahead of data

Leading shares were weak in early deals, after yesterday's gains, as investors retreated from the 5,900 level, with strong gains overnight on Wall Street and in Asia countered by uncertainty ahead of key data today in the UK and the US, dealers said.
   
At 9.09 am, the FTSE 100 index was 29.9 points weaker at 5,868.0, also pinned back by ex-dividend factors which took nearly 15 points off the blue chip index with BT Group, Barclays, RBoS, and Aviva all lower as a result.
   
The broader FTSE indices were all lower as well, aside from the FTSE Small Cap index.
   
Early volume was fair, with 203 mln shares changing hands in 31,562 deals.
   
Overnight on Wall Street, the DJIA closed a hefty 132.39 points higher at 11,230.26, while the Nasdaq composite index ended 45.97 points firmer at 2,115.01 as inflation worries eased across the Atlantic following benign PPI numbers.
   
The buying spree continued today in Asia. The Nikkei 225 index at midday was 255.17 points stronger at 16,071.36, and the Hang Seng ended its morning session 152.70 points firmer at 17,426.77 boosted by the Wall Street advance.
   
The main focus today will also be on a key batch of economic data, most particularly the latest US inflation report, due out at 1.30 pm this afternoon.
   
After yesterday's tame PPI report, July US CPI is forecast to rise 0.4 pct, after June's 0.2 pct rise, although the core CPI rate is seen flat at 0.3 pct.
   
Investors will also have US July housing starts, industrial production, and capacity utilization numbers to digest today.
   
In the UK, however, all eyes initially will be on minutes from the Bank of England's last rate-setting Monetary Policy Committee meeting, which is expected to have voted unanimously for the quarter point hike in the repo rate to 4.75 pct announced on Aug 3.
   
Meanwhile, the latest UK labour market report is set to show that rising unemployment is helping to keep earnings growth relatively subdued.
   
Claimant count unemployment is expected to have edged up for the 16th month out of 17 towards the politically-sensitive 1 mln mark. Analysts expect the number to have risen 5,000 during July.

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The wider ILO unemployment measure is expected to have increased another 78,000 in the three months to June from the previous three months.
   
However, headline average earnings, including bonuses, are expected to have 4.1 pct in the three months to June, unchanged from the rate in May.
   
On the corporate front, aside from ex-dividend factors, the biggest FTSE 100 loser early on was British Energy, off 25-1/2 pence to 726 after the group's 145 pct rise in Q1 earnings was overshadowed by disappointing output figures and full-year outlook comments.
   
The nuclear power generator saw its adjusted pretax earnings before interest, depreciation and amortisation in the three months to July 2 rise to 289 mln stg from 118 mln stg in the same period the year before.
   
In reaction, Credit Suisse repeated its 'neutral' stance British Energy, saying the Q1 quarter numbers were slightly ahead of its and consensus forecasts, but the 2007 output forecasts look a 'bit shaky'.
   
Blue chip power station peer Drax suffered in sympathy, losing 13 pence at 948, while International Power shed 3-1/2 pence at 316-1/4.
   
Other utility issues were also under the cosh today, undermined by a cautious note from Evolution Securities, cutting price targets across the board in the sector, mainly on valuation grounds.
   
The broker also made two rating changes, downgrading blue chip United Utilities to 'add' from 'buy' and midcap Northumbrian Water to 'sell' from 'reduce'.
   
United Utilities shares eased back 1-1/2 pence to 681, while Northumbrian Water was the biggest FTSE 250 faller, down 7-1/2 pence at 258-1/2 also after going ex-dividend today.
   
Elsewhere with broker changes, blue chip insurer Royal & Sun Alliance -- which also traded ex-dividend today -- shed 1-1/4 pence at 131-1/4 after specialist financials broker Fox-Pitt Kelton cuts its stance to 'underperform' from 'in-line'.
   
On the upside with blue chips, Tate & Lyle was the top riser, adding 14 pence at 706 after Citigroup raised its price target on the food producer to 800 pence per share from 630 and reiterated its 'buy' rating.

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The US broker also increased its EPS estimates for Tate & Lyle by 8 pct in 2007 and by 6 pct in 2008, 4 pct and 9 pct above consensus respectively, following last month's bullish trading update and Mexican High Fructose Corn Syrup news.
   
Meanwhile BAE Systems shares took on 24-1/2 pence at 727 after Morgan Stanley reiterated its 'overweight' stance albeit with a lowered price target of 450 pence, down from 480, to reflect dilution from the sale of its Airbus stake.
   
The broker said it feels BAE's superior growth outlook deserves a premium.
   
And a bounce back by heavyweight mining issues today thanks to firmer gold and silver prices failed to reverse the FTSE 100's gloom.  
   
Rio Tinto shares gained 38 pence at 2.733, BHP Billiton added 9 pence at 998, Anglo American firmed 20 pence at 2,354, and Vedanta Resources took on 12 pence at 1,280.
   
On the second line, Inmarsat was once again a top gainer, adding another 16-1/4 pence at 351-1/2 in a continuing positive read-across from the ongoing auction for the US Advanced Wireless Services spectrum.
   
