European Indexes Show signs of Life

Some indexes saw modest gains Wednesday morning

From Standard & Poor's European MarketScope

European indexes traded flat to higher at midday Wednesday. Futures pointed to a higher open ahead of January retail sales and Fed Chairman Bernanke's testimony. Oil eased to under US$59 as traders focused on the end of winter ahead of US inventory data.

UK: The FTSE 100 index came off highs to trade flat at mid-session after the BoE said that it expects inflation to hit their target if interest rates are raised slowly. Ongoing M&A talk involving BHP Billiton (BHP) (+0.65%) and Rio Tinto (RTP) (+1.78%) bidding for US giant Alcoa added gains to the mining sector.

The Support Services sector saw some action after City AM newspaper reported that private equity giant Cinven is eyeing a £10 billion-plus bid for Wolseley (+5.03%). In earnings news, Property firm Liberty International (+0.69%) unveiled a 12% rise in adjusted NAV £13.27/sh.

In other news, Vodafone (VOD) (-0.67%) reportedly said that Essar, which owns 33% of Hutch, did not have the right of first refusal. The FT wrote that Vodafone will be able to walk away from its proposed deal to take a controlling stake in Hutch if the deal is affected by litigation. EMI (-8.14%) issued a profit warning saying that fiscal year profits are expected to be significantly below market expectations.

France: The CAC 40 index (+0.23%) stayed in the black at mid-session. Total (TOT) (+1.71%) and Arcelor Mittal (+3.17%) led the pack. The former posted better-than-expected fourth quarter 2006 adjusted net income of €2.74 billion, -10%; and fiscal 2006 adjusted net income of €12.6 billion, +5%. The oil giant added 11.7 index points. The latter increased its industrial flat carbon products prices by 5% in Europe.

EDF (+0.35%) posted forecast-beating fiscal 2006 sales of €58.9 billion, +15.4%, benefiting from higher regulated power prices. Michelin (+1.61%) moved higher after Bridgestone's net income fell less than expected. SocGen (-2.79%) performed worst after posting lower-than-expected fourth quarter net profit of €1.18 billion, with costs and bad-loan provisions above forecasts. The French bank wiped 9.8 index points off the CAC.

Among mid-caps, Air France (AKH) (-1.45%) reported third quarter turnover of €5.75 billion and quarterly EBITA of €252 million, a touch below expectations. Dassault Systemes (+0.44%) saw fiscal 2007 sales up 12-13%.

In other news, Areva (+2.63%) has unexpectedly agreed to a US$5 billion deal to build two nuclear power plants in China, wrote the FT. Sanofi Aventis (SNY) (-0.3%) suffered a target cut from JP Morgan and UBS. Exane upgraded Eurofins Scientific (+8.33%) to outperform from neutral.

Germany:The Xetra-Dax index (+0.35%) remained well bid, with a raft of earnings reports being scrutinized by investors. Commerzbank (+1.04%) tabled 2006 pretax profit of €2.38 billion, in line with forecasts, with net earnings a touch lower than expected at €1.62 billion. Return on equity after taxes for the year improved to 14.1% from 12.8%.

Outlook-wise, Commerzbank said the first indications for January are very encouraging. Epcos's (+3.26%) fiscal 2006 sales rose 14% to €1.31 billion, with EBIT coming in at €47 million. Douglas (-0.32%) reported fiscal first quarter net profit of €92 million, higher than expected, and raised its targets. AWD's (+0.91%) 2006 operating profit was up a third to €77.8 million, broadly in line with expectations.

Leighton, the Australian engineering contractor whose biggest shareholder is Hochtief (+3.62%), topped forecasts with first half profit that jumped 61%. Rhoen Klinikum (-0.72%) posted a 4.1% rise in fiscal 2006 operating profit to €145.9 million, below expectations. Singulus's (+5.28%) end-2006 order backlog was 33% higher year-over-year at €81 million. Still due are results from DaimlerChrysler (DCX) (+4.75%), which, management said today, aims to review all options with partners for its troubled Chrysler unit.

Earnings aside, Henkel (+1.86%) is merging its adhesives and technologies businesses to significantly accelerate growth in all regions in the world, it said. Pfleiderer (+2.05%) plans to buy back 460,000 shares of its stock, starting March 1.

Elsewhere: Swiss gainers and losers were evenly balanced. Adecco (+2.07%) topped the leader board after Deutsche Bank issued a bullish note on the staffing sector and upgraded the Swiss temp specialist to a buy.

The Nordic bourses were the best performers in Europe at mid-session, as local earnings releases took center stage.

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