UK/Euro Financial Market Daily Morning Briefing 31-05-2006

London shares weak but off lows in early trade, miners drag, mkt volatile

The FTSE 100 index was weaker, but off opening lows, as investors sought out defensive names in the continuing volatility in global equity markets, with weaker commodity prices hitting the mining sector and further dollar fragility weighing on UK stocks with substantial US exposure, dealers said.
   
By 9.00 am, the FTSE 100 was off 9.2 points at 5,642.8, having hit an earlier low of 5591.5. The broader FTSE 250 also traded off lows down 49.7 points at 9,186.3.
    
Last night on Wall Street, US stocks ended sharply lower, the DJIA falling 184.18 points to 11,094.43, while the Nasdaq Composite Index dropped 45.63 points to 2,164.74.
   
Over in Asia, Japan's Nikkei 225 index ended the morning off 286.93 points at 15,572.52. The Hang Seng is closed for a public holiday.
   
Later today sees the Chicago PMI and FOMC minutes (after the close), which combined with end of month portfolio adjustments, and an MSCI re-weighting, may make for another volatile session on Wall Street.
   
Among shares dominating the loser board, mining issues were again prominent after their Asian counterparts fell as base metal prices continued to lose ground.
   
BHP fell 21 pence to 1,020, while Xstrata was off 50 at 1,970 and Antofagasta eased 45 at 2,020.
   
Shares in Corus Group fell back as sliding commodity prices and continued selling by the broader market overshadowed the steel group's in-line first quarter results.
   
Corus shares were down 1-1/2 pence at 380 after the steel-maker announced that its first quarter profit slipped due to weak demand and continuing cost pressures, although the it said conditions had begun to stabilise and it was now able to start raising prices.
   
Morgan Stanley repeated its 'equal-weight' recommendation and 330 pence target, noting that although the steel group's Q1 2006 EBITDA was ahead of expectations, its sales were below forecasts.

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Meanwhile, dollar sensitive issues were again targeted after the US greenback drifted lower against major currencies amid uncertainty over the prospect of the US economy and on the impact a newly nominated Treasury secretary might have on US foreign exchange policy.
   
Amvescap lost 7 to 501, while Man Group lost 36 to 2,224 and plumbing supplier Wolseley eased 17 to 1,185.
   
On a brighter note, Friends Provident headed the small band of gainers, up 2 pence at 175 after Credit Suisse upgraded its stance to 'outperform' from 'underperform' and lifted its target to 218 pence from 172.
   
The broker argued that it believes the market is undervaluing the growth and profitability prospects of the international 'offshore' life insurance business.
   
Tate & Lyle also benefited from positive broker comment, rising a penny to 566 after Merrill Lynch upped its stance to 'neutral' from 'sell'.
   
However, the broker warned that it thought the shares would continue to be affected by incremental newsflow surrounding its efforts to defend against potential generic competition.
   
Elsewhere, utilities benefited from their defensive qualities with International Power up 2 at 277, and Kelda up 2 at 745.
   
Scottish & Southern Energy rose a couple of pence to 1094 after the group said its energy supply business gained 600,000 customers in 2005/6 as it announced a 19.2 pct rise in adjusted annual pretax profits to 858.2 mln stg.
   
On the second line, Icap was dragged down by market sentiment,     overshadowing preliminary results that were in line with its guidance and an upbeat outlook.

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Icap reported pretax profit before amortisation and impairment of intangibles of 204.3 mln stg, at the top end of analyst forecasts of 198-205 mln, and above consensus of 200 mln, from 176.7 mln last year.
   
Bridgewell Securities pointed out that Icap was very upbeat about current trading and future prospects, adding that it expects Icap's shares to continue to outperform the wider market. It reiterated its 'overweight' stance.  
   
In other earnings related news, Northern Foods rose 1-1/2 pence to 98 after  unveiling plans to radically refocus its business, including the sale of  businesses accounting for 40 pct of its annual revenues.
   
Proceeds from the disposals will be used to reduce borrowings, cut the  company's pension deficit and invest for future growth.
   
Also higher this morning, Wellington Underwriting rose a couple of pence to 84 after Citigroup upgraded its rating to 'buy' from 'hold' on valuation grounds.
   
Citigroup said it suspects that Wellington's shares have been harshly treated because of poor sentiment after disappointing 2005 results.
   
Finally Trinity Mirror jumped 10 pence to 515 after being upgraded to 'neutral' from 'reduce' by UBS on valuation, with a reduced target of 494 pence from 515 before.
   
UBS noted the stock has underperformed the media sector by 11 pct, a worse  performance than peer Johnston Press.

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PARIS - Market data at 9.49 am:

Major indices:
   
CAC-40 down 38.34 points or 0.78 pct at 4,855.53
SBF-80 down 63.45 points or 1.14 pct at 5,490.84
SBF-120 down 30.64 points or 0.86 pct at 3,512.84

Volume: 710 mln eur
38 CAC-40 stocks down
2 CAC-40 stocks unchanged

Major gainers:
   
Bollore, up 11.00 eur or 2.18 pct at 515.00

Major losers:
   
Dexia, down 0.65 eur or 3.31 pct at 18.97, after announcing the purchase of 75 pct of Turkey's Denizbank for 2.44 bln usd. Analysts said the move seemed strategically sound but too costly.
   
Bollore Investissement, the holding company that controls Bollore, down 4.20 eur or 2.95 pct at 138.30
   
EADS, down 0.79 eur or 2.92 pct at 26.89
   
Alstom, down 1.80 eur or 2.74 pct at 64.00. It said last week that a client, Bucharest's metro system, failed to pay bills totaling 40 mln eur.

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FRANKFURT - Market data at 9.39 am
   
Major indices:
   
DAX 30 - 5,575.25, down 47.18 points or 0.84 pct
MDAX - 7,898.77, down 163.22 points or 2.02 pct
TecDAX - 636.95, down 13.67 points or 2.10 pct
DAX future - 5,582.50, down 23.50 points or 0.42 pct

Major gainers:
   
E.ON, up 0.19 eur or 0.22 pct at 88.16
   
RWE, 0.09 eur or 0.14 pct at 65.38

Major losers:
   
ThyssenKrupp, down 0.96 eur or 3.58 pct at 25.82
   
MAN, down 1.38 eur or 2.45 pct at 54.85
   
Deutsche Boerse, down 2.41 eur or 2.37 pct at 99.22, amid expectations its merger proposal for Euronext will fail, as the Wall Street Journal reported that senior executives at the NYSE and Euronext are meeting this week in New York to put the finishing touches on their proposed merger.

They will then take the proposal to their boards -- and then try to convince their respective shareholders that the move makes sense.
   
Henkel, down 1.68 eur or 1.92 pct at 85.66
   
Continental, down 1.61 eur or 1.90 pct at 83.30

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