UK/Euro Financial Market Daily Morning Briefing 25-07-2006

London shares lower at open as BP disappointment offsets miners, Shire - UPDATE

Leading shares slipped lower in volatile opening deals as uninspiring numbers from oil major BP offset a solid update from mining heavyweight BHP and positive news from Shire, dealers said.

At 9.04 am, the FTSE 100 was 3.4 points lower at 5830.5, having hit a high of 5847.1 in initial deals, in contrast with the positive wider market.

BP was a major drag on blue chips, down 4 at 629-1/2 as the group's second quarter results won only a lukewarm response.

Earlier, the group said net income, after including non-operating items, rose to 6.112 bln usd from 5.807 bln last time, ahead of the consensus figure of 5.98 bln usd and in line with the forecast range of 5.81-6.3 bln.

In response, a dealer at a major US brokerage said: "The numbers from BP this morning were in line at best."

Sentiment was also hit by reports of a feud over the timing of the departure of respected chief executive Lord Browne.

According to the FT, Browne was summoned by chairman Peter Sutherland on Friday and told to put an end to the damaging speculation that he wants to stay on beyond the company's official retirement age.

He is expected to announce later today that he plans to step down when he reaches 60 in 2008.

Yell was another loser, down 5-1/2 at 514-1/2 after an in-line first quarter results from the directories group prompted profit taking.

This morning, the group said revenues were up 18.6 pct to 371.9 mln stg for the quarter ended 30 June, with adjusted pretax profit up 8 pct to 78.2 mln stg.

However, the firm's stated profits were before exceptional charges arising from its acquisitions of TransWestern and TPI.

After these items, profit before tax was 32.4 mln stg, compared with 70.7 mln stg last year.

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Financial stocks were also under pressure as HSBC highlighted on-going concerns over unsecured lending in the sector ahead of the results season.

The broker said its focus has been to avoid stocks with large unsecured exposures, such as Barclays and Lloyds TSB, rated 'neutral' and 'underweight' respectively.

Barclays fell 7-1/2 to 606, Lloyds was down 6-1/2 at 531-1/2, Alliance & Leicester was down 11 at 1022 and HBOS eased 6 at 951-1/2.

In contrast, mining heavyweights rallied on the back of a rebound in commodity prices overnight and a reassuring production report from BHP.

Numis reiterated its 'buy' advice and said BHP Billiton reported "sound production data" for its final quarter of 2006 with most major divisions in line or somewhat better than expected.

BHP took on 11 at 1031, with peers Kazakhmys up 16 at 1182, Rio Tinto 31 firmer at 2706 and Xstrata 22 to the good at 1979.

But Shire topped the leaderbord, up 31 at 859 after the drug maker announced last night that US regulators granted marketing approval for its Elaprase drug for the treatment of Hunter syndrome.

The group said it expects to launch Elaprase, which replaces the missing enzyme that sufferers fail to produce in sufficient quantities, in the US within the next 30 days, in line with expectations.

In response, Morgan Stanley lifted its price target on the group to 946 pence from 862 previously.

And the same broker gave a fillip to British Airways, up 11-1/4 at 384-1/4, after it upgraded the national carrier to 'equal-weight' from 'underweight'.

In a note to investors, the broker said it now believes the market will focus on BA's operational performance, rather than its medium-term labour and regulatory issues.

On the second-line, life insurer St James's Place took on 13 at 331 after reporting stronger first half profits, boosted by robust sales of pensions.

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In response, Merrill Lynch said the interim results were strong and well ahead of its expectations, particularly growth in new production.

And better-than-expected numbers gave a boost to ARM, up 3 at 109 after the chip maker posted second-quarter profits of 23 mln, slightly above consensus.

At the same time the group said it expects full year results to come in in-line with expectations.

M&A hopes boosted Misys, 8-1/2 to the good at 245-1/4 after the banking and healthcare software specialist said it plans to open its books to 'certain parties' after receiving a number of offers for all or part of the company.

The company announced in June it had given leave to some of its directors to explore the possibility of a management buyout and this announcement prompted a number of other offers.

On the downside, 888 fell 10 at 148 after the on-line gaming group's in-line second quarter figures were offset by concerns over a drop in active members.

