UK/Euro Financial Market Daily Morning Briefing 17-04-2007

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London shares open lower as await key US and UK inflation data

Leading shares were lower at opening after closing at 6-1/2 year highs yesterday with Wall Street also finishing higher, as investors nervously await key inflation data from both the US and the UK, dealers said.
   
At 9.10 am, the FTSE 100 index was 20.8 points lower at 6,495.4 having closed yesterday at 53.8 points at 6,516.2, its highest level since August 2000. Volume was light, with 347 mln shares changing hands 56,764 deals. The FTSE 250 index was also 41 points lower at 11,974.9.
   
Meanwhile, Wall Street closed higher as better-than-expected profits at Citigroup Inc. and a healthy increase in consumer spending renewed investors' optimism about the economy
   
The Dow Jones Industrial Average index rose 108.33, or 0.86 percent, to 12,720.46, while the Nasdaq Composite index rose 26.39, or 1.06 percent, to 2,518.33.
   
In the US today, on the macro front investors' eyes will be focused on retail inflation which in March is seen rising 0.7 pct, as measured by the Labor Department's Consumer Price Index. Excluding volatile food and energy prices, 'core retail inflation' is seen rising 0.2 pct in March.
   
Meanwhile, housing starts are seen falling to 1.485 mln units in March, following February's 1.525 mln units. Building permits, which are a gauge of future starts, are seen continuing to fall. Economists expect permits to decline to 1.510 mln units in March from February's 1.532 mln units. Both starts and permits are down almost 30 pct from a year ago.
   
Elsewhere, industrial production is seen rising 0.1 pct in March after rising 1.0 pct in the prior month, while capacity utilization is expected to have fallen a tick to 81.9 pct.
   
Meanwhile, Asian indices were lower with the Tokyo's Nikkei 225 index closing down 100.85 points or 0.57 pct at 17,527.45 and the Hong Kong's Hang Seng index closed 31.08 higher at 20,788.61.
   
Elsewhere, crude oil prices were mixed in Asian trading hours in a market focused on US inventory levels.
   
The New York Mercantile Exchange's main oil futures contract, light sweet crude for delivery in May, was at 63.61 usd a barrel, unchanged from its level in late trading in the US overnight. Brent North Sea crude for June delivery had gained 0.33 usd at 67.58 usd.
   
Back in London, on the macro front, inflation figures will be the highlight of today's UK data releases.
   
UK annual CPI inflation is set to edge up to 2.9 pct in March from 2.8 pct in February, remaining way above the Bank of England's 2.0 pct target and keeping on track expectations that interest rates will rise again soon, most likely next month.

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In London, earning news was the main focus for investors today.
   
On the downside, in the blue-chips, Experian Group was 13 lower at 589 after company's second-half trading update failed to meet consensus expectations, with Merrill Lynch noting the UK performance disappointed slightly.
   
The group said revenues rose by 16 pct in the second half of its financial year, with a strong performance from its Decision Analytics division offsetting slower growth in sales to UK financial services companies. Experian said total sales from continuing operations in the six months to March 31 2007 were 16 pct up on the same period a year earlier at actual exchange rates.
   
Meanwhile, mining stocks were down on profit-taking with BHP Billiton falling back 19 at 1,161, Antofagasta down 4 at 523-3/4 and Anglo American 38 lower at 2,718.
   
Elsewhere, broker comment helped Hammerson fall back 10 at 1,144 after Citigroup downgraded the group to 'hold' from 'buy' at Citigroup, as the broker noted that shares in the property development firm are fully valued.
   
Citigroup said shares in Hammerson have been volatile as a result of rumours of M&A activity, although the broker noted that the group does look like an attractive take-out prospect.
   
On the upside in the blue chips, Tesco was in the spotlight as the highest riser up 7-1/2 at 466 after it reported full-year earnings which were ahead of the consensus market expectation, and committed to returning 3 bln stg to shareholders this year.
   
Underlying pretax profit for the year to Feb 24 rose 13.2 pct to 2.55 bln stg, from 2.25 bln stg the year before. Analysts' forecasts had ranged between 2.35-2.62 bln stg, with the consensus at 2.49 bln stg. Merrill Lynch has repeated its 'buy' stance on Tesco and target of 480 pence.
   
