UK/Euro Financial Market Daily Morning Briefing 21-03-2006

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London shares open lower with weakness in miners, oil stocks dragging

UK blue chips were lower in early deals, with weakness in mining and oil stocks offsetting gains in Corus, which rose on the back of merger speculation, dealers said.
   
At 9.05 am, the FTSE 100 was down 27.9 points at 5,963.8, with the broader indices all lower. Volume was below average, with 280.1 million shares changing hands in 27,206 deals.
   
Mining stocks reversed some of the strong rises recently seen on the back of high metals prices.
   
Kazakhmys dropped 15-1/2 to 955-1/2, Anglo American shed 20 at 2,043, Antofagasta gave up 22 at 2,035, Rio Tinto fell 32 to 2,708, and BHP Billiton gave up 10 at 966-1/2.
   
Oil stocks were lower on falling crude prices as the price of crude continued to ease in Asian trade, testing the support level of 60 usd per barrel, as expectations of a build in US crude stockpiles this week depressed prices further.
   
New York's main contract, light sweet crude for delivery in April, was down 0.42 usd at 60.00 usd a barrel from its close of 60.42 usd in the US overnight.
   
BP were 8-1/2 lower at 649, while Royal Dutch 'B' fell 22 to 1,800, Cairn Energy dropped back 41 at 2,086, and BG gave up 8-1/2 at 700-1/2.
   
Elsewhere, Wolseley fell victim to profit-taking following a near-21 pct rise in pretax profit before exceptional items for the six months to end January.
   
The shares have risen from a low of 1,102 pence in Oct but dropped back 16 to 1,437 pence in early deals.
   
Merrill Lynch reiterated its 'sell' recommendation on the stock.
   
Europe's largest home improvement retailer Kingfisher fell 1-1/4 to 240 after reporting an expected 33 pct slump in full year underlying pretax profit, reflecting a torrid 2005 for its B&Q DIY chain in the UK.
   
The group warned that the UK home improvement market has continued to weaken into 2006.  

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Credit Suisse reiterated its 'neutral' stance on the stock, describing the numbers as "broadly in-line" with expectations but highlighting Kingfisher's comments that the UK Home Improvement market continues to weaken into 2006.
   
Aviva were down 11 at 837-1/2 as Merrill Lynch downgraded the stock to 'neutral' from 'buy' on valuation grounds.
   
The US broker also noted there are concerns that Aviva could overpay for Prudential, adding that an offer of less than 8 stg per share might not be accepted by Prudential's board.
   
Merrill Lynch highlighted that an offer exceeding 770 pence per share would destroy value for Aviva's shareholders.
   
Anglo-Dutch steelmaker Corus led the blue chip risers, up over 5 pct, or 4-1/2 pence at 89, after the Financial Times reported that the group has held talks with Evraz, Russia's largest steel producer, over a possible merger.         

Rentokil Initial added 3-1/4 pence at 158-1/4 after UBS lifted its price target to 166 pence from 153, and reiterated its 'neutral' stance on the stock.
   
Among the mid-caps, Wellington Underwriting gained 2-3/4 at 101-3/4, on positive broker comment following its 2005 numbers.
   
The company said the impact of Hurricanes Katrina, Rita and Wilma in 2005 pushed the company into a pretax loss of 26.2 mln stg, compared to a profit of 77.2 mln a year earlier. The cost of the hurricanes was 140 mln stg.
   
However, Bridgewell Securities highlighted the company's confidence that it has "repositioned its book to avoid the mistakes of 2005 in 2006".
   
In addition, Bridgewell said Wellington's commitment to building platforms outside of Lloyd's and the fact that the company is exploring ways to "achieve a more flexible relationship" with third party providers of capital are positives for the longer term.    
   
On the downside, industrial pump maker Weir Group fell 14 to 434 on profit taking after the company posted a 14.4 pct rise in full-year sales to 789.4 mln stg, above Bridgewell's forecast of 783.5 mln stg, while underlying pretax profit of 62.2 mln stg was roughly in-line with the broker's 62 mln estimate.
   
The shares have had a strong run, rising from a low of 339 in October.
   
Derwent Valley shares were 50 lower at 1,688 following lukewarm broker reactions to the group's full-year profits, dealers said.

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Commenting on the figures, JP Morgan reiterated its underweight rating, noting that despite the group's NAV growth of 1,335 pence versus its estimates of 1,255 pence, Derwent Valley remains expensive, trading at a 30.3 pct premium to 2005 adjusted NAV.
   
