UK/Euro Financial Market Daily Morning Briefing 18-10-2007

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London shares pare early gains to trade lower; BA up on BMI merger talk

London shares opened back above 6700 level -- the first time since July -- but a lack of follow through interest and some selective profit taking saw the FTSE 100 pare gains to trade modestly lower with BA up on BMI merger chatter.
   
By 9.15 am, the FTSE 100 was off 2.3 points at 6,672.7 having hit an early high of 6,722.0. The FTSE 250 was off 15.4 at 11,522.6. Early volume saw 272 mln shares trading in 74,368 deals.
   
Last night on Wall Street, the DJIA fell 20.40 points, or 0.15 pct, to 13,892.54, having clawed back most of its earlier fall which saw the index lose over 130 points at one stage. Broader indexes rose. The S&P 500 index climbed 2.71 to 1,541.24, while the Nasdaq gained 28.76 to 2,792.67.
   
Over in Asia the Nikkei 225 index closed up 150.78 points or 0.9 pct at 17,106.09, while in Hong Kong the Hang Seng finished its morning up 316.29 points at 29,615.
   
In London this morning, British Airways added 4 to 427 on the back of Press reports which said BA was thought to be in merger talks with rival British carrier BMI.
   
The carrier also confirmed it was looking to forge a "closer relationship" with American Airlines as it steps up moves to lock up more slots at Heathrow airport.
   
And yesterday's talk of a potential joint bid for Scottish & Newcastle from Carlsberg and Heineken pushed the shares up a further 10 pence to 766 amid growing speculation rival bids could emerge with 850 pence being touted as a knock-out level.
   
The resource sector also helped set the early pace after crude oil remained above 87.50 dollars per barrel and base metal prices recovered some of their lustre following recent falls sparked by overcapacity fears.
   
Tullow Oil added 17 at 653, BP added 1 to 620 and Royal Dutch Shell added 5 to 2,077. BG Group slid 2 to 907 after JP Morgan cut its stance in the oil & gas explorer to 'neutral' on valuation grounds.
   
Among the miners, Anglo American added 53 to 3,363, Antofagasta 11 to 863, BHP 35 to 1,895, Rio Tinto 74 to 4,428 and Xstrata 62 to 3,552.

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Financial stocks also saw early buying interest after a solid performance from US peers last night after good numbers from JP Morgan.
   
HBOS added 15 to 888, Barclays 5 to 624 and HSBC to 8 to 955 while stake building talk surrounding a sovereign wealth fund boosted ICAP, up 2 at 550.
   
Elsewhere, broker comment lifted Liberty International with Morgan Stanley lifting its rating to 'overweight' for its defensive qualities.
   
Turning to early laggards, DSG International slipped 1.5 to 134.5 after its trading update failed to impress. Like-for-like margin fell 0.6 pct driven by slower VISTA related hardware sales and a changing sales mix in computing.
   
Among the midcaps, Colt Telecom added 11 to 190.75 after reporting a rise in third-quarter underlying earnings despite a fall in revenue, as higher margin data sales outstripped falling low-margin voice revenue.
   
And Ashtead gained 4.25 to 116 after ABN Amro initiated coverage in the industrial equipment renter with a 'buy' rating.
   
M&A chatter bolstered VT Group 17 to 633 after several newspapers said the group was attracting attention of a predator prepared to pay over 700p a share with Serco, BAE Systems and Lockheed mentioned as potential bidders.
   
Turning to the midcap fallers, Sports Direct gave up 8 to 148 amid news Mike Ashley -- majority shareholder and executive deputy chairman of the group -- wants to take the company private after less than a year on the market.
   
Finally, online auction and trading company QXL dipped 69 to 1259 amid some profit taking after reporting half-year profits tripled thanks to a booming market in Eastern Europe and said it planned to change its name to Tradus.
   
Later this morning, UK retail sales growth is expected to drop in September after a strong month in August, with monthly growth forecast at just 0.1 pct, down from 0.6 pct the previous month.
   
On an annual basis, retail sales are forecast to have risen by 5.6 pct, up from 4.9 pct in August.

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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

Brussels

BRUSSELS - Market data at 10.09 am:

Main index
   
Bel 20 down 19.12 points or 0.42 pct at 4,487.28

Bel 20 fallers
   
Agfa-Gevaert tumbles 2.27 eur or 16.57 pct to 11.43 on profit warning, KBC lowers target to 12 eur from 15.80, maintains 'reduce' rating, share price dropped to lowest level since November 2001
   
Umicore drops 3.81 eur or 2.11 pct to 176.64
   
Inbev drops 0.74 eur or 1.11 pct to 65.66 after yesterday's gains, triggered by news that peers Carlsberg and Heineken may form a consortium to acquire Scottish & Newcastle and renewed rumours of Inbev tie-up with Anheuser-Busch

Bel 20 gainers
   
Solvay gains 1.24 eur or 1.22 pct to 103.28
   
Bekaert up 0.70 eur or 0.70 pct at 100.47
   
Belgacom rises 0.16 eur or 0.48 pct to 33.29 as investors anticipate news on interim dividend seen at 0.32 eur
   
Delhaize 0.29 eur or 0.43 pct higher at 68.02, opens fourth store in Germany
   
Outside the Bel 20
  
Innogenetics up 0.06 eur or 0.99 pct at 6.12, signed a licensing agreement with Swiss peer Novartis AG in the field of hepatitis C Virus (HCV) diagnostics, no financial details disclosed
   
Oncomethylome Sciences up 0.21 eur or 2.10 pct at 10.20. EXACT Sciences, with which OncoMethylome has a collaboration in stool-based colorectal cancer testing, has received a letter from the FDA regarding regulatory matters related to its DNA technology for colorectal cancer screening. The FDA believes that the PreGen-Plus assay is a medical device requiring premarket approval or clearance.