Turning to the mid-caps, earnings news was also a focus, Debenhams was 20 lower at 152 after warning that it now expects profit for its year to end-August 2007 to be below current market expectations.
   
The group, which rejoined the stock market last May after two-and-a-half years in private hands, said its sales from March 4 (the beginning of its second half) to April 15 increased 2.9 pct versus the prior year but fell 6.9 pct on a like-for-like basis, which strips out the impact of new and closed space.
   
However, Merrill Lynch reiterated its 'buy' stance and said trading has deteriorated sharply over Easter "so that hopes of a recovery this season now look optimistic".
   
Meanwhile, Burberry Group were down 8-1/2 at 700-3/4 after second-half results came in in-line, with Merrill Lynch maintaining its neutral recommendation on the stock on valuation grounds.
   
Earlier today, the luxury brand announced that it saw a 20 pct increase in underlying revenue for the second-half.

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Elsewhere, in results news, housebuilder Bellway fell back 7 at 1,673 after it unveiled pretax profits for the first half of the year up by 14.8 pct to 100.8 mln stg.
   
The company said interim revenues had grown 13.6 pct to 576.5 mln stg, and homes sold were up 10.3 pct to 3264. This had a slight impact on operating margins, which the company said were down from 19 pct to 18.7 pct.
   
Dresdner Kleinwort reiterated its 'sell' stance for Bellway and noted that, while results were slightly above expectations, the company had a challenging second half ahead.
   
Meanwhile, Mouchel Parkman fell back 3 at 469 on profit-taking after it reported pretax profits for the first half of the year up 17 pct to 13.6 mln stg, up from 11.6 mln stg.
   
ABN Amro was expecting the group's pretax profit to be up 16 pct at 14.25 mln stg, with earnings per share up 18 pct at 9.37 pence.
   
Elsewhere, EMI Group was 3 lower at 216-3/4 ahead of tomorrow's trading update and after the Financial Times reported that the group's share of the UK record album market has fallen below 6 pct.
   
On the upside, among the mid-caps also in earning news, Venture Production was up 13-1/2 at 710 after it announced it was paying an inaugural dividend of 50 pence a share, including a 40 pence special pay-out, after it reported a more than doubling in annual profits, thanks to strong oil prices and volumes.
   
Net profit for 2006 rose 162 pct to 81.6 mln stg, broadly in line with the consensus forecast of 81.9 mln stg. Pretax profit grew 217 pct to 176.7 mln stg, while revenue increased 120 pct to 360.3 mln stg.
   
Bridgewell was anticipating that Venture Production profit before tax and clean net income will triple year-on-year to 196 mln stg and 98 mln stg, respectively.
   
Also on the upside, Pendragon was 1-1/4 firmer at 125-3/4 after the Financial Times said that the group could be a private equity buy-out target.
   
Broker comment also helped Biffa and Shanks up as Goldman Sachs issued bullish commentary on the pair and raised the possibility of them being involved in sector consolidation. Shanks was up 8 at 259-3/4 and Biffa was 6-1/2 higher at 325-1/2.
   
Finally, Bluebay Asset Management was up 5-1/2 at 440 after after the group announced a positive trading statement this morning with Citigroup reiterating its 'buy' recommendation and 510 pence price target.

UK 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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PARIS - Market data at 9.58 am:

Major indices:
   
CAC-40 down 22.63 or 0.39 pct at 5,839.34
SBF-80 down 19.07 or 0.26 pct at 7,332.34
SBF-120 down 15.51 or 4,286.97

Volume: 600 mln eur
7 CAC-40 stocks up
33 CAC-40 stocks down

Major gainers:
   
Peugeot up 1.17 or 2.05 pct at 58.24, upped to 'overweight' by Morgan Stanley as broker, market rerating continues
   
Remy Cointreau up 0.71 or 1.38 pct at 52.11, after reporting better-than-expected FY sales showing strong organic growth
   
Faurecia up 0.66 or 1.18 pct at 56.81
   
Societe Generale up 1.22 or 0.88 pct at 140.00

Major losers:
   
Danone down 2.66 or 2.18 pct at 119.49, reported stand-off over Chinese jv continues
   