Meanwhile, Merrill Lynch reiterated its 'neutral' recommendation and noted that the group's recurring pretax profit of 16.7 mln stg missed its estimates of 17 mln stg, while the NAV of 1,335 pence had exceeded its forecasts of 1,278 pence.
   
Tullow Oil fell back 7-1/2 at 328-1/2 after its partner Hardman Resources said the Waraga-1 wildcat well in Uganda has been cased and suspended at a total depth of 2,010 metres pending the commencement of a well testing programme.
   
Hardman said weekly reporting will resume once the testing programme is about to commence.   
   
Overnight on Wall Street, US stocks endured a cautious session ahead of an evening speech by new Federal Reserve chairman ben Bernanke.
   
Dealers said Bernanke's speech on the yield curve and monetary policy gave little direct indication of future US monetary policy.
   
The Dow Jones Industrial Average closed down 5.12 points at 11,274.53, the  S&P 500 Index fell 2.17 points to 1,305.08, while the Nasdaq Composite Index gained 7.63 points to 2,314.11.
   
In Asia, the market was closed in Japan for a public holiday, while the Hang Seng closed down 7.20 points at 15,922.75.
   
In economic news, annual UK CPI inflation is expected to remain at 1.9 pct for the third month in a row in February, just below the Bank of England's 2.0 pct target.
   
Some economists said the rate could inch back up to 2.0 pct, but inflationary pressures will remain subdued, with the annual rate well below the peak of 2.5 pct reached in September last year.
   
On a monthly basis, the CPI is expected to have risen by 0.2 pct after January's 0.5 pct fall, while annual core CPI inflation is forecast to remain at just 1.3 pct.

Diary of Events

For a diary of key UK financial and corporate events this week, click here 

US Summary

For a summary of US stocks at the close of trade, click here

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AMSTERDAM - Market data at 08.38 GMT

Major indices:

AEX index             464.06, down 2.47 points
AMX Midcap index      622.33, up 5.86 points
Government bonds      unchanged to slightly lower

Major losers:
   
Aegon dropped 1.23 pct at 15.32 after recent sharp gains fuelled by takeover speculation in the insurance sector
   
Royal Dutch Shell gave up 1.27 pct at 24.96
   
Reed Elsevier was down 1.02 pct at 11.66
   
Ahold fell 1.11 pct at 7.14, Numico eased 0.93 pct at 35.13

Major gainers:
   
Corus outperformed, jumping 4.07 pct to 1.28 on the back of a report the Anglo-Dutch steelmaker has held talks with Russian peer Evraz over a possible merger
   
USG People rose 2.2 pct to 55.85, benefitting from an upgrade to 'accumulate from 'reduce' with a raised price target of 60 eur at Delta Lloyd
   
ASMI also got a boost from its upgrade to 'accumulate' from 'reduce' by Delta Lloyd, adding 0.64 pct at 15.73 eur
   
Univar gained 1.52 pct at 46.70 as Rabo Securities raised its price target for the chemicals distributor to 57.50 eur from 40, keeping its 'buy' rating
   
ABN Amro was a notable blue chip gainer, up 1.4 pct at 25.35, while Rodamco Europe added 0.43 pct at 80.85

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PARIS - Market data at 09.25 GMT

Major indices:
   
CAC-40, down 30.56 points or 0.56 pct at 5,107.96
SBF-80, down 35.45 points or 0.59 pct at 5,956.61
SBF-120, down 22.13 points or 0.62 pct at 3,711.24

Volume: 1.08 bln eur
6 CAC-40 stocks up
33 CAC-40 stocks down
1 CAC-40 stock unchanged

Major losers:
   
EDF, down 1.01 eur or 2.33 pct at 41.96, on profit-taking and a wider sector slide, dealers said
   
Suez, down 0.94 eur or 0.32 pct at 33.88, after confirming that indirect talks with Italy's Enel have been broken off.
   
GDF, down 0.25 eur 0.80 pct at 31.10.
   
Total, down 2.60 eur or 1.22 pct at 210.60, as oil prices ebbed lower in Asian trade.
   
Air France-KLM down 0.23 eur or 1.16 pct at 19.54 after a downgrade by JP Morgan to "underweight" from "neutral".
   
Remy Cointreau, down 0.35 eur or 0.94 pct at 41.11

Major gainers:
   
Accor, up 0.31 eur or 0.65 pct at 48.01
   
BNP Paribas, up 0.15 eur or 0.20 pct at 75.902, after news that the Bank of Italy has cleared BNP's 9 bln eur bid to take over Banca Nazionale del Lavoro SpA.

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