UK/Euro Financial Market Daily Morning Briefing 16-10-2007

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London shares open lower, await UK CPI figures, Northern Rock falls

Leading shares opened weaker after Wall Street closed lower on renewed concerns in the credit markets, with Northern Rock the biggest faller in the blue chips after reports emerged that shareholders may not get a penny, and as investors await UK CPI figures.
   
At 9.02 am the FTSE 100 index opened 39.1 points lower at 6, 605.3 having closed yesterday 86.2 lower at 6, 644.5 while the FTSE 250 index fell back 70.3 points at 11, 369.6. Volume was average with 282 mln shares changing hands in 70, 294 deals.
   
"Weakness across the board with banks dragging the market down following stories by Northern Rock, Lloyds TSB and Citigroup Inc. Vodafone is also helping to drag the index lower following news that its European peer Ericsson has reported bad figures," said Mark Priest, head of equity sales at Tradindex.
   
"The outlook looks bleak with stories beginning to unravel of how the credit  crunch has impacted companies. The Dow Jones futures are also pointing downward which is again not helping the market," added Priest.
   
Overnight on Wall Street, stocks pulled back sharply as news that major US banks will set up a fund to help bail out the credit markets stirred concerns about debt and as oil prices surged to 86 usd per barrel for the first time.
   
The concerns about banking came after Citigroup Inc, the biggest US bank, reported that third quarter results fell 57 pct. The company said it lost more than 3 bln usd in mortgage backed security losses, leveraged debt write downs and fixed income trading losses.
   
The Dow Jones Industrial Average index fell 108.28 to 13,984.80, while the Standard & Poor's 500 index was 13.09 weaker at 1, 548.71 and the Nasdaq composite index was 25.63 lower at 2,780.05.
   
Today, in US economic news, investors may be focused on industrial production predicted to be up a modest 0.1 pct in September after an only slightly bigger increase, 0.2 pct, in August.
   
Meanwhile, economists do not think housing will recover any time soon and they are expecting the October NAHB/Wells Fargo Housing Market Index of builder sentiment to fall again, down to 19 from 20.
   
On Asian markets, stocks were mostly lower tracking Wall Street's decline on renewed concerns about the crisis in credit markets and worry that record oil prices will hurt consumer spending in an already slowing economy.
   
The Hang Seng index ended the morning down 132.16 points at 29, 408.62, while the Nikkei 225 Stock Average ended the morning 175.79 points lower at 17,182.36.
   
In Asian trading hours, oil prices traded at a record high of 86.24 usd a barrel amid mounting tension between Turkey and Kurdish rebels in Iraq.   

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In late morning trade, New York's main oil futures contract, light sweet crude for delivery in November, was 20 cents higher than the 86.13 usd reached in late New York trades on Monday.
   
Brent North Sea crude for November delivery was 10 cents higher at a fresh record of 82.85 usd a barrel, after spiking 2.20 usd to 82.75 usd a barrel in London on Monday.
   
Turning to UK economics, the spotlight for investors will be on UK's key measure of inflation, the annual CPI rate, which is expected to edge up slightly in September but still remain below the Bank of England's 2.0 pct target for the third month in a row.
   
Annual CPI is forecast to increase to 1.9 pct from 1.8 pct in August, as this year's drop in petrol prices fails to match the steep decline witnessed in the same month a year earlier.
   
Meanwhile, core CPI is forecast to edge down on an annual basis, to 1.7 pct from 1.8 pct in August.
   
Turning to blue chips, dragging the FTSE lower again were the financials with Northern Rock again the biggest faller down 15 at 201 1/4 after the Telegraph reported that investors may not get a penny.
   
Lloyds TSB was off 11 at 536 1/2 after the Financial Times reported that the group was charged yesterday by US prosecutors with knowingly helping an international fugitive launder hundreds of mlns of dollars in illicit gains before and after he was indicted in 2002 by a federal grand jury.
   
Its peers were also lower, Alliance & Leicester fell back 9 at 745, Barclays was off 9 1/2 at 617 and mid cap group Bradford & Bingley was 4 1/2 lower at 258 1/4.
   
In broker generated news, Experian fell back 8 at 481 after Morgan Stanley downgraded the credit checking company to 'equal weight' from 'overweight' and cut its target by 24 pct to 560 pence citing a lack of short-term catalysts.
   
And Vodafone fell back 1.8 at 174.5 on read across after European peer Ericsson said third quarter results have come in lower than expected due to a shortfall in revenues from mobile network upgrades and expansions, which also impacted margins.
   
Citing preliminary numbers, the Swedish telecoms infrastructure giant said group sales were around 43.5 bln skr, operating income 5.6 bln and cash flow minus 1.6 bln in the quarter.
   
Turning to the upside, commodity stocks were in favour following record prices.
   
Vedanta Resources was the top riser up 35 at 2, 242 Lonmin was up 84 at 3, 709 Kazakhmys edged 16 higher at 1, 570 BHP Billiton rose 18 at 1, 845 and Xstrata gained 21 at 3,512.

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The sector was also helped by a broker upgrade by Morgan Stanley which raised its price targets across the sector in a mining review.
   
The broker reiterated its 'overweight' stances on Xstrata, BHP Billiton and Kazakhmys and raised its price target to 4,430 pence from 3,600, to 2,100 pence from 1,450 pence and to 1,715 pence from 1,300 pence respectively.
   
Looking at the second liners SSL International was the top riser up 24 1/2 at 523 1/2 buoyed by a positive trading update which said that the group expects sales to exceed 260 mln stg in the first half, driven by growth in Asia and Eastern Europe.
   