Carphone Warehouse also moved higher again, up 3 pence to 266-3/4 after newspaper reports highlighted talk of a possible 330 pence a share private equity bid for the telecoms retailer, even though traders dismissed such a move as 'highly unlikely'.
   
And Ashtead Group took on another 5-3/4 pence at 125-3/4 after the recent completion of its 1 bln usd acquisition of US firm NationsRent.
   
On the downside ex-dividend issues helped limit the FTSE 250 gains, with DS Smith, GKN, SSL, and Stanley Leisure all losing pay-out attractions today.
   
Elsewhere, broker comment impacted Cable & Wireless shares, down 1-1/4 pence to 123 after being downgraded to 'hold' from 'buy' by Dresdner Kleinwort with am unchanged target of 120 pence.
   
The German broker pointed out that although it still sees potential for UK value creation by C&W, it believes it is still too soon to buy into the UK-turnaround and expects currency downgrades to weigh on the stock for the rest of 2006.

UK Diary of Events

For a list 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 9.54 am:

Major indices:
   
CAC-40 up 0.06 at 5,114.96
SBF-80 up 6.33 at 5,566.84
SBF-120 down 0.35 at 3,682.96

Volume: 450 mln eur
18 CAC-40 stocks up
21 CAC-40 stocks down

Major gainers:
   
Seb SA up 3.10 or 3.45 pct at 93.00 after acquisition of China's Zhejiang Supor Cookware group
   
EADS up 0.37 at 23.52 share still volatile
   
Alcatel up 0.15 at 9.36 re-rating continues

Major losers:
   
L'Oreal down 0.45 at 79.30 on profit-taking after strong gains
   
Michelin down 0.29 at 48.29
   
Total down 0.25 at 53.45 on profit-taking

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AMSTERDAM - Market data at 9.49 am:

Major indices
   
AEX                461.17, down 0.08 point
AMX Midcap         576.68, up 3.15 points
Government bonds   mainly flat
 
Major losers
   
SBM Offshore was down 1.27 pct to 20.92 and Royal Dutch Shell fell 0.47 pct to 27.53.
   
Fortis shed 0.43 pct to 30.16.
   
Reed Elsevier lost 0.32 pct to 12.43 with the market disregarding the publisher signing a three-year academic agreement with the Jordanian Consortium.
   
Philips slid 0.27 pct to 25.84 with investors unimpressed by the company selling Philips Enabling Technologies Group (ETG) to VDL Group for an undisclosed amount. F.van Lanschot Bankiers said that while gains on the sale will be minimal, the move shows Philips is continuing on the road to becoming a more "focused" company.

Major gainers:
   
Ordina rose 3.73 pct to 17.22 after Rabo Securities upgraded the issue to 'buy' from 'hold' and raised the price target to 20.0 eur from 17.5 on the strong ICT services market.
   
Unit 4 Agresso was 2.95 pct higher to 15.70 after ABN Amor reinitiated coverage of the stock at 'buy', with a price target of 20 eur.
   
Crucell was up 2.66 pct to 16.57 with analysts expecting news from the WHO in the very near future regarding Quinvaxem, Crucell's new vaccine against diphtheria, tetanus, pertussis, hepatitis B and flu type B, F.van Lanschot said. Pharming added 1.39 pct at 3.66.
   
ASMI put on 2.01 pct to 13.21 and Getronics advanced 1.32 pct to 5.39.
   
TomTom was up 1.47 pct to 31.12.
   
Fugro went 0.88 pct higher to 34.33, boosted by Theodoor Gilissen upping its rating to 'buy' from 'hold' on last week's strong H1.
   
ABN Amro strengthened 0.38 pct to 21.04 after ING increased its recommendation to 'buy' from 'hold' on upside potential.

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Frankfurt - Market data at 09.50 am

Major indices:
   
DAX 30 - 5,781.45, up 4.37 points or 0.09 pct
MDAX - 8,025.28, up 47.0 points or 0.59 pct
TecDAX - 642.71, up 3.82 points or 0.61 pct
DAX future - 5,794.5, down 14.5 points or 0.25 pct
Bund future - 116.31, down 0.04 points or 0.03 pct

Major gainers
   
SAP, up 3.35 eur, or 2.26 pct at 146.32: DK reiterates 'buy' Tuesday
   
TUI, up 0.22 eur, or 1.52 pct at 14.73: AXA ups stake to 5.07 pct  
   
MAN, 0.5 eur, or 0.87 pct at 57.86
   
ThyssenKrupp, up 0.2, or 0.6 pct at 26.73
   
Siemens, up 0.36 eur, or 0.56 pct at 65.10: CS reiterates 'outperform'
   
Major losers:
   
Hypo Real Estate, down 0.5 eur, or 1.1 pct at 4470
   
E.ON, down 0.79 eur, or 0.81 pct at 99.15: profit taking
   
Metro, down 0.45 eur, or 0.97 pct at 45.76
   
Bayer, down 0.37 eur, or 0.85 pct at 39.72  
   
Linde, down 0.55 eur, or 0.82 pct at 68.50

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