UK/Euro Financial Market Daily Morning Briefing 28-07-2006

London shares remain lower in early deals; poor results assist in downturn

Leading shares remained lower in early deals as investors locked in profit following a positive run over the past few days, mirroring overnight performance across the Atlantic on Wall Street, with financial's Prudential and Alliance & Leicester assisting the downturn as results failed to please, dealers noted.
   
At 8.56 am the FTSE 100 index was down 5.3 at 5,924.2, climbing from an early low of at 5,904.7, with the wider market all in the red. Volume was very light with 153 mln shares moving hands in 23,734 deals.
   
Last night on Wall Street the DJIA eased from the recent bull run, closing down 2.10 points at 11,100.4, with the NASDAQ finishing the session 15.99 points lighter at 2,054.47.
   
Stocks fell modestly as nervousness about the second-quarter gross domestic product report prompted investors to take profits from earlier gains.  The US dollar was trading mixed against major currencies as investors marked time ahead of the release tonight of the data for the June quarter, traders said.
   
After the close NYSE Group, operator of the world's largest stock exchange, indicated that its second-quarter profit more than quadrupled after the acquisition of Archipelago Holdings delivered a new revenue source from electronic trading.
   
Net income rose to 61.2 mln usd, or 0.39 usd per share, from 13 mln, or 0.11 usd per share, a year-ago when the exchange was still a not-for-profit entity.
   
Meanwhile, soaring energy prices catapulted Exxon Mobil to a second-quarter profit of more than 10 bln usd and promised to ignite industry-wide growth -- and public outrage -- all year.
   
Royal Dutch Shell came close to matching Exxon Mobil's 36 pct quarterly earnings boost yesterday, posting net income of 7.3 bln usd, an increase of 40 pct from the year before.
   
Staying with oil, prices rose above 74 usd a barrel as militant attacks and a pipeline leak stifled Nigerian production.
   
Fighting in the Middle East also made traders fearful of possible supply interruptions in the region, and a US government report showed a surprising decline in natural gas inventories last week as hot weather pushed up demand for electricity.
   
Israel was poised today to intensify its deadly offensive against Lebanon, calling up thousands more reservists after claiming it had won the green light from the world to crush Hezbollah.

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Over in Asia, Japan's Nikkei 225 index closed up 163.09 points at 15,342.87 while in Hong Kong the Hang Seng rounded the morning up 113.14 points at 17,029.91, seemingly unperturbed by the slowdown in the US.
   
In London, Prudential was a substantial loser, easing 10-1/2 pence to 585, as mediocre results failed to excite investors. The insurer announced a major extension to its UK cost-cutting plans as it turned in first half profits in line with market forecasts.
   
Operating profit for the six months to June 30 came in at 980 mln stg under European Embedded Value accounting rules, a 17 pct increase on the same period last year.
   
Analysts had been expecting profit of 982 mln stg, according to a consensus forecast provided by the company.
   
Across the sector peer Legal & General was also down, lighter by 1-1/2 at 125, as was Friends Provident, ditching 1-1/2 at 180-3/4.
   
Alliance & Leicester was another loser, dipping 8 pence to 1,036, after its pretax earnings in the first half missed the average analyst forecast supplied by the bank.
   
Pretax earnings for the six months to June 30 were 257 mln stg, down from 272 mln in the year before period and missing the analysts' average estimate of 262 mln.
   
The miners were also out of favour on the back of lower commodity prices. Vedanta was down 20 pence at 1,301, Kazakhmys eased 25 to 1,236, Xstrata slipped 25 to 2,116, Anglo American shed 25 at 2,196 while BHP Billiton went lighter by 11 at 1,028.
   
Meanwhile, in other news surrounding Anglo American, Southern African diamond producer De Beers, of which Anglo holds a 45 pct share, said its interim profits have slipped, with a tough trading environment in the rough diamond market outweighing a firm consumer jewellery demand.
   
In the six months to June 30, De Beers made an underlying profit of 308 mln usd, down 14 pct from the year earlier period, while total sales were broadly flat at 3.9 bln usd.
   
Anglo American said its share of underlying earnings in the half will be 164 mln usd, down from 188 mln last year.
   
On the upside, British American Tobacco found favour, up 11 at 1,420, having been upgraded to 'buy' from 'add' by Dresdner Kleinwort following yesterday's interim results.
  
Across the sector Imperial Tobacco put on 3 at 1,753 while Gallaher matured 1-1/2 to 891-1/2.

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Punters also tuned in to BskyB, 2 pence heavier at 552, after the satellite giant reported a 1 pct rise in full-year profit, in line with expectations, and said strong customer demand for new services bodes well for the future.
   
Britain's biggest pay-TV company, which last week launched a "free" broadband service for its existing satellite television subscribers, said pretax profit in the year to end June rose to 798 mln stg from 787 mln a year earlier on revenue of 4.14 bln stg from 3.84 bln.
   
Investors' ears were soothed by news that DSG International, formerly known as Dixons, is selling its 60 pct stake in UK mobile phone retail chain The Link Stores Ltd to Telefonica mobile phone network O2 for about 30 mln stg.
   
The news sent the stock higher by 0-1/2 pence to 200-1/4. AstraZeneca managed to pull back from heavy loses yesterday, up 8 at 3,217.
   
Energy stocks were in focus on news that companies are set to introduce price hikes. Centrica, up 2 pence at 294-1/4, said it is to raise prices at its British Gas operations to offset a sharp fall in interim profits.   
   
Also up was peer Scottish Power, 4-1/2 pence to the better at 610, National Grid 3 better off at 606 and British Energy, 3 pence richer at 721.
   
