UK/Euro Financial Market Daily Morning Briefing 27-06-2006

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London shares remain strong in early trade; oil giants helped by supply concerns

London shares remained higher in early deals as supply concerns boosted the oil sector and miners were helped by merger news across the Atlantic, dealers said.
   
At 9.00 am, the FTSE 100 index was up 19.6 points at 5,700.8 with the wider market following suit.
   
Overnight on Wall street, a series of lucrative acquisitions gave US markets a modest advance, although many investors remained cautious before the Federal Reserve's decision on interest rates this week.
   
Investors were encouraged by news from mining company Phelps Dodge that it will pay 40 bln usd in cash and stock for rivals Inco and Falconbridge, while steelmaker Arcelor agreed to a 33 bln usd bid from Mittal Steel.
   
In addition, DJIA heavyweight Johnson & Johnson agreed to buy fellow Dow component Pfizer consumer products unit for 16.6 bln.
   
The DJIA closed up 56.20 points at 11,045.30 while the Nasdaq ended plus 12.20 at 2,133.67.
   
However, traders noted that Wall Street's boost from these deals could be short lived as investors wonder just how far the Fed will raise rates to combat inflation. The decision is expected on Thursday.
   
Meanwhile in Asia, the Nikkei 225 ended the session up 19.41 points at 15,171.81 while Hong Kong's Hang Seng finished the morning up 36.47 points at 15,841.28.
   
Oil prices rose in Asian trading hours as the market revisited a series of long standing concerns, ranging from Iran's nuclear programme to the prospects for bad weather along the US Gulf Coast, dealers said.
   
New York's main contract, light sweet crude for delivery in August, was up 0.24 usd at 72.04 usd per barrel from 71.80 usd in late trading in the US. Brent North Sea crude for August delivery climbed 0.20 usd to 70.93 usd.
   
The concerns over oil supply helped to bolster oil heavyweights, with BP up 6-1/2 pence at 616, BG Group firmed 7 pence at 704 while Royal Dutch Shell improved 20 pence at 1,821. On the second tier Tullow Oil was the FTSE 250's largest climber, up 20 pence at 373.

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The miners were also assisted by strong commodity prices, pushing Antofagasta up 6 pence to 412, BHP Billiton rose 14 pence to 1,011, Vedanta Resources gained 28 pence to 1,340 while Rio Tinto was 54 pence higher at 2,864.
   
The sector was also geared by yesterday's M&A activity, specifically the Phelps Dodge takeover of rivals Inco and Falconbridge.
   
Also up was Kazakhmys, 15 pence stronger at 1,124, and Lonmin rose 32 pence at 2,778.
   
Meanwhile, Persimmon was still in favour with investors after yesterday's positive trading update, rising 23 pence to 1,223. This was in the face of Deutsche Bank downgrading the housebuilder to 'hold' from 'buy'.
   
Sticking with broker changes, Rexam jumped 1.7 pct, or 8 pence, to 495 1/2 after Citigroup upgraded the industrial packaging manufacturer to 'buy' from 'hold' on valuation grounds, with an improved price target of 550 pence from 530.
   
Meanwhile, Pearson put on 9 pence at 719 after the US broker raised the stock to 'buy' from 'hold'.
   
There were also reports that the Financial Times owner has held talks with US media giant Dow Jones, which publishes the Wall Street Journal, over a tie-up between the two business dailies, according to a report in the Daily Mail.
   
On the downside, shares in National Grid dipped 3 pence to 593 1/2 after they were cut to 'hold' from 'buy' at Citigroup this morning.
   
The broker said that Ofgem's initial transmission price control proposals were likely to disappoint the UK gas and electricity distribution network operator.
   
British Airways, 0 to 3/4 pence lighter at 343 1/2, was still dogged by claims of fuel surcharge price fixing. The stock was also dented by the increase in the oil price.
   
Defensive stock Gallaher was out of favour with investors, down 4 1/2 pence at 823 after it revealed that trading in Europe remains tough. The company said that the UK duty paid cigarette market fell by 4 to 5 pct in the first 5 months of 2006.

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Peer BAT was also knocked by the news and was 8 pence lighter at 1,350.
   
Another key FTSE 100 loser was Smith & Nephew, down 3-1/2 pence to 411 after the stock was downgraded to 'neutral' from 'overweight' at Bridgewell Securities following a US inquiry into some of the world's major orthopaedics companies.
   
On the second tier, Venture Production was a hit with investors, up 15 pence at 721 on news that it has secured long-term drilling rig contracts to support its aggressive drilling programme in North Sea over the next five years.
   
The first deal is a one-year extension of an existing contract with Noble Corp, which was due to expire in mid-2008. After that, Noble will deliver a new rig to support Venture's two-year drilling campaign until 2011.
   