ING says timing of the news is "unfortunate", just one day after the group's 10.6 mln eur secondary placing at 10 eur per share
   
Deceuninck edges 0.01 eur or 0.05 pct higher to 18.75, plans to restructure German subsidiary Inoutic/Deceuninck GmbH

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MILAN - Market data at 9.55 am:

Main indices
   
Mibtel at 31,469, down 0.11 pct
S&P/Mib, not available for technical reasons

Main S&P/Mib losers
   
Lottomatica down 1.59 pct at 25.44
  
Saipem down 0.78 pct at 30.53
   
UniCredit down 0.71 pct at 5.84
   
Buzzi Unicem down 0.51 pct at 19.37
   
Luxottica down 0.44 pct at 25.09

Main S&P/Mib gainers
   
Pirelli up 2.24 pct at 0.866 eur with Brazil's telecommunications regulator Anatel saying it will examine Telefonica's purchase of a controlling stake in Telecom Italia, now in Pirelli's hands, on Oct 23. The deadline for the closing of the deal is Nov 15.
   
Fiat up 1.43 pct at 22.70 on reports that the government may re-new car incentive schemes to scrap old cars and replace them with new generation ones
   
Telecom Italia up 1.40 pct at 2.1325
   
Unipol up 1.30 pct at 2.57 after reports that its CEO and chairman sent a letter to Banca Popolare di Milano asking for exclusive merger talks; BPM was down 0.13 pct at 10.68
   
Alitalia up 0.62 pct at 0.8655

Other stocks in the news
   
Banca Italease down 0.98 pct at 13.59 on continued uncertainty over its accounts after reports that market regulator Consob may force it to re-issue its 2006 balance sheet
   
Saras up 1.62 pct at 4.33 as Goldman Sachs upgraded the stock to 'neutral' from 'sell', keeping its price target unchanged at 5 eur, implying a 17 pct potential upside
   
Campari up 0.60 pct at 7.535 as Oddo Securities initiated coverage with an 'add' stance and a 8.20 eur target

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Amsterdam - market data at 9.43 am

Major indices
   
AEX was 0.12 pct higher at 555.20
AMX Midcap was 0.09 pct higher at 735.09
Government bonds traded mixed

Major gainers
   
ASML added 1.85 pct to 24.80 eur, boosted by price target hikes at various brokerages following the release of its third-quarter results yesterday
   
Ahold added 1.63 pct to 11.20 eur. The company's Schuitema unit said this morning its third-quarter sales increased by 1.7 pct to 737 mln eur from 725 mln a year earlier
   
Staffing giant Randstad continued yesterday's strong run, aided by positive sector sentiment after US peer Manpower reported forecast-beating third-quarter numbers yesterday
   
DSM was 0.25 pct up at 39.54 eur. The company said this morning it has issued a 750 mln eur 10-year bond with a yield of 5.25 pct
   
Van Der Moolen led midcap gainers, 1.67 pct higher at 3.66 eur as it said it intends to lay off around 25 pct of its US workforce in the coming days in order to reduce costs

Major losers
  
Heineken dropped 1.12 pct to 45.95 eur, losing gains made yesterday following its announcement with Danish peer Carlsberg A/S that the pair may form a consortium to acquire Britain's biggest brewer, Scottish & Newcastle
   
Shell was 0.64 pct down at 26.96 eur
   
TNT dropped 0.20 pct to 30.05 eur.

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Dollar stays on back foot; G7 meeting eyed

LONDON - The dollar remained on the back foot ahead of the world's biggest economies pow wow in Washington this weekend, what with expectations of further US rate cuts gaining ground after the housing market and stable inflation figures.
   
While the G7 meeting has been much hyped to bring about some change in rhetoric in order to stem the dollar's steep losses, analysts are not holding out much hope.
   
US officials are clearly showing little interest to intervene, despite protests from elsewhere about the dollar's steep decline.
   
"The reality is that US officials are likely to welcome the fall in the dollar as long it does not fuel inflation pressures and remains orderly," said Mitul Kotecha at Calyon. "Nonetheless, there is no doubt that foreign exchange will be discussed at the G7 meeting, but the real question is whether anything of substance will
emerge," he added.
   
Afterall, in previous G7 meetings, there has also been much speculation about the extent that currencies will be discussed, only for disappointment afterwards, he noted.
   
"It seems that forex markets are not going to record a more pronounced correction ahead of the G7 meeting unless equity markets see heavy losses again, which looks unlikely just now," said Antje Praecfke at Commerzbank.
   
Data yesterday was in line with broad dollar weakness. While headline US inflation rose more notably than expected in September, core inflation remained almost flat.
   
"Price developments therefore do not constitute an obstacle for further Fed rate cuts. This fact supports risk appetite and equity markets, which are still hoping for an easing of monetary policy in the US if the economy were to weaken strongly due to the current financial market crisis," added Praecfke.
   
At the margins, the IMF's announcement overnight that it has trimmed its US economic growth forecast for 2008 by nearly one percentage point also weighed on the dollar.
   
The IMF predicts the US economy will expand by 1.9 pct in 2008, less than its previous estimate of 2.8 pct. This year, growth will slow to 1.9 pct from 2.9 pct in 2006, it said.
   
Elsewhere, the pound was little changed ahead a raft of data at 9.30 am BST including retail sales and public sector finances.

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