UK/Euro Financial Market Daily Morning Briefing 17-07-2006

London shares lower, off opening highs, Israel/Lebanon conflict weighs

Leading shares drifted into negative territory this morning after a flat opening as investors remained apprehensive in the wake of an escalation to the conflict in the Lebanon, although a flurry of M&A speculation in the weekend press lent some support, dealers said.
   
At 9.00 am, the FTSE 100 was off 8.3 points at 5,699.3, drifting from an opening high of 5,719.9. Other UK indices followed suit as opening gains were wiped out. The FTSE 250 was off 10.0 points at 9,066.2.
   
Early volume was low with 117 mln shares trading in 21,146 deals.
   
On Friday, the Dow tumbled 106.94 to 10,739.35, while the broader stock indicators also declined. The S&P's 500 index dropped 6.09 to 1,236.20; the Nasdaq composite index declined 16.76 to 2,037.35, a 14-month low.
   
Key for this week will be when the US government releases data on both wholesale and consumer inflation mid-week. The Producer Price Index comes on Tuesday, while the Consumer Price Index follows the next day.
   
Over in Asia this morning, in Hong Kong the Hang Seng ended the morning session down 151.79 points at 15,983.92. The Tokyo markets are closed for a public holiday.
   
Among shares on the move and in the news this morning, GUS rose 15 pence to 979, after the Sunday Times reports that Blackstone and KKR will join forces in a 4 bln stg attempt to gain control of Argos and Homebase.
   
Elsewhere, BAE Systems was also an early riser, up 4-1/2 pence to 337-1/2, after it said it expects to be able to report "good progress" in the first half, adding this will support the full-year outlook.
   
In reaction, JP Morgan lifted its 2007 EPS by 4 pct to 27.5 pence, while lifting its price target to 420 pence from 410 pence following reports that the US budget has higher than expected amounts for BAE programmes.

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Oil stocks rose as oil remained close to record levels. New York's main contract for delivery in August, was at 77.35 usd per barrel, against 77.03 usd in late trade in the United States on Friday. During the New York session it touched a fresh all-time high of 78.40 usd.  
   
BP took on a penny at 644, Cairn Energy added 9 to 2104, and RDShell gained 6 to 1909.
   
William Morrison Supermarkets took on 0-1/4 to 194-1/4 as the market welcomed news of a disposal of six stores and a depot in Kent.
   
The group said it has exchanged contracts with Waitrose for the sale of six stores and a non-operational distribution site at Aylesford in Kent for an undisclosed sum.
   
Seymour Pierce reiterated its 'outperform' recommendation, saying the total gross assets should amount to around 83.86 mln stg, but noted it did not know how much of a premium over this would have been paid.
   
In earnings related news, Wolseley reported trading profit for the first 11 months to 30 June 2006 rose by around 20 pct on the same period in 2005.
   
However, the group said its trading margin was lower than the equivalent period last year due to the lower level of commodity price inflation, the initial impact of acquisitions and continued investment in human resources, facilities and technology.
   
UBS said the trading update implies 2006 pretax will come in at 779 mln stg, up 16 pct on 2005 but 4 pct below its estimate of 811 mln.
   
The broker added Wolseley continues to see good prospects in North America and is seeing improvement in both the UK and central Europe. The stock was flat at 1,121.
   
Meanwhile, British Energy fell 5 to 685, after the UK government was reported to be in the final stages of preparing to sell a big tranche of British Energy Group PLC, the country's largest producer of nuclear power, in a move that could raise up to 3 bln stg, according to The Sunday Times.
   
On the second line, and in other M&A news, Mars Bidco said it has reached a recommended 1,000 pence per share cash offer for McCarthy & Stone, valuing the company at about 1.028 bln stg.

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Mars Bidco was formed at the direction of funds advised by Permira and Barclays Capital.
   
Bridgewell Securities said the offer represents more than a 6 pct premium to Friday's closing price, and a 27 pct premium to the group's price prior to the board's announcement it has received bid offers.
   
The broker said this seemed a sensible offer, noting the price is in-line with its estimates that a unique strategic play in the housing sector can justify a price in the region of 2 times asset value. M&S shares were the FTSE 250 top riser, up 104 pence at 1046.
   
FTSE 100 peer Persimmon rose 13 pence to 1201 on the straight read across.
   
Elsewhere, the Mail on Sunday reports that the Taylor Nelson Sofres is thought to have received bid approaches from private equity firms, while trade buyers are also circling the troubled business. TNS shares gained 7 to 173.
   