Vallourec down 3.32 or 1.64 pct at 193.77 on profit-taking
   
L'Oreal down 1.22 or 1.40 pct at 85.87 ahead of Q1 sales report tonight
   
Iliad down 0.78 1.00 pct at 77.12, reportedly lost out to Neuf Cegetel in race to acquire Deutsche Telekom unit Club Internet
   

Most active stocks:
   
Societe Generale in 100 mln eur
   
Peugeot in 50 mln
   
BNP Paribas down 0.34 oe 0.41 pct at 83.02 in 50 mln
   
Danone in 44 mln

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FRANKFURT - market data at 10.15 am

Major indices
   
DAX - down 8.84 points, or 0.12 pct, at 7,329.22
MDAX - down 61.69 points, or 0.58 pct, at 10,661.01
TecDAX - down 2.19 points or 0.24 pct at 892.40
DAX futures - down 15.00 points, or 0.20 pct, at 7,375.50

Major decliners:
   
Henkel, down 2.54 eur or 2.21 pct at 112.41, as its shares traded ex-dividend this morning (1.44 eur dividend for regular shares, 1.50 eur for preferred shares)
   
Bayer, down 0.40 eur or 0.80 pct at 49.29
   
BASF, down 0.73 eur or 0.80 pct at 90.17 as traders pointed to profit-taking off recent gains
   
Metro, down 0.34 or 0.61 pct at 55.29   
   
Major Advancers:
   
RWE, up 0.87 eur or 1.04 pct at 84.34
   
TUI, up 0.20 eur or 0.98 pct at 20.52, gaining momentum after crossing a resistance barrier at 21 eur per share, rumours about possible takeover
   
Deutsche Boerse, up 1.40 eur or 0.78 pct at 181.40, after Citigroup reiterated its 'buy' stance and raised its price target to 201 eur per share from 175, saying the exchange operator was the strongest-performing diversified financial that the brokerage currently covers
   
EON, up 0.37 eur or 0.34 pct at 109.04
   
Allianz, up 0.45 eur or 0.27 pct at 166.12
   
Other Major Movers:
   
MDAX-listed MTU Aero Engines, down 0.61 eur or 1.36 pct at 44.30, after its shares were downgraded to 'neutral' from 'overweight' by JP Morgan
   
MDAX-listed Premiere, up 1.43 eur or 8.87 pct at 17.55, after its shares were raised to 'buy' from 'hold' by Deutsche Bank as the brokerage raised its price target to 24 eur per share from 12.50 saying an assessment of the
fundamentals shows that it is under-valued by the market   

MDAX-listed Bilfinger Berger, down 1.73 eur or 2.46 pct at 68.67, after its shares were dropped to a 'neutral' from 'buy' rating at UBS as the brokerage simultaneously raised its target to 79.50 eur per share from 68.50 saying
that expected gains have largely been priced in by the market
   
MDAX-listed Merck KgaA, down 2.63 eur or 2.66 pct at 96.33, after its shares were downgraded to 'neutral' from 'buy' at UBS, with the broker saying it believes the market has assumed an overly positive stance on two recent drug trials

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Amsterdam shares at a glance outlook

Forthcoming Events
   
Today
   
KPN AGM (2.00 pm)
   
Reed Elsevier PLC AGM, London

Company News
   
ABN Amro names Robert Moore, current vice president and chief financial officer for LaSalle Bank and ABN Amro North America, as head of North American business
   
Vopak signs long-term lease with Port of Rotterdam for Liquefied Natural Gas import and re-gasification terminal

Market Sentiment
   
Philips price target raised to 37 eur from 36 eur at ING on better-than-expected first-quarter results
   
Telegraaf Media Group cut to 'hold' from 'buy' at ING, with a 27.50 eur price target

Laurus Q1 sales
 
Forex

Pound comes within hair's breadth of 2.00 usd level

The pound came within a hair's breadth of the elusive 2.00 usd level today after UK inflation, as measured by the annual CPI, surged unexpectedly to an all-time high.
   
The CPI annual rate hit 3.1 pct in March, confounding predictions of a more modest 2.8 pct increase. The rise to levels above 3.0 pct means Bank of England governor Mervyn King will be forced to write an open letter of explanation to Chancellor of the Exchequer Gordon Brown.
   
In the immediate aftermath of the data, the pound hit a high of 1.9999 usd but stopped short of breaching the 2.00 usd level. The pound has not hit 2 usd since it was ejected from the ERM in 1992.

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