MARKET WRAP - 1 / Canadian Stock Exchanges Week Ending 12/04/98
Daily Canadian Exchange Review
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Job Numbers Push Up Stocks
Traders in Toronto and New York went bargain-hunting Friday after they received word of cheering unemployment numbers in Canada and the United States.
"This must have been an awful day for the economic doomsayers," Andrew Pyle, chief strategist at ABN Amro, wrote in a brief report released Friday.
"After inundating the media with prognostications of imminent global collapse, lo and behold -- signs of life among North American labourers."
The Canadian unemployment rate fell to 8.0 percent, its lowest level in more than eight years, from 8.1 percent in October. U.S. November non-farm payrolls climbed 267,000 while the jobless rate dropped to 4.4 percent from 4.6 percent month-over-month.
"Those were two key economic reports today and it indicates our economies are still robust," said Todd Kapala, investment specialist at Priority Brokerage.
Bank of Montreal issued a brief report Friday saying the latest unemployment numbers suggest the Bank of Canada's decision to cut interest rates three times since September has had a profound impact on growth.
"The Canadian labour market defied expectations and built further on very strong gains over the last few months," wrote bank economist Paul Ferley.
"This lessens the pressure on the Bank of Canada to ease further."
On the other side of the Atlantic, Hans Tietmeyer, president of the German central bank, said in a speech in Luxembourg that the U.S. and European economies remained robust and there was little risk of a world financial crisis.
With Canada's jobless rate falling to its lowest level in the 1990s -- investors reacted by pushing the TSE 300 composite index to 6,339.04, up 43.21 points. That shaved the index's loss on the week to less than five points.
"We're continuing to improve -- that's very positive," said Doug Davis, president of Davis-Rea, a Toronto investment firm.
The Toronto Stock Exchange's key 300 Composite Index was up 42.37 points, or 0.67 percent, to 6338.20. Volume was 111.2 million shares worth C$1.68 billion. Advancers outpaced decliners 555 to 431 with another 295 issues unchanged.
Eleven of the TSE 300's 14 subindexes closed in positive territory, led by a 1.8-percent hike in the oil and gas sector and a 1.46-percent climb in gold and precious metals. Traders said that following interest-rate cuts in Europe, commodity prices were unlikely to drop any lower.
Oil and gold stocks, which have suffered for weeks, led the TSE higher Friday.
The oil and gas composite index gained 1.8% or 84.12 to 4723.36. Among the sub-components, the integrated oils gained 1.0% or 76.75 to 7468.85. the oil & gas producers gained 2.2% or 88.20 to 4085.69 and the oil & gas service group rose 1.8% or 23.44 to 1332.99.
Oil & Gas Composite
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Integrated Oil's
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Oil & Gas Producers
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Oil & Gas Srvices
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Shares in mid-sized Canadian oil and gas producer Remington Energy Ltd. (REL.TO) rose in strong volume on Friday, making up ground lost the day before as investors sold out over concerns with its debt.
Calgary based Remington rose $0.70 to C$5.20 with more than 3 million shares changing hands. The uptick represented a rebound from Thursday when the stock lost 25 percent of its value when many investors sold Remington shares on a false rumor that the Bank of Montreal (BMO.O) had called in a bridge loan to the energy firm.
Meanwhile, the company announced on Thursday it would issue C$60 million of convertible debentures, a move that worried some investors because the issue will dilute the stock, observers said.
Analysts said Remington was viewed as a takeover target at current price levels, which helped lift the stock on Friday. Penn West Petroleum Ltd. (PWT.TO), Encal Energy Ltd. (ENL.TO) and Canadian Natural Resources Ltd. <CNQ.TO> were viewed as logical suitors.
Remington Chief Executive Paul Baay said the bank loan was moved to the current liabilities column in the company's third quarter accounts because it was set to come due in the next year. "I think some people, without making the phone call to me, made the assumption that it means the bank had called the bridge loan, which is not the case at all," Baay said.
He said the debenture issue would be used to pay out the bridge loan of the company, viewed by analysts as having moderately high debt levels. "The Canadian market does not like convertible debentures, but there are no other alternatives in my mind for the the oil and gas sector at this point," he said.