On the second level, Amec eased 7-3/4 pence to 287-1/2, as concerns were raised by a leading analyst about the recognition of revenues under its construction and public/private partnership contracts, so reported the Financial Times, citing research by Mark Howson, an analyst at ABN Amro.
   
Topping the losers board was Inmarsat, down 14-1/2 at 315-1/2, after its price target was trimmed to 350 pence from 370 by Morgan Stanley. The broker maintained its 'equal-weight' recommendation.
   
On the upside, Colt Telecom ruled the roost, up 3-1/4 at 128-1/4, having been upped to 'underweight' from 'sell' by Bridgewell Securities. The broker noted that following the change in capital and organisational structure it has revisited its Colt forecasts and investment case.
   
On Wednesday the stock was upped to 'neutral' from 'sell' by Goldman Sachs.
   
Also in favour was QinetiQ, 0-1/2 pence heavier at 164-1/2, after the international defence and security technology company, said it expects profit growth to pick up in the second half after trading in line with expectations during the last six months.
   
Meanwhile, the UK economy is expected to grow around its trend rate over the next few years as stronger investment and trade offset subdued consumer spending, while CPI inflation is expected to remain above 2 pct, a leading UK think-tank found.

UK Diary of Events

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US Summary

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AMSTERDAM - Market data at 10.12 am
  
Major indices
   
AEX               452.07, down 0.42 points
AMX Midcap        579.69, down 2.60 points
Government bonds  Flat to lower

Major gainers
   
Pharming soared 6.08 pct to 3.49 eur after the company said it has gained a 'fast track' designation for its lead product, the C1 inhibitor, at the US Food and Drug Administration, which could lead to faster approval of the product for the US market.
   
Local issue OPG rose 2.60 pct to 71.05 eur after reporting mixed second-quarter results
   
Wessanen rose 1.17 pct to 11.20 eur
   
Reed Elsevier added 0.69 pct to 11.67 eur
   
Numico added 0.74 pct to 36.99 eur
   
Major losers
   
Randstad fell 3.48 pct to 42.95 eur after reporting generally well-received second-quarter earnings, but gross margins and developments in its Dutch home market disappointed, analysts said.
   
DSM shed 2.42 pct to 31.04 eur, in continuation of yesterday's losses after reporting disappointing second-quarter earnings, on the back of which Deutsche Bank downgraded the stock to 'hold' from 'buy', dealers said.
   
Aegon lost 1.05 pct to 13.14 eur
   
Buhrmann shed 1.19 pct to 10.81 eur in profit-taking after yesterday's sharp gains, dealers said.

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FRANKFURT - Market data at 10.04 am

Major indices:
   
DAX 30 - 5,649.36, down 9.71 points or 0.17 pct
MDAX - 7,807.25, down 20.42 points or 0.26 pct
TecDAX - 611.69, down 6.06 points or 0.98 pct
DAX future - 5,671.00, up 31.00 points or 0.55 pct

Major gainers:
   
Metro, up 1.55 eur or 3.54 pct at 45.35, after the retailer said it has agreed to acquire the German operations of US retailer Wal-Mart for an undisclosed amount, and amid talk that Wal-Mart will pay it hundreds of millions of euros to take its German operations off its hands
   
E.ON, up 1.50 eur or 1.58 pct at 96.25, after Spanish energy sector regulator CNE gave E.ON approval to buy Endesa SA provided it sells certain assets as part of the 26.9 bln eur takeover, with the decision expected to be formally announced today
   
Linde, up 0.28 eur or 0.42 pct at 66.40, ahead of its first-half results later today
   
RWE, up 0.32 eur or 0.47 pct at 67.75
   
Continental AG, up 0.24 eur or 0.31 pct at 77.50

Major losers:
   
Infineon, down 0.19 eur or 2.31 pct at 8.02
   
Lufthansa, down 0.25 eur or 1.72 pct at 14.30
   
BASF, down 0.77 eur or 1.22 pct at 62.30
   
Allianz, down 1.16 eur or 0.94 pct at 121.63
   
Adidas, down 0.32 eur or 0.87 pct at 36.41

Other movers:
   
Deutsche Postbank, up 0.27 eur or 0.48 pct at 56.53, after the bank reported second-quarter results that were slightly ahead of consensus estimates
   
Siemens, down 0.49 eur or 0.77 pct at 62.85, as Morgan Stanley cut its price target on the stock to 76 eur from 80, reiterating its 'overweight' rating, following yesterday's third quarter results

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PARIS - Market data at 9.27 am:

Major indices:
   
CAC-40 down 18.57 points or 0.37 pct at 4,982.64
SBF-80 down 21.47 points or 0.39 pct at 5,517.65
SBF-120 down 13.80 points or 0.38 pct at 3,597.21

Volume: 264 mln eur
25 CAC-40 stocks up
14 CAC-40 stocks down
(CAC-40 currently has 39 stocks; Arcelor removed, no replacement yet)

Major gainers:
   
Rhodia, up 0.05 eur or 3.25 pct at 1.59. It had a second quarter net profit after a year-earlier loss and believes it can meet its full year targets.
   
Thales, up 1.08 eur or 3.57 pct at 31.37. Its first-half net profit was up and operating profit was down, but sees its full year targets as within reach.
   
Schneider Electric, up 1.80 eur or 2.29 pct at 80.45, after first half results topped expectations and full year guidance was raised.
   
Renault, up 0.80 eur or 0.94 pct at 85.55, after posting better than expected first half results and confirming its full year guidance.

Major losers:
   
Capgemini, down 0.72 eur or 1.69 pct at 41.82
   
Lagardere, down 0.85 dur or 1.53 pct at 54.80. It reported only slight sales growth in its media operations.
   
Publicis, down 0.50 eur or 1.68 pct at 29.31

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