UK/Euro Financial Market Daily Morning Briefing 26-10-2006

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London shares remain up in early deals; Shell beats market expectations
       
UK blue chips remained up in early deals, bolstered by a positive FOMC rate decision across the Atlantic, with Royal Dutch Shell helping to underpin sentiment following forecast beating Q3 numbers.
   
At 8.59 am the FTSE 100 was up 23.7 at 6,238.3 with the wider market also in the black. Yesterday, UK blue-chips closed at fresh 5-3/4 year highs with the FTSE 100 up 32.1 points at 6,214.6, its highest level since February 2001.
   
Overnight Wall Street managed a marginal gain, enough to give the Dow Jones another record close, after the Federal Reserve stoked some fears of inflation pressures but implied that it is not intent on raising interest rates.
   
The Federal Open Market Committee kept the nation's benchmark rate unchanged at 5.25 pct for a third straight meeting, but it noted in its accompanying policy statement that readings on inflation have moved higher recently.
   
The DJIA closed up 6.80, or 0.06 pct, to 12,134.68. After the Fed announcement, the Dow reached another new trading high of 12,147.97 before pulling back; it also set new trading and closing records the previous session.
    
In corporate news, Boeing yesterday posted a 31 pct decline in third-quarter profits and raised concerns on Wall Street about the potential for snags with its much-awaited 787 aircraft, saying it anticipates spending significantly more than planned to reduce the weight of the fuel-efficient jet.
   
In Asia, Japan's Nikkei 225 index closed up 112.30 points at 16,811.60, while in Hong Kong the Hang Seng ended the morning session up 137.63 points at 18,295.57.
   
In oil play, prices were boosted by lower US inventories, concern about a cold snap in the northeast of the US, the world's biggest consumer of heating oil, and attacks on rigs in Nigeria, dealers said.
   
The New York Mercantile Exchange's main contract, light sweet crude for December delivery, was up 0.25 usd at 61.65 usd a barrel from 61.40 usd in late trading in the US overnight, after the contract had jumped there by 2.05 usd.
   
Remaining with oil, Shell raced to the top of the FTSE 100, increasing 50 pence to 1,892, after the oil and gas major's third quarter earnings beat expectations. Shell raised dividends to 0.25 eur per share from 0.23 eur last time.

Adjusted net income was 1 pct higher than market expectations but EPS was 23 pct above consensus and market estimates are likely to increase by around 8 pct he said. Production grew to 3.251 mln barrels of oil equivalent per day from 3.207 mln previously.

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The miners were also in focus as commodity prices improved. Vedanta put on 50 at 1,482, Kazakhmys was better by 21 at 1,242, BHP Billiton climbed 11 to 1,033, Rio Tinto improved 28 at 2,923, while Xstrata gained 16 at 2,270.   
   
NYmex.com saw the gold price up 4.3 usd at 595.1 while copper was up 0.24 at 3.42.
   
With the losers, AstraZeneca plummeted 125 pence to 3,404, on news that one of its most important experimental drugs, for reducing the disability caused by stroke, has failed in final stage clinical trials, and all further development work will end.
   
Britain's second-biggest drug maker said NXY-059 failed on the two key measures of the trial. It did not demonstrate any statistically significant reduction in stroke-related disability or neurological status caused by acute ischaemic stroke, compared to placebo.
    
Goldman Sachs attempted to reassure clients, saying it had always regarded this as high risk and therefore included no revenues for the project in its earnings model and that the news would not alter the company's long-term guidance.
   
It added, however, that it believes the market will now focus upon the high-risk nature of the other Phase 3 project due to report soon -- AGI in atherosclerosis in Q1 2007 -- and any potential impact on company strategy should that disappoint.
   
Deutsche Bank, meanwhile, said removing NXY-059 from its forecasts lowers its 2010 EPS estimate by 3 pct and argued that the setback is likely to prompt investors to question the group's late-stage pipeline.
   
Ahead of the group's third-quarter results later this morning, Deutsche Bank lowered its target to 3,650 pence from 3,760, although repeated its 'buy' recommendation.
   
Cadbury Schweppes was another loser, down 12 pence at 534, after it said its Europe, Middle East and Africa performance is being impacted by "difficult conditions" in the UK, where sales since the beginning of July have been 5 pct lower than last year.
   
The group sees overall revenue growth for the full year to be around the middle of its goal range of between 3-5 pct. Due to weaker trading in its high margin UK and Nigerian businesses, the group said it is unlikely to see progression in underlying group margins for the whole year.
   
