UK/Euro Financial Market Daily Morning Briefing 23-03-2007

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London shares down early deals; BA falls on rising oil prices, Open Skies

Leading shares traded lower in early deals, consolidating yesterday's gains and following on from a mixed close on Wall Street overnight, with British Airways the main casualty amid rising oil prices and following yesterday's Open Skies news, dealers said.
   
At 9.00 am, the FTSE 100 index was 12.2 points weaker at 6,305.8, after closing 61.2 points higher at 6,318.0 yesterday, while the broader indices were also lower.
   
In the US overnight, the Dow Jones industrials nudged higher for a fourth straight session but moved cautiously as investors awaited new data to assess whether their hopes for an interest rate cut are justified.
   
A surprise warning that mobile phone maker Motorola will post a loss for the first quarter also made the market uneasy as it looked ahead to earnings reports that begin next month.
   
The Dow closed just 13.60 points ahead at 12,461.10, while the Nasdaq Composite lost 4.18 at 2,451.74 and the S&P 500 index slipped 0.50 at 1,434.55.    

Meanwhile, Asian stocks managed marginal gains, with Hong Kong's Hang Seng reversing earlier losses to close up just 2.39 points at 19,692.64, while Tokyo's Nikkei 225 index closed 61.41 firmer at 17,480.61.
   
In London, British Airways led the casualties, 11 pence easier at 515, hit by higher oil prices as well as yesterday's approval by the European Union of the Open Skies aviation deal that opens up restricted trans-Atlantic routes to new rivals.
   
Collins Stewart told investors in a note this morning that the profit impact of the Open Skies deal is impossible to measure with precision, but it will negate the long-term upside potential from BA's Terminal 5.
   
J Sainsbury was also on the back foot, down 6-1/2 pence at 543-1/2 in early deals amid fears private equity interest in the supermarket group could be de-railed by the scale of its pension fund shortfall.
   
This morning, The Financial Times reported that pension trustees have indicated to the CVC consortium that it would have to tackle a hole in the pension scheme of up to 3 bln stg to succeed in any deal.

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In response, Merrill Lynch reiterated its 'neutral' stance on Sainsbury but said it would question whether today's news is actually a deal breaker rather than a point of leverage for the trustees.
   
Fellow supermarket groups fell back in sympathy, with Marks & Spencer Group losing 6 at 675-1/2, Tesco down 1-1/2 at 439-1/4 and Wm Morrison Supermarkets 1-1/4 weaker at 305-3/4.
   
Elsewhere, Vodafone Group slipped 1-1/2 pence at 142 amid increasing uncertainty over its 11.1 bln usd bid for control of Hutchison Essar after Indian regulatory authorities last night delayed approval of the bid and requested further details, the Times reported.
   
Selected mining issues also weighed, falling back after yesterday's strong sector performance on the back of rising commodity prices.
   
This morning Antofagasta was down 8 pence at 510-1/4, while Xstrata slipped 26 at 2,523 and Anglo American eased 21 at 2,620.
   
But on the upside, the strong crude price helped oil & gas stocks minimise index losses, with BP up 4-1/2 pence at 533 and Royal Dutch Shell 13 higher at 1,655 as oil prices hovered around the 62 usd a barrel mark on concerns over tighter US gasoline stocks ahead of the US summer driving season, traders said.
   
BHP Billiton also bucked the negative trend, adding 1 pence at 1,107 after its board announced in Australia overnight that it has approved a plan to invest 1.85 bln usd to expand capacity at its Western Australian iron ore operations to 155 mln metric tons a year from 129 mln.
   
The company said by the end of 2007 the group will have increased capacity by 60 mln tons per annum over a four year period.
   
Elsewhere, buyers again came for Reuters Group, 3-1/2 pence ahead at 459-1/2, building on yesterday's gains as Lehman Brothers this morning upgraded the media group to 'overweight' from 'equal-weight' in anticipation it will meet, if not exceed, forecasts.
   
In a research note to clients, Lehman said the group's share price is discounting Reuters' failure to hit its published targets, but the broker believes the risk to forecasts is actually on the upside.
   
Meanwhile, utility groups were in demand for their defensive qualities and amid ongoing sector consolidation hopes, fuelling a 21 pence rise in Scottish & Southern Energy to 1,541, with Scottish Power up 2 at 792 and National Grid 1-1/2 higher at 786-1/2.

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On the second line, bullish broker comment buoyed shares in Hikma Pharmaceuticals, 14 pence ahead at 404 thanks to Citigroup upgrading its stance to 'buy' from 'sell' as it believes the group has come through its downgrade cycle.
   