Like-for-like sales are expected to grow by 9 pct, with the Durex and Scholl brands contributing the greatest proportion of sales, the company said.
   
And, Mouchel Parkman, the group which today is re-branding to Mouchel Group, gained 5 3/4 at 423 after its said full-year pretax profit soared 82 pct amid a positive market outlook. Full-year pretax profit soared to 48.1 mln stg from 26.4 mln as revenue increased 20 pct to 448.4 mln.
   
Elsewhere, positive broker comment helped shares in QXL Ricardo gain 40 at 1,295 after Citigroup initiated shares with a 'buy' rating.
   
Derwent London was also in favour, up 18 at 1,698 after Lehman Brothers upgraded the group to 'overweight' from 'underweight' but lowered its target to 1,897 pence from 2,100 following the full integration of London Merchant Securities which it acquired last year.
   
Also in broker news, Qinetiq Group gained 1 3/4 at 184 after UBS started coverage on the group with a 'buy' stance and a 215 pence target.
   
Turning to the downside, Burberry fell back 8 at 657 1/4 following the global luxury brand's H1 trading update which Seymour Pierce described as solid, but not flawless.
   
Earlier, Burberry reported a 15 pct increase in H1 total revenue and said it is on track to achieve its full-year profit objectives. Seymour Pierce reiterated its 'hold' stance.

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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MILAN - Market data at 9.45 am:

Main indices
   
Mibtel at 31,578, down 0.34 pct
S&P/Mib at 40,354, down 0.48 pct

Main S&P/Mib losers
   
Uni Credit down 1.45 pct at 5.90 eur on continued uncertainty over its clients' exposure to derivatives losses, with dealers hoping to see more precise numbers from the bank
   
Mediobanca down 1.41 pct at 15.37
   
Intesa Sanpaolo down 1.21 pct at 5.32
   
Buzzi Unicem down 1.06 pct at 19.61
   
Generali down 1.00 pct at 30.83 after Merrill Lynch cut the stock to 'sell' from 'neutral' as the stock is trading at a premium to the sector, which is not deserved as better growth prospects are offset by a more opaque corporate governance structure
    
Main S&P/Mib gainers
   
Saipem up 1.75 pct at 31.45, at fresh record-highs, with dealers very bullish on the stock which is considered defensive in the market cycle and that is benefiting from the rise in oil-prices
   
Terna up 1.16 pct at 2.6675
   
Prysmian up 1.04 pct at 20.33
   
Tenaris up 0.59 pct at 18.84
   
AEM up 0.32 pct at 2.845

Other stocks in the news
   
Fiat down 0.58 pct at 22.33 on profit taking after yesterday's gains which made the stock surpass the 23.00 eur psychological threshold. Today, European automobile association ACEA said Fiat brand new car registration in August rose 3.4 pct against a drop among EU member States of 1.5 pct
   
Impregilo up 0.31 pct at 5.475 after the company announced a consortium it leads won a 230 mln eur deal to build a hydroelectric dam in Brazil
   
Lottomatica down 0.72 pct at 26.33 after Italian gaming group Sisal said it appealed to an administrative court the awarding of the concession for the lottery game Lotto to Lottomatica

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PARIS - Market data at 10.45 am:

Major indices:
   
CAC-40 down 46.53 points or 0.80 pct at 5,760.91
SBF-80 down 53.44 points or 0.76 pct at 6,948.90
SBF-120 down 33.97 points or 0.80 pct at 4,204.03

6 CAC-40 stocks up
34 CAC-40 stocks down

Major gainers:
   
Danone, up 0.60 or 1.11 pct at 54.45. Exane BNP Paribas issued a bullish note on the food group, saying it sees 50 pct upside in the share price over the next two years
   
Credit Agricole, up 0.01 or 0.04 pct at 27.23. JP Morgan upgraded the group to 'overweight' from 'neutral' in a review of French banks.
   
Pernod Ricard, up 1.82 or 1.21 pct at 152.66

Major losers:
   
Alcatel-Lucent, down 0.23 or 3.33 pct at 6.67, following a profit-warning from Sweden's Ericsson
   
Air France-KLM, down 0.56 or 2.06 pct at 26.64 as oil prices hit record highs
   
ArcelorMittal, 1.25 or 2.27 pct lower at 53.92

Most active stocks:
   
Alcatel-Lucent, 14.41 mln shares traded
   
Total, up 0.47 or 0.83 pct at 56.90. 2.31 mln shares traded

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AMSTERDAM - market data at 9.55 am
   
Major indices
   
AEX               550.19, down 2.88 points
AMX Midcap        729.53, down 1.50 points
Government bonds  mixed

Major decliners
   
Fortis shed 1.90 pct to 22.66 eur with investors unimpressed by news that DeGroof restarted tracking Fortis with a 'buy' rating
   
Arcelor Mittal dropped 1.99 pct to 54.04 eur amid news that it has reached a deal to acquire a further 25 pct stake in its four Polish steel mills from the treasury
   
Randstad lost 1.67 pct to 40.02 eur
   
Hagemeyer shed 1.61 pct to 4.88 eur
   
TomTom dropped 1.23 pct to 53.60 eur after it said it is gearing up to file for regulatory permission for its takeover of Tele Atlas with the European Commission. Tele Atlas dropped 1.93 pct to 22.86 eur
   
Ahold shed 1.10 pct to 10.78 eur after Dresdner Kleinwort cut the stock to 'add' from 'buy'

Major gainers
   
Boskalis added 1.21 pct to 39.40 eur
   
SBM Offshore rose 0.85 pct to 28.58 eur
   
Royal Dutch Shell added 1.15 pct to 29.87 eur

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