UK/Euro Financial Market Daily Morning Briefing 31-10-2006

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London shares open lower as oil weakness offsets Friends Provident
      
Leading shares were lower in opening deals with weakness in oil heavyweights and a mixed session on Wall Street offsetting better-than-expected numbers from insurer Friends Provident.
   
At 9.00 am, the FTSE 100 was down 5.5 points at 6,121.3, its fourth straight day of losses, in contrast with the positive wider market. Volume was average with 261 mln shares changing hands in 29,137 deals.
   
Meanwhile, Wall Street was mixed yesterday as a lacklustre sales update from Wal-Mart added to ongoing fears over a slowdown in the economy, but losses were capped by a sharp fall in the price of oil.
   
The DJIA fell 3.76 points to 12,086.50, The Standard & Poor's 500 was up 0.59 at 1,377.93, and the Nasdaq ended 13.15 higher at 2,363.77.
   
And US investors will get another chance to assess the health of the world's largest economy today with the release of personal income and consumer spending data and the latest Chicago PMI.
   
Across Asia overnight the mood was also mixed as the Nikkei 225 index closed 47.54 higher at 16,399.39 while Hong Kong was 39.37 lower at 18,258.18 by midday.
   
Still in Asia, crude prices continued to fall overnight on the back of unseasonally warm weather in the US and fears of a slowdown in the global economy.
   
Earlier this morning, New York's main contract, light sweet crude for delivery in December, was down 3 cents at 58.33 usd -- having lost over 3 pct yesterday.
   
Back in London, the news hit oil heavyweights, with BP further knocked by the release of a scathing report in the US into a fatal fire at its Texas City refinery which killed 15 people.
   
According to press reports, an investigation into the blast claimed safety experts warned of the potential for a "major site incident" 2-1/2 years before the explosion. BP fell 2-1/2 at 589, Royal Dutch Shell was off 5 at 1,881 and BG slipped 1-1/2 at 702-1/2.
   
The banking sector was also weak after Swiss peer UBS reported a surprisingly weak set of third-quarter numbers. Barclays was off 2 at 703, Royal Bank of Scotland fell 1 at 1,856, and Lloyds TSB fell 1/2 at 559.

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Elsewhere, in-line results from Imperial Tobacco prompted profit-taking after the world's fourth biggest cigarette maker revealed an as-expected 5 pct growth in annual underlying profits.
   
Imperial Tobacco said adjusted profit from operations rose to 1.356 bln stg from 1.297 bln last year, driven by rising market shares in the UK and Germany and a cost-cutting drive.
   
In response, UBS repeated its 'neutral' stance as it remained cautious on the continuing difficult conditions in Germany and the full implementation of the public smoking ban in the UK. Shares were down 8 pence at 1,831 with peer BAT off 10 at 1,429.
   
Broker comment also helped drive sentiment with DSG International 2-1/2 lower at 216-3/4 after a downgrade to 'hold' from 'buy' by Deutsche Bank.
   
The broker also lowered its target on DSG to 227 pence from 240, arguing the shares no longer offer value after rising 58 pct over the last 18 months and outperforming the UK market by 23 pct.
   
British Energy also continued its recent weakness, falling a further 6-1/2 at 409-1/2, as fears over its operational performance continue to dog investors.
   
While profit taking hit the property sector following REIT inspired gains with Slough Estates down 6 at 681, Hammerson 11 lower at 1,323 and British Land off 8 at 1,470.
   
In contrast, Friends Provident took on 4-1/2 at 198-1/2 after the life insurer revealed better-than-expected new business figures alongside ambitious new targets.
   
This morning the group said third-quarter life pensions and new business sales rose by 40 pct to 1.597 bln stg beating a company-collected consensus analyst forecast of 1.460 bln.
   
Peers Aviva took on 2 at 773, and Legal & General rose 1/2 at 142-3/4, further buoyed by consolidation hopes following news French peer Axa is 'mulling over' a 7 bln stg approach for Standard Life.
   
In response, Merrill Lynch reiterated its 'neutral' stance and said it expects the shares to rally today due to impressive sales performance, its "interesting" valuation and bid speculation returning to the UK sector.
   
Shire was also courted, 24-1/2 firmer at 964-1/2 as Credit Suisse upgraded the pharma to a 'trading buy' following yesterday's post-results profit-taking drop.
   
And Persimmon rose 2 at 1,333 after the UK's largest housebuilder said it is trading in line with expectations and prices remain "firm".