Although Aviva, the UK's biggest insurer, delivered a 16 pct increase in new business profit for the first nine months of the year, helped by strong sales growth in its domestic market, this was offset by concerns for its overseas business. The stock was down 11-1/2 pence at 780-12.

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Peers Prudential and Royal & Sun were down in sympathy, 639 down 2 and 148 off a half penny respectively.
   
Meanwhile, Standard Life dipped 0-1/2 to 203-1/4, the stock was also dented by news that it has purchased a 10 pct shareholding in independent financial advisor support company Simply Biz.
   
The company said that the shareholding was taken as part of its continuing distribution strategy. Simply Biz provides training and support services to financial advisers.
   
On the second tier, shares in Wolfson Microelectronics rallied 8-3/4 pence to 296, having fallen heavily in recent sessions after last week's Q4 revenues warning, helped by news of an upgrade to 'buy' from 'neutral' by Merrill Lynch.
   
In a note published today, Merrill Lynch said it believes that the 35 pct decline in Wolfson's share price, since the company warned in its Q3 results on October 20 that Q4 revenues would be below expectations, is overdone.  Sector peer CSR was also up 16 pence at 771.
   
Halma was another feature, up 4-1/4 at 209, as it said it sees its trading performance for the first half at the top end of expectations, adding the company continues to achieve healthy organic growth.
   
The health and sensor technology group said it is positive about its full year prospects.
   
Still with the risers, William Hill improved 4 pence to 654-1/2, having been initiated as 'underweight', while Rank PLC has been started as 'neutral' by JP Morgan as part of a betting and gaming sector note.
   
The broker set a 645 pence target for William Hill and advised switching into Ladbrokes, up 5 at 417-3/4, which it reiterated as 'overweight' with a raised target of 460 pence from 430.
   
On the downside, investors retreated from First Choice, down 1 pence at 232-3/4, as well touted bid speculation eased.

UK Diary of Events

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US Summary

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AMSTERDAM - market data at 9.55 am
   
Major indices
   
AEX                495.05, up 2.34 points
AMX Midcap         623.87, down 1.05 points
Government bonds   Flat to higher

Major gainers
   
TomTom soared 5.36 pct to 33.40 eur after raising its sales guidance and reporting higher-than-expected third quarter earnings
   
Royal Dutch Shell rose 2.69 pct to 27.44 eur as underlying profits beat market expectations
   
Hagemeyer added 1.88 pct to 4.33 eur
   
Akzo Nobel put on 0.70 pct to 44.59 eur on news it appointed a CFO for its soon-to-be-separated Organon division
   
Local issue OPG edged up 0.12 pct to 80.10 eur after it said it expects operating profit for the full year to come in towards the upper end of its earlier guidance

Major losers
   
Vedior fell 5.36 pct to 15.01 eur as third quarter earnings came in at the low-end of analyst expectations. Fellow recruitment companies also fell; Randstad shed 1.36 pct to 44.38 eur and USG People dropped 1.79 pct to 30.12 eur.
   
DSM dropped 2.80 pct to 36.06 eur as its in-line third quarter earnings failed to excite, dealers said
   
Wolters Kluwer edged 0.51 pct lower to 21.61 eur amid speculation either of a possible takeover by Thomson or an asset swap with market peer Reed Elsevier   

Reed Elsevier was 0.22 pct lower to 13.54 eur

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PARIS - Market data at 9.55 am:

Major indices:
   
CAC-40 up 25.34 or 0.47 pct at 5,447.62
SBF-80 up 29.62 or 0.47 pct at 6,290.53
SBF-120 up 19.05 or 0.48 pct at 3,951.42

Volume: 785 mln eur
32 CAC-40 stocks up
8 CAC-40 stocks down

Major gainers:
   
Business Objects up 1.02 or 3.71 pct at 28.48 as Q3 earnings beat group targets
   
Safran 0.52 or 3.10 pct at 17.30 - off high of 17.94; Motorola says vice president's comments in Le Figaro suggesting co was ready to acquire Safran's Sagem unit were 'misinterpreted'
   
France Telecom up 0.50 or 2.58 pct at 19.90
   
Air Liquide up 4.00 or 2.34 pct at 174.80 as Q3 sales rise, group maintains FY earnings guidance

Major losers:
   
Pernod Ricard down 2.10 or or 1.28 pct at 161.40  after Q1 sales
   
PPR down 1.70 or 1.40 pct at 119.40 after Q3 sales
   
Vinci down 0.35 at 89.30

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