UK/Euro Financial Market Daily Morning Briefing 17-08-2006

London shares moderately higher in early deals; miners gain, oils slide

Leading shares opened marginally higher after tame US inflation data and falling crude oil prices fuelled Wall Street gains overnight, but UK gains were capped as sliding oil majors offset mining sector strength, dealers said.
   
At 8.52 am, the FTSE 100 index was 6.3 points firmer at 5,902.9 after ending yesterday's session just 1.3 points weaker at 5,896.6.
   
Overnight on Wall Street, the DJIA closed 96.80 points higher at 11,327.10, while the Nasdaq Composite index ended up 34.53 points at 2,149.54 and the S&P 500 index settled 9.90 points to the good at 1,295.45 as US investors were cheered by a second day of tame inflation figures from the Labor Department, boosting Wall Street's confidence that the Federal Reserve would keep interest rates steady.
   
And among company-specific news, Hewlett-Packard beat Wall Street's third-quarter expectations after the bell, with the computer maker reporting that fiscal Q3 profit surged on strong printer and laptop sales. The company's shares gained nearly 6 pct in after-hours trading.
   
Meanwhile, in Asia this morning, sentiment was mixed, with the Nikkei 225 index up 78.06 points at 16,149.42 by the end of the morning and Hong Kong's Hang Seng index ending its morning session 37.54 points lower at 17,413.49.
   
Asian exporters were boosted by the lacklustre US inflation data, while energy stocks had the wind taken out of the sails by declining oil prices.
    
Crude oil futures for September delivery were 59 cents lower in Asian trade this morning at 71.30 usd per barrel after yesterday's US inventories revealed a 1.6 mln barrel drop in crude stocks -- in line with analysts' expectations.
   
In the UK today, index gains were capped by sliding oil heavyweights, which tracked the decline in crude oil prices.
   
BP lost 5-1/2 pence at 602-1/2 and Royal Dutch Shell dipped 16 pence at 1,921.
   
The main casualty, however, was Rentokil Initial, hit by a UBS downgrade to to 'reduce' from 'neutral' with a lowered price target of 150 pence from 166 previously.

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Rentokil shares slipped 5 pence at 160-1/4 after the Swiss-owned broker told investors that given recent market weakness and Rentokil's absolute strength it believes there is downside risk to the share price.
   
However, some support was provided by the mining sector, which gained on the back of this morning's continued rise in commodity prices, with gold back above 640 usd per ounce in Asian trade this morning, and with Morgan Stanley upgrading Anglo American to 'overweight' from 'underweight' on the back of the firm's interim results two weeks ago.
   
Anglo American was 56 pence stronger at 2,429, while Vedanta Resources climbed up 51 pence at 1,392, Lonmin gained 61 pence at 2,786 and BHP Billiton added 16 pence at 1,043.
   
Also on the upside, UK insurers were in upbeat mood this morning on the read-across from Zurich Financial's better-than-expected interim numbers, published this morning.
   
The Swiss insurer this morning posted first half net profit of 1.957 bln usd, up from 1.799 bln one year ago, citing strong operational gains across its businesses.
   
This propelled UK peers into positive terrain, with Old Mutual 2-3/4 pence to the good at 160, Aviva 7-1/2 pence firmer at 733 and Royal & Sun Alliance adding 0-3/4 pence at 131-3/4.
   
On the second line, Weir Group was one of the top performers, up almost 4.0 pct or 17-1/2 pence stronger at 457-1/2 after saying it expects full year profits to top market estimates as it reported a 50 pct jump in interim pretax profits excluding restructuring costs to 37.2 mln stg.
   
Responding to the update, Altium Securities repeated its 'buy' advice on the industrial pump maker and raised its pretax profit estimates for 2006 and 2007.
   
But MFI Furniture Group was the top gainer, jumping 4-1/4 pence at 91-3/4, after it confirmed it is in talks with Merchant Equity Partners, the private equity group, regarding the possible disposal of its struggling eponymous UK Retail chain.
   
However, the group stressed that "A number of significant issues remain outstanding, and the discussions may or may not lead to a transaction which the board would compare with other options for MFI Retail".