Sentiment in the sector was further hit by news small-cap peer BETonSPORTS has terminated the contract of chief executive David Carruthers following his continued detention by US authorities.

Meanwhile, Wall Street soared more than 180 points as a buyout of hospital operator HCA and a raft of better-than-expected earnings helped brush aside on-going economic and political concerns.

Merck stood out as the drug giant posted forecast-busting quarterly earnings and after the close chip maker Texas Instruments also posted solid figures.

The DJIA surged 182.67 points to 11,051.05, the S&P 500 added 20.62 to 1,260.91, and the Nasdaq jumped 41.45 to 2,061.84.

Today, amid a flurry of earnings news from the likes of Amazon.com and McDonald's, US investors will also scrutinise June existing home sales data which is tipped to reveal a dip to an annualised growth of 6.58 mln.

The Conference Board's latest consumer confidence index will also be eyed with most pundits predicting a drop to 104.0, down from 105.7 previously.

And the upbeat mood spilled over into Asia as the Nikkei 225 closed up 210.74 at 15,005.24, while the Hang Seng index ended its morning session up 168.94 at 16,649.53

UK Diary of Events

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UK Small Cap Report

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FRANKFURT - German shares AFX market data at 10.20 am

Major indices:

DAX 30 - 5,569.21, down 8.84 points or 0.16 pct
MDAX - 7,682.42, up 4.08 points or 0.05 pct
TecDAX - 610.26, up 7.04 points or 1.17 pct
DAX future - 5,593.50, down 13.50 points or 0.24 pct

Major risers:

Continental AG, up 0.87 eur or 1.18 pct at 74.55

BMW, up 0.37 eur or 0.96 pct at 38.93

Lufthansa, up 0.12 eur or 0.82 pct at 14.77

SAP, up 0.71 eur or 0.50 pct at 142.71

Bayer, up 0.19 eur or 0.49 pct at 38.59, after a lifted full-year outlook from Schering AG, of which Bayer currently owns some 92 pct of, boosted sentiment towards the stock    

Major fallers:

Commerzbank, down 0.35 eur or 1.30 pct at 26.49, on profit-taking following yesterday's near 4 pct gain

ThyssenKrupp, down 0.32 eur or 1.24 pct at 25.54, as Credit Suisse downgraded its stance on the stock to 'neutral' from 'outperform' and cut its price target to 30 eur versus 38

Deutsche Post, down 0.23 eur or 1.18 pct at 19.31

Hypo Real Estate, down 0.41 eur or 0.93 pct at 43.50, as investors locked in profits following the stock's near 6 pct rise yesterday

Allianz, down 0.99 eur or 0.81 pct at 120.87, having closed up 2.22 pct yesterday

Other movers:

Schwarz Pharma, down 0.38 eur or 0.53 pct at 70.97 on the MDAX, after the company reported second quarter results that were "in-line" and "no surprise" and as some investors were disappointed with the fact that the company did not raise its full-year guidance

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AMSTERDAM - Amsterdam shares AFX market data at 10.34 am

AEX index - 445.54, down 0.37 point
AMX Midcap index - 574.70, up 3.73 points
Govt bonds - narrowly mixed

Major decliners:

Wolters Kluwer gave up 1.16 pct at 17.88, Heineken slipped 0.87 pct at 35.47

Philips gave up 0.91 pct at 24.92 after yesterday's sharp gains amid reports several private equity groups are considering takeover bids of over 8 bln eur for the company's Semiconductors division

Others decliners were Fortis, off 0.84 pct at 27.26, Hagemeyer 0.81 pct lower at 3.68 and Aegon, slipping 0.77 pct at 12.89

Wessanen led second-line fallers, off 0.71 pct at 11.15 after the stock was downgraded to 'hold' from 'add' by ABN Amro

Major gainers:

TomTom was the star performer, jumping 5.54 pct at 29.53 after the maker of personal navigation devices posted a good set of second-quarter results and reiterated its full-year guidance

Oil sector stocks were in demand, with Royal Dutch Shell up 0.52 pct at 27.01 and SBM Offshore rising 0.48 pct at 21.15 

LogicaCMG put on 1.65 pct at 2.47 after an upgrade to 'overweight' from 'equalweight' by Morgan Stanley

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