BBA Group was another success story, improved by 4-1/4 pence to 254-3/4. The market liked the news that its aviation division is making good progress in the half year to June 30. However, profits for its Fiberweb division will be substantially lower than in 2005.
   
Shares in Bunzl also climbed higher, up 11-1/2 pence at 606, after the group said trading in the first half to June 30 is expected to be in line with market forecasts, and with Merrill Lynch reiterating its 'buy' recommendation.
   
Finally among retailers, WH Smith was the day's star, rising 7-3/4 pence to 474 after the high street retailer said shareholders will receive one new share each in the two new companies to be formed out of its demerger.

Diary of Events

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US Summary

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

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FRANKFURT - Market data at 9.39 am
   
Major indices:
   
DAX 30 - 5,530.59, up 15.96 points or 0.29 pct
MDAX - 7,723.25, up 26.21 points or 0.34 pct
TecDAX - 634.90, up 1.89 points or 0.30 pct
DAX future - 5,567.00, down 19.50 points or 0.35 pct

Major gainers:
   
Adidas, up 0.58 eur or 1.59 pct at 37.15, as Focus-Money cited CEO Herbert Hainer as saying that the boost it got from this year's World Cup will continue into 2007
   
ThyssenKrupp, up 0.37 eur or 1.47 pct at 25.50, as Morgan Stanley reiterated its 'overweight' rating on the stock
   
MAN, up 0.75 eur or 1.38 pct at 55.28
   
Hypo Real Estate, up 0.58 eur or 1.26 pct at 46.60
   
E.ON, up 0.83 eur or 0.98 pct at 85.83

Major losers:
   
Linde, down 2.17 eur or 3.50 pct at 59.89, trading ex-rights, having last week announced it expects to raise around 1.835 bln eur with a rights issue giving shareholders the right to subscribe for two new shares for every seven they already hold at a price of 49.50 eur per share
   
Continental AG, down 1.59 eur or 1.99 pct at 78.20, after Japanese peer Bridgestone slashed its net income forecast for 2006 by more than a third, partly on the back of higher raw materials costs
   
Volkswagen, down 0.27 eur or 0.51 pct at 52.95
   
BMW, down 0.16 eur or 0.42 pct at 37.77
   
Allianz, down 0.42 eur or 0.35 pct at 119.46

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PARIS - Market data at 9.58 am:

Major indices:
   
CAC 40 up 13.11 points or 0.27 pct at 4,814.60
SBF 80 up 20.71 points or 0.37 pct at 5,548.59
SBF 120 up 10.34 points or 0.30 pct at 3,493.66
Volume: 471 mln eur

26 CAC 40 stocks up
13 CAC 40 stocks down
Arcelor temporarily suspended from CAC 40
   
Major gainers:
   
Remy Cointreau, up 1.01 eur or 2.53 pct at 40.89, as beverage stocks were outperforming the market.
  
Publicis, up 0.34 eur or 1.16 pct at 29.59
   
Suez, up 0.35 eur or 1.15 pct at 30.78, after an upgrade to 'buy' from 'neutral' at UBS.
   
Pernod Ricard, up 1.60 eur or 1.05 pct at 154.40

Major losers:
   
Michelin, down 1.24 eur or 2.64 pct at 45.78, leading auto stocks lower.
   
Accor, down 0.66 eur or 1.41 pct at 46.02
   
Renault, down 0.95 eur or 1.15 pct at 81.75, after Nissan warned its sales in Japan may fall short of its fiscal year target.

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AMSTERDAM - Market data at 10.16 am
  
Major indices
   
AEX                 427.88, up 0.65 point
AMX Midcap          571.81, up 3.47 points
Government bonds    Mixed

Major gainers
   
SBM Offshore led gainers, adding 1.20 pct to 20.23 eur
   
Unilever added 0.88 pct to 17.20 eur
   
Second-liner Boskalis rose 2.28 pct to 51.60 eur
   
DSM lifted 0.72 pct to 32.08 eur
   
USG People added 1.30 pct to 58.60 eur after announcing an add-on acquisition
   
LogicaCMG rose 1.21 pct to 2.51 eur after securing a 70 mln eur outsourcing contract from Inbev
   
Fortis added 0.19 pct to 26 eur on news that it wants to buy an energy trading group in North America for 330 mln eur, and that the bank wants to expand in Germany
   
Major losers
   
TomTom sank 5.67 pct to 27.45 eur after Morgan Stanley lowered the stock to 'equal-weight' from 'overweight', saying that TomTom's new high end range of devices have been slow to appear in the European retail stores, which may suggest supply problems
   
Ahold dropped 1.05 pct to 6.57 eur
   
ASML shed 1.07 pct to 15.77 eur
   
Buhrmann lost 0.54 pct to 11.09 eur
   
Ordina shed 0.66 pct to 18.04 eur
   
Corus dropped 0.32 pct to 6.18 eur.

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