UK/Euro Financial Market Daily Morning Briefing 19-09-2006

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London shares ease in early deals; British Energy dips due to production issues

London shares eased in early morning trade, after opening flat, with British Energy leading the losing charge following news of further production problems and with investors remaining relatively cautious ahead of tomorrow's Fed meeting regarding the rate of inflation across the Atlantic.
   
At 9.16 am the FTSE 100 index was off 17.9 at 5,872.3, with only the small cap index managing to maintain some strength. Volume was light with 273 mln shares moving hands in 31,750 deals.
   
Overnight on Wall Street, stocks gave up a moderate early advance to close barely changed after oil prices rebounded from their recent decline, rising as much as 1 usd a barrel.
   
Investors also moved to the sidelines to wait for Wednesday's Federal Reserve meeting on interest rate policy.

Wall Street had been flirting with 2006 highs, but the market remains anxious about the possibility the Fed could raise its benchmark short-term rate, which is now at 5.25 pct. Readings of economic growth and inflation remain mixed; the rise in oil carries with it concerns that inflation will accelerate.
   
The Dow Jones industrial average fell 5.77, or 0.05 percent, to 11,555.00.
   
Across in Asia Japan's Nikkei 225 index rounded the session up 7.35 pts at 15,874.28 while Hong Kong's Hang Seng closed the morning up 7.62 pts at 17,394.83.
   
Oil prices were higher, supported by news that the launch of British energy giant BP's facilities in the Gulf of Mexico may be delayed, dealers said.
   
New York's main contract, light sweet crude for October delivery, was up 27 cents at 64.07 usd a barrel from its last settlement price of 63.80 usd in US overnight trade.
   
Strength in the price of oil helped lift the sector, with BG up 7-1/2 at 657-1/2, BP improved 6-1/2 at 585-1/2 and Shell gaining 10 pence at 1,803.
   
BP was in focus as investors digested yesterday's late news that the launch of its Thunder Horse rig in the Mexican Gulf is likely to be delayed until 2008.
   
Reacting to the news, Credit Suisse trimmed its target to 750 pence from 764 pence, noting it also expects the launch of the Atlantis rig in the Mexican Gulf to be delayed until mid-2007.

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The broker expects the group to still deliver positive volume momentum in 2007 due to the startup of fields in Angola and the buildup of production from Azerbajan, plus the reversal of losses in Alaska and after the recent hurricanes.
   
However the day's biggest loser, dipping 39 pence to 596, was British Energy, following a warning post close last night that there will be further delays to a return to service at Hunterston B and Hinkley Point B in order to complete works to fix excessive tube cracking on boilers at the power stations.
   
These problems are causing output reductions and the group also warned today that these delays, together with other losses, are expected to give rise to around 2.0 TWh of additional unplanned losses.
   
In reaction Citigroup said the company will miss full-year output targets as a result and suggested that Drax should continue to be the favoured play in the sector. However, it maintained its 'hold' recommendation.
   
Punters also shied away from International Power, easing 1-3/4 pence to 307-3/4, after the company said it has raised a 485 mln stg non-recourse financing package for its Rugeley power station in the UK.
   
The electricity producer said 145 mln stg will be used to install flue gas desulphurisation equipment at the 1,050 megawatt, coal-fired station and fund other capital projects, which will significantly extend the plant's life.
   
The company said the rest will be used for credit support, working capital requirements and general corporate purposes.
   
Meanwhile, reports in the Financial Times that Drax chairman Gordon Horsfield offloaded a hefty 12 mln stg-worth of shares sent the stock lower by 13-1/2 pence to 874.
   
Among the winners, Kazakhmys, the FTSE 100 copper producer, unveiled record earnings in the first half and announced plans by chief executive YK Cha to leave the company by year-end.
   
Pretax profit for the half-year to June rose 166 pct to a record 955.9 mln usd, while turnover grew 90 pct to 2.28 bln usd, buoyed by strong copper prices.
   
EBITDA before special items grew 124 pct to 1.08 bln usd, as against the consensus figure of 1.0 bln usd.
   
The news helped bolster the entire sector with Anglo American putting on 20 pence at 2,195, Vedanta Resources 11 pence firmer at 1,269, Antofagasta 4 stronger at 452 and Rio Tinto up 19 at 2,493.

