UK/Euro Financial Market Daily Morning Briefing 22-03-2007

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London shares show early strength, sentiment lifted as Fed softens tone

Leading blue chips were firmer this morning in reaction to the US Federal Reserve softening of its tone towards tightening monetary policy - fuelling hopes key US interest rates may have peaked and might be heading lower.
   
At 9.00 am, the FTSE 100 was up 65.2 points at 6,322.00, having hit an opening high of 6,342.2, with the broader indices also higher. Early volume was moderate with 409 mln shares changing hands in 65,404 deals.
       
By the close the Dow had soared 159.42 points, or 1.30 pct, to 12,447.52, after having been flat until the Fed announcement. It was the index's biggest one-day point gain since July 24.
   
Broader stock indicators also posted strong gains. The Standard & Poor's 500 index jumped 24.10, or 1.71 pct, to 1,435.04, and the Nasdaq composite index advanced 47.71, or 1.98 pct, to 2,455.92.
   
Over in Asia, markets rallied on the back of the strong showing on Wall Street with the Nikkei 225 Index closing up 256.0 points at 17,419.2, while Hong Kong's Hang Seng ended its morning session up 237.70 points at 19,754.11.
   
Looking at commodities, oil prices rose as the market digested news of higher-than-expected falls in US gasoline stocks.
   
New York's main oil futures contract, light sweet crude for delivery in May, was up 43 cents at 60.04 usd a barrel from 59.61 usd in late US trades overnight.
   
Among blue chips on the move this morning, Next moved to the top of the leader board, up 75 to 2,170, as the fashion retailer reported a better-than-expected 6.5 pct increase in full-year pretax profits.
   
At the same time, the group said trading at its stores in its new financial year has improved, but added it remains cautious on the year ahead, believing the consumer environment will remain "challenging".
   
In response, Goldman Sachs reiterated its 'buy' advice and said this is a stronger performance than expected and should maintain the strong Next share price performance so far this year.
   
Seymour Pierce also said the results were better than expected and said its rating was under review.
   
In further reaction, Bridgewell Securities said that it continues to believe that there are significant changes taking place in the business and expects the like-for-like trends to stabilise as 2008 unfolds.

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It added that the combination of better-than-expected profits last year and encouraging like-for-like trends in the early weeks of this year bode well for forecasts and was likely to edge ahead of earnings estimates following the analysts' meeting this morning.
   
Elsewhere, US sensitive issues dominated the leader board with hedge fund group Man Group up 14-1/2 pence at 560-1/2, broker ICAP up 13 at 546 and plumbing supply group Wolseley rallying 30 to 1281.
   
Property issues were also registering following yesterday's UK Budget and rumours of further sector consolidation.
   
Slough Estates gained 24-1/2 at 803, while peer Hammerson, which rose strongly yesterday on the back of rumours of a possible bid from Unibail and GE Real Estate, took on a further 45 pence in early deals, taking the share price to a record high of 1,779.
   
Reuters put on 13-1/4 to 461 after Morgan Stanley reiterated its 'overweight' rating and hiked its price target to 524 pence from 484.
   
Morgan Stanley said it is time to put Reuters onto the front burner, with revenue growth improving and restructuring costs falling away, and as such has hiked its price target on the stock by 8 pct, implying 18 pct upside potential.
   
Banking stocks also rose after ABN Amro reviewed the UK banking sector and upgraded its stance for Lloyds TSB to 'buy' and HSBC to 'hold' on valuation grounds.
   
ABN Amro said that sharp price declines in the past two weeks do not look justified by the fundamentals in its opinion, unless it is believed that US sub-prime mortgage credit quality deterioration presages problems in other asset classes.
   
In response Lloyds put on 8 to 567, while HSBC rallied 11 to 892. Peers RBS rose 47 to 2076 and Barclays was up 13 at 726.
   
Meanwhile, bucking this morning's positive trend, AstraZeneca lost 13 to 2823 after JP Morgan cut its rating in the pharma group to 'underweight', highlighting its view that it believes UK pharma names are overvalued. The broker also downgraded GlaxoSmithKline to 'underweight' in the same note.
   
On the second line, builders merchants Travis Perkins rose 90 to 2,060 after Citigroup upped its stance to 'buy' and flagged the possibility of further consolidation within the sector.
   
Back with earnings news, Premier Oil gained 5 to 1257 following its full year results this morning, prompting Merrill Lynch to repeat its 'buy' recommendation.

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The oil group reported a rise in full year profits as sales remained broadly flat after excluding revenue from the Chinguetti field, which Premier said it intends to sell.
   
Merrill said that it attaches little credibility to the press report in the Independent newspaper this week suggesting a Middle Eastern company is preparing a 1,700 pence per share bid for Premier.
   
