Energy Prices Drive French Inflation

European equities markets had a mixed start on Tuesday as they attempted to recover from the sharp sell-off in the previous session.  However, investors were cautious and braced for key US inflation data due for release later today.  Increased concern about inflation and interest rates has caused increased volatility worldwide recently.  The FTSE Eurofirst 300 rose 0.6 points or 0.1% to 1,239.35 while the Germann Xetra Dax added 3.1 points or 0.1% to 5,292.98, but the French CAC 40 fell 5.2 points or 0.1% at 4,612.41.  EADS dumped 17.5% to €20.98 after it said delivery delays for the Airbus A380 superjumbo would cost €2bn in 2007.  Singapore Airlines expressed disappointment at the delays and said it was talking to EADS about possible compensation.  BAE Systems fell 5.7% to 330p amid concerns that EADS might try to renegotiate the price it has agreed to pay the UK company to buy its interest in the project.  The battle for control of Schering may come to a head today with German rivals Bayer and Merck struggling for control of the German healthcare group.  The fight has become further charged after Bayer sued Merck in a US court late on Tuesday on accusations that it had not properly disclosed a purchase of 2.1m shares, taking it stake to 21.8m shares.  Schering traded 1.3 percent higher at €88.34.  Bayer’s current tender offer of €86 is due to run out today but it said its mandatory takeover offer would be worth at least €88 a share. Bayer rose 0.9% to €30.84.  Investors who have already tendered their shares can withdraw and sell their shares in the market today or wait for the expected mandatory offer which must match the highest price in the open market.  Neither company has direct control of 30 percent of Schering’s shares yet, the level which would trigger a mandatory takeover offer.  Merck increased 0.8% to €69.00.  Credit Suisse announced it had agreed to sell its Winterthur insurance business for a higher than expected SFr12.3bn to Axa, the French insurance giant.  Axa fell 3.3 percent to €23.48 while Credit Suisse added 2.5% at SFr64.40.

Benchmark 10 year German Bunds yields increased two basis points to 3.876% as prices dipped to 101.000.