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On the second tier, punters seemed to soak some profit out of Venture Production, lighter by 1 pence at 717, after the company posted a record first-half performance as pretax profit jumped to 97.7 mln stg, from a 5.9 mln stg loss last time, boosted by record production levels and higher oil prices.
   
The oil and gas producer said average production rose 80 pct to 43,572 barrels of oil equivalent per day (boepd) in the six months to June 30, compared with 24,255 boepd in the first half of 2005.
  
However, construction firm John Laing climbed to the top of the 250 leader board, up 23-1/4 pence at 363-1/2, on news that it has agreed to be taken over by London asset manager Henderson in a deal that values the group at 886.9 mln stg.
   
Ordinary shareholders will get 355 pence cash per share, valuing the ordinary share capital at 832.6 mln stg, while preference shareholders will be given 138 pence a share giving a total of 54.3 mln stg.
   
Shareholders will still be entitled to the 1.3 pence interim dividend under the terms of the deal.
   
Elsewhere, Tullow Oil found favour, improving 6-1/2 pence to 376, after it said it is now materially enhancing production and reserve potential at the Schooner-Ketch fields.
   
The Ketch-7 development well has been completed and tested at a rate of 45 mln standard cubic feet per day (mmscfd) and the Schooner NW appraisal well has encountered gas in the targeted reservoir section, it said.
   
Positive drilling news also helped lift peer Dana Petroleum, up 28 pence at 1,178, whilst Petrofac continued its strong run, up 6-1/2 at 321-1/2, after yesterday posting 'exceptional' results.

UK Diary of Events

For a diary of key financial and corporate events in the UK today week, 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 9.55 am:

Major indices:
   
CAC-40 down 11.75 at 5,135.21
SBF-80 down 12.04 at 5,848.62
SBF-120 down 8.04 at 3,717.33

Volume: 400 mln eur
6 CAC-40 stocks up
34 CAC-40 stocks down

Major gainers:
   
Total up 0.50 at 50.55, oil prices rise again
   
Veolia Environnement up 0.12 at 45.00, adding to gains yesterday
   
Gemalto up 0.10 at 15.45, on bargain-hunting
   
Plastic Omnium up 1.24 or 3.71 pct sees FY earnings higher

Major losers:
   
Peugeot down 0.43 at 42.11 autos slide
   
Michelin down 0.50 at 52.85
   
Business Objects down 0.40 at 23.88

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FRANKFURT - Market data at 10.29 am
   
Major indices:
   
DAX 30 - 5,902.43, down 23.90 points or 0.40 pct
MDAX - 8,258.86, down 28.24 points or 0.34 pct
TecDAX - 651.94, down 0.34 points or 0.05 pct
DAX future - 5,950.50, down 25.00 points or 0.42 pct

Major fallers:
   
Altana down 0.72 eur or 1.60 pct at 62.05, after Lehman downgraded the shares to 'underweight' from 'equal-weight'
   
Munich Re down 1.54 eur or 1.27 pct at 119.74,
   
Lufthansa down 0.19 eur or 1.17 pct at 16.04, after oil prices edged higher on news of possible production delays at a new facility in the Gulf of Mexico
   
Allianz down 1.45 eur or 1.08 pct at 132.95
   
Deutsche Bank down 0.99 eur or 1.07 pct at 91.36

Major risers:
   
MAN, up 1.05 eur or 1.73 pct at 61.66, after CEO Samuelsson told the German press he was still confident his company will acquire Scania
   
TUI up 0.26 eur or 1.67 pct at 15.83, after dealers said private equity firms were interested in acquiring stakes in the company
   
Deutsche Telekom up 0.09 eur or 0.77 pct at 11.78, after Morgan Stanley upgraded the shares to 'overweight' from 'equal-weight'
   
DaimlerChrysler up 0.22 eur or 0.57 pct at 39.07
   
Schering, up 0.22 eur or 0.24 pct at 92.04

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US dollar mixed in Singapore afternoon trade before FOMC meeting

SINGAPORE - The US dollar edged lower against the yen but was slightly higher against the euro in afternoon trading here as the market cautiously awaited tomorrow's meeting of the US Federal Open Market Committee.
   
At 3.05 pm here (0705 GMT), the dollar was at 117.88 yen, down from 117.96 yen in Sydney just over three hours earlier. The euro was at 1.2702 usd, down from 1.2719 usd in Sydney.
   
While the FOMC is not expected to change US interest rates, currency market players will closely scrutinize the statement that accompanies its decision for clues about its policy in future, dealers said.
   

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