In a note to clients, Citigroup also hiked its target to 470 pence from 350 saying that after three profit warnings in six months it is now looking forward to 2008 estimates.
   
Among the mid-cap losers, Paragon led the fallers, as small-cap peer Kensington plunged in the wake of a warning about its future profits.
   
Kensington also announced this morning its chief executive John Maltby is stepping down following a strategic decision to focus on the group's UK and Irish markets, and the company has entered talks with potential buyers.
   
Paragon was also under pressure as investors took profits following its own trading update yesterday, which saw the shares rise 24-1/2 pence.
   
On the economic front, CML mortgage lending for February is the only data expected in the UK this morning, while in the US later today, existing home sales are seen going back to their downward trend in February, falling to 6.30 mln units after rising slightly in January to 6.46 mln units.

UK 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 last night's close of trade, click here

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AMSTERDAM - Market data at 10.27 am
   
Major Indices
   
AEX 508.90, down 0.11 point
AMX Midcap 723.42, down 1.98 point
Government bonds mainly flat

Major Losers
   
Corio was down 3.94 pct to 68.72 after the company posted results showing it sees its 2007 direct result equal to 2006.
   
Rodamco Europe fell 2.08 pct to 105.15.
   
Crucell slipped 1.11 pct to 19.68.
   
Philips shed 1.02 pct to 29.06.
   
Numico was off 0.94 pct to 39.0.
   
Aegon slid 0.85 pct to 15.16.
   
ING lost 0.65 pct to 31.93 amid reports that the possible integration of ING Bank and Postbank could mean sharp job losses.
   
Vedior went 0.71 pct lower to 16.88 with investors not impressed by a higher price target from ING.
   
Van Lanschot shed 2.38 pct to 65.50 after coming out with disappointing full year results.

Major Gainers
  
Telegraaf Media Groep jumped 4.14 pct to 24.16 after an upgrade to 'buy' from 'hold' at Kempen, with the target also lifted to 28.0 eur from 21.0.
   
BAM put on 2.11 pct to 17.46 following a Rabo Securities upgrade to 'buy' from 'hold'.
   
Ahold rose 2.19 pct to 8.40 after an upgrade to 'buy' from 'neutral' from Merrill Lymch and following reports in the Financial Times the company may face private equity bids later this year.
   
Wolters Kluwer lifted 1.37 pct to 22.90 after reports stated the publisher has sold its education operations to Bridgepoint Capital for 750 mln eur.
   
USG People went up 1.31 pct to 31.75 after ING upgraded the issue to 'buy' from 'hold'.
   
Arcelor Mittal added 0.90 pct at 39.34.
   
ABN Amro advanced 0.57 pct to 31.92 following reports in the Wall Street Journal a Citigroup faction is urging the CEO to make a rival bid for the Dutch banking group.
   
Randstad was 0.45 pct higher to 58.60.
   
Royal Dutch Shell put on 0.37 pct to 24.60.

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FRANKFURT -  Market data at 9.54 am

Major indices 

DAX - down 17.87 points or 0.26 pct to 6,839.09
MDAX - down 10.65 points or 0.11 pct to 10,054.46
TDXP - down 3.85 points or 0.45 pct to 847.51
DAX futures - down 6.50 points or 0.09 pct to 6,897.50

Major underperformers
   
EON down 2.41 eur or 2.38 pct to 98.92, as Italy's Enel confirmed that it wants to acquire Endesa in conjunction with Acciona
   
SAP down 0.56 eur or 1.61 pct to 34.29, after rival Oracle accused the company of theft of secret product information
   
Deutsche Telekom down 0.12 eur or 0.95 pct to 12.52
   
Deutsche Post down 0.15 eur or 0.67 pct to 22.14
   
Deutsche Bank down 0.62 eur or 0.62 pct to 99.66
   
Major outperformers
   
Continental up 1.57 eur or 1.67 pct to 95.83 as traders said Lehman Brothers upped the target to 115 eur from 110
   
DaimlerChrysler up 0.67 eur or 1.15 pct to 59.04
   
Volkswagen up 0.43 eur or 0.39 pct to 111.23
   
TUI up 0.05 eur or 0.28 pct to 18.14 as JP Morgan reiterated its 'overweight' stance
   
Fresenius Medical Care up 0.38 eur or 0.35 pct to 109.62
   
Other Major Movers
   
Wincor Nixdorf down 1.88 eur or 2.61 pct to 70.12, West LB downgrades to 'add' from 'buy' following yesterday's stock split and strong recent gains

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