Meanwhile, Sunday Times reports that there will be a dramatic twist in the 1 bln stg takeover of Misys, when three former directors propose a plan to assume executive control to stop the company being sold cheaply. Whereas the Sunday Telegraph reports that the Misys board evaluating 1 bln stg break-up bids. Misys took on 6 to 232.
   
Back in earnings related stories, shares in Peter Hambro Mining were higher as Merrill Lynch welcomed its positive trading update. Peter Hambro stock gained 34 pence at 1,320 pence.
   
The gold producer said it is on course with its output target of 260,000 ounces for 2006 after reaching 108,363 oz in the first half, up 6 pct year-on-year, with the Pokrovskiy mine contributing 93,600 oz.
   
On the macro front, US industrial production data for June is due later this afternoon and may show a small rise of 0.2 pct month-on-month.

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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AMSTERDAM - Market data at 9.59 am
   
Major indices
   
AEX                 427.09, down 1.24 points
AMX Midcap          564.51, down 5.42 points
Government bonds    Flat to higher

Major gainers
   
Philips led gainers, adding 2.48 pct to 22.75 eur, as investors welcomed better-than-expected second-quarter earnings
   
ASML rose 0.68 pct to 14.74 eur after an upgrade to 'neutral' from 'sell' at Nomura
   
Royal Dutch Shell added 0.38 pct to 26.71 eur amid high oil prices
   
Rodamco Europe rose 0.26 pct to 76.70 eur after it sold property worth 13.2 mln eur
   
Major losers
   
ING shed 1.08 pct to 29.42 eur after it announced the acquitision of ABN Amro's Taiwanese asset management for 68 mln eur
   
KPN lost 1.38 pct to 8.55 eur
   
TomTom fell 1.95 pct to 27.22 eur
   
Hagemeyer shed 2.17 pct to 3.60 eur
   
Randstad dropped 2.18 pct to 43.03 eur
   
Crucell shed 3.28 pct to 15.93 eur

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FRANKFURT - Market data at 9.52 am

Major indices:
   
DAX 30 - 5,407.26, down 14.96 points or 0.28 pct
MDAX - 7,463.44, down 33.45 points or 0.45 pct
TecDAX - 594.02, down 7.63 points or 1.27 pct
DAX future - 5,435.50, down 44.50 points or 0.81 pct

Major risers:
   
Schering, up 0.48 eur or 0.52 pct at 92.33
   
Infineon, up 0.03 eur or 0.36 pct at 8.41, as it said it will supply microchips, power management circuitry and a range of other equipment for LG Electronics Inc's new GSM mobile handsets
   
BASF, up 0.20 eur or 0.33 pct at 60.89
   
Lufthansa, up 0.04 eur or 0.29 pct at 13.79
   
Fresenius Medical Care, up 0.24 eur or 0.26 pct at 90.87

Major fallers:
   
Hypo Real Estate, down 0.95 eur or 2.15 pct at 43.33, after Merrill Lynch lowered its price target on the stock to 51.50 eur from 56 and reiterated its 'neutral' recommendation
   
Continental AG, down 1.47 eur or 1.99 pct at 72.43
   
MAN, down 0.82 eur or 1.54 pct at 52.34
   
Commerzbank, down 0.38 eur or 1.44 pct at 25.98
   
Allianz, down 1.23 eur or 1.06 pct at 114.66

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PARIS - Market data at 9.46 am:

Major indices:
   
CAC-40 down 39.79 points or 0.83 pct at 4,741.00
SBF-80 down 51.35 points or 0.95 pct at 5,355.86
SBF-120 down 30.16 points or 0.87 pct at 3,431.92

Volume: 315 mln eur
22 CAC-40 stocks up
17 CAC-40 stocks down
(Arcelor temporarily suspended from CAC-40 index)

Major gainers:
   
Casino, up 1.45 eur or 2.35 pct at 63.15, after agreeing to sell its main Polish operations to a General Electric unit, Metro and Tesco for a combined 884 mln eur.
   
Geophysique, up 1.20 eur or 0.89 pct at 135.50, after completing the sale of 49 pct of CGG Ardiseis to Industrialization & Energy Services Company (TAQA).
   
STMicroelectronics, up 0.08 eur or 0.69 pct at 11.73
   
Peugeot, up 0.18 eur or 0.38 pct at 47.38, as rival Renault proceeds with examining a possible alliance with General Motors that many analysts view negatively in terms of benefits to Renault.

Major losers:
   
Schneider Electric, down 1.25 eur or 1.64 pct at 75.00
   
Gaz de France, down 0.27 eur or 1.04 pct at 25.57
   
Sanofi-Aventis, down 0.55 eur or 0.73 pct at 75.05

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