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The company said it was continuing to improve performance on sites previously owned by Westbury, which it took over last year, and added the housing market had not changed noticeably since August.
   
Sentiment in the sector was further boosted as data from building society Nationwide revealed, although house prices cooled in October following a sharp increase in September, the underlying trend is "still firm".
   
On the second line, ARM Holdings fell 2-1/2 at 106-1/2 after the chip designer posted a disappointing set of third-quarter results, with sales and margins coming in below expectations.
   
In response, Panmure Gordon downgraded the stock to 'hold' from 'buy', according to dealers.
   
And F&C Asset Management lost 4-1/2 at 185-1/2 after announcing third-quarter assets under management remained broadly flat at 106 bln stg.
   
But on the upside, RHM led the midcap risers, 8-1/2 higher at 271-1/2 after the food company said first-half results are expected to be in line with its expectations.
   
Responding to the update, Credit Suisse said it thinks today's news is "encouraging", with satisfactory trading in September and October showing an
improvement from the slow first four months.
   
In a busy day for economics, the monthly consumer confidence index from pollsters GfK/NOP is expected to be unchanged at -7 as the fall in petrol prices is offset by an increase in domestic energy bills and higher university fees.
   
And the Confederation of British Industry is expected to show high street activity remained resilient during October though the warmer-than-usual weather may have hit clothing sales.

UK Diary of Events

For a diary of key UK financial and corporate events today, click here

US Summary

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PARIS - Market data at 9.51 am:

Major indices:
   
CAC-40 down 16.83 points at 5,345.40
SBF-80 down 5.80 at 6,235.52
SBF-120 down 11.00 at 3,882.25

Volume: 726 mln eur
16 CAC-40 stocks up
23 CAC-40 stocks down
1 unchanged

Major gainers:
   
Alten, up 0.89 eur or 3.4 pct at 27.41 after lifting 2006 sales forecasts, as it reported a 32.6 pct rse in third quarter sales to 417.3 mln eur.
  
Soitec, up 0.58 or 2.8 pct at 21.62 following its release of a surge in third-quarter sales to 21.3 mln from 3.7 mln last year. It also raised the 2006 margin forecast to over 15 pct from 13.7 pct.

Major losers:
   
Sanofi-Aventis, down 1.75 eur or 2.6 pct at 66.75. Although third-quarter earnings were in line with forecasts, sales fell 1.1 pct to 6.9 bln eur, below a consensus forecast of 7.28 bln. Analysts said revenues were weaker than expected for several drugs, and not just Plavix, the beleaguered blood-thinning blockbuster.
   
Veolia Environnement, down 0.69 or 1.4 pct at 47.37; the company posted nine-month revenue and operating profit growth below analyst forecasts, though it maintained 2006 targets.
   
Altran, down 0.20 or 2.6 pct at 7.44 after unveiling third-quarter sales of 355.1 mln eur, up 4.8 pct like-for-like. The group plans to implement further cost-cutting measures in order to boost its flagging French operations.

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FRANKFURT - Market data at 9.25 am

Major indices:

DAX 30 - Down 9.08 points, or 0.16 pct at 6248.48
MDAX - Up 29.94 points or 0.34 pct at 8636.64
TecDAX - Up 0.96, or 0.16 pct at 684.83
DAX future - Down 11 at 6,277.00
Oil - down 3 cents at 58.33 usd from its close of 58.36 in NY
Gold - 601.10-601.60 usd an oz.
Euro/dollar - 1.2704 usd, down from 1.2720

DAX 30 risers
   
DCX, up 0.65, or 1.50 pct at 44.00; Focus-Magazine says FV too low.
   
LHA, up 0.25, or 1.29 pct at 18.19; Weaker tone to crude oil prices
   
Henkel, up 0.76, or 0.73 pct at 105.25;
   
MAN AG, up 0.52, or 0.75 pct at 69.52;
   
Linde, up 0.80, or 1.21 pct at 77.28; set a target of Nov 10 for binding bids for its forklift truck operations. Q3's due later today.
  
     
DAX 30 fallers
   
Metro, down 0.54, or 1.13 pct at 45.47; Q3 slightly disappointing. 
   
Deutsche Bank, down 1.09, or 1.11 pct at 97.31; UBS earnings disappoint
   
Continental, down 0.99, or 1.04 pct at 87.53;
   
Commerzbank, down 0.23, or 0.78 pct at 27.88; UBS earnings disappoint
   
FMC, down 1.4, or 1.31 pct at 105.30; Profit taking after Q3 numbers beat expectations.

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