US markets consolidate previous gains

MARKET OUTLOOK

- US: US markets consolidated their previous week gains. The main news during the week was continued weakness in the housing market where July existing and new home sales fell more than expected and inventories reached record levels. A sharp decline in property prices could put the US economy into recession according to some economists. Stocks from the consumer services, commercial and retailing sectors fell most. Technically, US indices remain well oriented and stand at levels where further upside can still be expected. Yet any negative data for the market could be amplified by investors.

- EUROPE: European markets also had to pause after their recent rally. Yesterday the London market was closed, so trading volumes should remain low. The banking sector was active on speculation about further industry consolidation. Bank of America could be looking for a major acquisition (CNBC citing the company's CEO) and this pushed UK banks higher. In Italy, Intesa and Sanpaolo IMI announced their merger during the weekend. Stocks from industrial, auto (concern about dropping sales) and the technology sectors fell. Technically, as last week, the European indices seem able to reach their recent highs before a consolidation can be considered. Watch any break below the 20 day moving averages as an early indication of potential weakness.

COMPANY PREVIEW

Bayer (EUR 39.16 ; -1.04% ; BAY ; BAYG.DE)

Bayer is expected to deliver on Tuesday 2Q net income of around E450m, compared to E406m in the same period last year, on a revenue up 7%. The German drug maker that bought rival Schering last quarter may deliver an increase in profit due to its bleeding treatment Kogenate. The strongest effect will be on the balance sheet as the company just started to consolidate Schering on June 23. On August 24, ING raised its price target to E46 from E39 previously.

L'Oreal (EUR 77.95 ; -0.19% ; OR ; OREP.PA)

L'Oreal reports on Thursday 1H/Jul results. In the same period last year, net income reached E892m. On July 12, the group delivered 1H sales up 8.7% to E7.8bln. Growth excluding exchange rate impact reached 6.3%. The net impact of changes in consolidation was up 0.5%, mainly due to the acquisition of Skinceuticals and Delial in 2005. CEO Jean-Paul Agon said: 'The increase in our sales up to the end of June is very encouraging and confirms the clear upturn in the group's growth, particularly in Western Europe. Furthermore, high growth rates have been recorded in the new markets such as Latin America and Eastern Europe. The major launch programmes and promotional activities scheduled for the second half-year should enable us to maintain this momentum. All these factors mean that we are very confident about the outlook for the 2006 results'.

Diageo (GBp 944 ; -0.63% ; DGE ; DGE.L)

Diageo is seen reporting on Thursday FY organic operating profit growth of about 7% on a sales up 6%. On August 21, Diageo and Radico Khaitan, the second largest drinks company in India, announced the creation of a 50/50 joint venture to exploit the Indian liquor segment.

HJ Heinz (USD 41.35 ; 0.66% ; HNZ ; HNZ.N)

Heinz could report on Thursday 1Q/Jul EPS of $0.54 ($0.52 a year ago) on a revenue of $2.053bln $2.11bln. On August 23, the group said it would close its HP brown sauce factory in Birmingham and move the production to the Netherlands with the loss of 120 jobs.

EDF (EUR 44.72 ; -0.84% ; EDF ; EDF.PA)

EDF reports on Friday 1H/Jul results. 2005 1H net income reached E2.2bln on a revenue of E25.2bln. On August 10, the group concluded the sale to RME, a group of Brazilian companies, of a 79.4% stake in its subsidiary Light, an electricity distribution company in Rio de Janeiro, for a price of $319.8m.