On the downside, Rank Group slumped more than 5 pct after Dresdner Kleinwort cut its stance to 'sell' from 'hold' following yesterday's Budget, which it said dealt a further blow to the casino industry.
   
The broker said that the government had effectively kicked the industry in the teeth with unfavourable changes to casino duty.
   
It said with the change in duty, the likelihood of a bid for the stock has significantly diminished and the current P/E rating remains unsustainable.

US Summary

For a summary of US stocks at yesterday's close of trade, click here

UK Diary of Events

For a diary of key financial and corporate events today, click here

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AMSTERDAM  - Market data at 10.12 am
  
Major indices
   
AEX 508.02, up 7.13 points
AMX Midcap 724.84, up 7.21 points
Government bonds Higher

Major gainers
   
Fortis led blue-chips, adding 3.14 pct to 33.23 eur amid talk that it might be merger prey for Dutch group ING.
   
BAM led second-liners adding 4.75 pct to 16.99 eur after its full-year earnings beat expectations and the company said it was upbeat on 2007.
   
ING rose 2.56 pct to 32.09 eur.
   
Randstad added 2.42 pct to 58.09 eur after a price target hike at Petercam.
   
Ahold lifted 0.85 pct to 8.26 eur after presenting full-year earnings and expanding its intended share buyback programme to 3 bln eur from a previous 2 bln - if US Foodservice is sold.
   
Crucell added 1.57 pct to 20.05 eur after taking a 20 pct stake in Taiwan's ADImmune.
   
Local stock Imtech rose 1.39 pct to 53.26 eur after announcing a partnership with a developer of LED lights.
   
Major losers
   
Wereldhave was the only decliner, slipping 0.13 pct to 113.62 eur.

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FRANKFURT - Market data at 9.28 am

Major indices
   
DAX - up 101.83 points, or 1.52 pct, to 6,813.89
MDAX - up 173.93 points, or 1.75 pct, at 10,085.39
TecDAX - up 14.50 points, or 1.74 pct, at 848.20
DAX futures - down 16.00 points, or 0.23 pct, to 6,870.50

Major underperformers:
   
Altana, up 0.06 eur, or 0.13 pct, at 47.85.
   
Deutsche Postbank, up 0.12 eur, or 0.19 pct, at 63.20.
   
Henkel, up 0.34 eur, or 0.32 pct, at 107.33.
   
TUI, up 0.07 eur, or 0.39 pct, at 18.02 after German market regulator Bafin announced yesterday that it will probe the company over the timing of the disclosure of the merger of its tourism operations with UK's First Choice Holidays PLC.
   
Adidas, up 0.20 eur, or 0.52 pct, at 39.00.
   
Major outperformers:
   
Siemens, up 2.29 eur, or 2.87 pct, at 81.99.
   
Deutsche Bank, up 2.20 eur, or 2.26 pct, at 99.75 as most financial stocks rose after the US Fed left its key interest rate unchanged and the sector was boosted yesterday by a positive Goldman Sachs note, saying the German market has overreacted to the negative sub-prime mortgage news which came out of the US recently.
   
Allianz, up 2.91 eur, or 1.93 pct, at 154.00.
   
ThyssenKrupp, up 0.63 eur, or 1.74 pct, at 36.93.
   
Munich Re, up 1.87 eur, or 1.62 pct, at 117.53
   
Other Major Movers:
   
MDAX-listed Wacker Chemie, up 5.34 eur, or 4.27 pct, at 130.30, after the company posted a higher-than-expected full-year net profit and announced a dividend payment of 2.00 eur plus a special bonus of 0.50 eur per share.

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PARIS - Market data at 10.30 am:

Major indices:
   
CAC-40 up 73.90 points or 1.34 pct at 5,576.08
SBF-80 up 107.17 or 1.53 pct 7,101.24
SBF-120 up 55.90 or 1.38 pct at 4,102.79

Volume: 1.19 mln eur
40 CAC-40 stocks up
0 CAC-40 stocks down

Major gainers:
   
Guyenne et Gascogne up 5.60 eur or 5.73 pct at 119.10, rebounding from yesterday's losses
   
Eiffage, up 5.10 or 5.99 pct at 90.30, off earlier highs but still trading up on speculation of a takeover bid
   
Valeo, up 2.10 or 5.04 pct at 43.75 after a report in Les Echos that US investment fund Apollo may launch a bid for the French car parts maker.
   
Dexia, up 0.71 or 3.28 at 22.37 amid reports that ING Group NV is mulling a merger in Benelux
   
Axa, up 1.16 or 3.79 pct to 31.76

Major losers:
   
Business Objects, down 1.02 or 3.62 pct at 27.18
   
Alcatel-Lucent, off 0.12 or 1.36 pct at 8.68

Most active stocks:
   
Axa, in 167.87 mln eur
   
BNP Paribas, up 1.10 or 1.41 at 78.90 in 99.87 mln eur

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