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And Misys was also buoyed by bid speculation, rising 2-3/4 pence at 245-1/2 after the FT reported that Fiserv has joined the battle to take over the healthcare and software banking group after Misys agreed to open its books to the US firm.
   
Elsewhere, energy services group Homeserve rose 23 pence at 1,640 after it said it has entered into a five year marketing agreement with US energy company FirstEnergy Corp to market policies to 3.4 mln electricity households in Pennsylvania and Ohio, the company said today.
   
As part of the deal, Homeserve has acquired 20,000 existing contracts for electrical wiring, gas supply, water line and sewer lines from FirstEnergy, together with a network of service contractors from Allied Utility Network Inc, which currently services FirstEnergy's policies.
   
Panmure Gordon subsequently reiterated its 'buy' recommendation on Homeserve with a price target of 1,850 pence.
   
Meanwhile, on the downside, Stagecoach was among the fallers, dragged 1-1/4 pence lower at 116 following a UBS downgrade to 'neutral' from 'buy' on valuation grounds, due to a lack of upside potential to the broker's fair value and price target of 128 pence per share.
   
On the economic front today, the main focus in the US will be leading indicators for July and the Philly Fed, while weekly initial jobless claims data is also due.
   
Leading indicators are expected to come in at 0.2 pct in July, up from 0.1 pct in the previous month, while the Philly Fed is seen accelerating to 8.2 this month from 6.0 in July.
   
Meanwhile, in London, the spotlight is on UK retail sales for July, seen rising to 4.4 pct growth year-on-year versus 3.7 pct in the previous year, while month-on-month the figure is expected to arrive at +0.2 pct from the previous month's 0.9 pct increase.

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 down 3.34 points at 5,133.97
SBF-80 up 20.55 at 5,647.74
SBF-120 down 1.20 at 3,701.63

Volume: 448 mln eur
24 CAC-40 stocks up
15 CAC-40 stocks down
Arcelor has been removed from index following takeover by Mittal Steel, no replacement yet.

Major gainers:
   
Alcatel, up 0.14 eur or 1.5 pct at 9.61 as technology stocks continue to rally, helped by a strong advance on the Nasdaq composite overnight.
   
Publicis, up 0.15 or 0.5 pct at 29.90 after ABN Amro upgraded the stock to 'buy' from 'add' on valuation grounds, and raised its price target to 33.50 eur from 27.

Major losers:
   
Total, down 0.60 or 1.1 pct at 53.05 as oil prices continue to retreat from recent highs.
   
Danone, down 0.20 at 105.70 after CFO Antoine Giscard D'Estaing announced plans to invest 500 mln-1 bln eur per year on acquisitions over the next 3 years. The stock closed at an all-time high on Tuesday.

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German shares AFX market data at 10.00 am

Major indices:
   
DAX 30 - 5,823.45, up 10.79 points or 0.19 pct
MDAX - 8,132.28, up 33.0 points or 0.42 pct
TecDAX - 652.71, up 3.2 points or 0.49 pct
DAX future - 5,837.5, down 11.5 points or 0.21 pct
Bund future - 116.84, down 0.14 points or 0.11 pct

Major gainers:
   
MAN, up 1.01 eur, or 1.73 pct at 59.57
   
TUI, up 0.14 eur, or 0.96 pct at 14.75: Ongoing recovery
   
Deutsche Post, up 0.19 eur, or 10.85 pct at 18.93: Rumours that Deutsche Bank is interested in Deutsche Postbank's stake in Deutsche Post
   
Commerzbank, up 0.21, or 1.28 pct at 26.23
   
SAP, up 1.43 eur, or 0.97 pct at 149.40: Ongoing strength

Major losers:
   
RWE, down 0.61 eur, or 0.83 pct at 72.71: Profit taking
   
E.ON, down 0.72 eur, or 0.69 pct at 99.20: Profit taking
   
ThyssenKrupp, down 0.11 eur, or 0.4 pct at 27.8: UBS downgrades to 'neutral' from 'buy' and cuts its target to 29 eur from 34, says risks to share price appear to be weighted to the downside rather than the upside.
   
DaimlerChrysler, down 0.08 eur, or 0.24 pct at 40.72
   
Munich Re, down 0.53, or 0.42 pct at 116.5: ZFS Q2 results disappoint

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