The consortum of eight Canadian oil and gas companies participating in the Californian “Lost Hills Play” were again very active. Berkley Petroleum (BKP.TO) closed +$1.00 to $10.75, Paramount Resources (POU) +$0.60 to $14.75, Westminster Resources (WML) +$7.45, Elk Resources (ELK) +$1.20 to $5.35, Richland Petroleum (RLP) +$0.80 to $3.20 and Kookaburra Resources (KOB) +$0.43 to $1.93. The remaining two issues are Vancouver listed and are Stanford Oil & Gas (SOG) +$0.59 to $0.70 to $4.35. These companies are partners in a blazing well, raging out of control near Bakersfield, Calif. The blowout could indicate a big find, and the accident has caused shares of some partners to flare almost as high as the fiery flames. Investors are speculating there may be huge reserves in the trillions of cubic feet.
"It's encouraging that the well is burning at a high rate and at high pressure. It is encouraging that it's gas, but it's much too early to speculate as to the nature of the reservoir, if there is one at all. There are many unanswered questions," says Jeffrey Fiell, an analyst at Canaccord Capital Corp. in Calgary.
The complete list of oil and gas issues among the top 50 most actives on the TSE included Remington Petroleum +$0.55 to $5.05, Kookaburra Resources +$0.43 to $1.93, Hurricane Hydrocarbons +$0.15 to $1.65, Talisman Energy +$1.35 to $26.85, Gulf Canada Resources +$0.08 to $4.48, Ultra Petroleum +$0.10 to $1.35, Canadian Natural Resources +$0.45 to $22.25, Petro-Canada +$0.15 to $17.25, Poco Petroleums +$0.30 to $12.20, Tri Link Resources -$0.10 to $13.00, Elk Point Resources +$1.20 to $5.35, Anderson Exploration +$0.40 to $13.25, Richland Petroleum +$0.80 to $3.20, Berkley Petroleum +$1.00 to $10.75 and Northstar Energy +$0.20 to $10.20.
Among the top 50 net gainers were Westminster Resources +$1.75 to $7.45, Talisman Energy +$1.35 to $26.85, Elk Point Resources +$1.20 to $5.35, Berkley Petroleum +$1.00 to $10.75, Imperial Oil +$1.00 to $28.00, Marathon Oil +$1.00 to $46.00, Denbury Resources +$0.85 to $7.35, Richland Petroleum +$0.80 to $3.20, Remington Energy +$0.70 to $5.20, PanCanadian Petroleum +$0.60 to $19.50 and Paramount Resources +$0.60 to $14.75. The service sector issue which made the list was Precision Drilling +$1.00 to $17.20.
The only net loser among the top 50 was Startech Energy -$0.40 to $4.00.
Among leading percentage gainers were Stellarton Energy, Richland Petroleum, Westminster Resources, Elk Point Resources, Kookaburra Resources, Remington Energy, Request Seismic, Denbury Resources, Pacalta Resources, Berkley Petroleum, Hurricane Hydrocarbons, Cypress Energy, Ultra Petroleum, Probe Exploration, Beau Canada Exploration and Maxx Petroleum.
Losers included Phoenix Canada, Jet Energy, Bitech Petroleum, Bonus Resource Services, Startech Energy, Calahoo Petroleum, Courage Energy, Alpine Oil Services, Pason Systems, tetonka Drilling, Triumph Energy and Post Energy.
One analyst suggested the move in the oil sector was probably a one-day blip. "There's no major change in the trend there yet -- we'd love to say the oils have turned around, but that hasn't happened."
The rise in oil stocks came despite further slippage in the price of crude oil; West Texas intermediate crude was down 20 cents to $11.18 US a barrel. January crude oil futures on the New York Mercantile Exchange (NYMEX) finished with a small loss on Friday, ending the volatile week above the record breaking 12-year lows struck on Monday.
"The market is still shaky, but it seems people don't want to revisit the lows below $11," said a NYMEX floor trader. A combination of selling and pre-weekend short covering accounted for the day's volatile trading, with bearish sentiment prevailing as a stubborn large supply overhang continues to weigh the market down.
Canadian natural gas spot prices also stretched lower on Friday as excess gas supply flooded Alberta and no forecasts were on the horizon for any drastic cold.
The flooding of gas into Alberta from the U.S. export points resulted in a linepack on NOVA of 13.164 billion cubic feet (bcf) as of Thursday evening, according to the pipeline company. This is well above the pipeline target of 12.8 bcf. "NOVA was still packing Friday morning. Now they're just trying to sell that gas into the market.
It's supposed to be a little cooler Monday and Tuesday but another Chinook is supposed to move in by Thursday," one Calgary-based trader said.
As a result, weekend prices at Alberta's AECO storage hub fell to about C$0.95 per gigajoule (GJ), down another 70 cents, or about 42 percent from Thursday, before rebounding to as high as C$1.10 by late morning.
Trade at Westcoast Energy's Station 2 compressor was discussed widely at C$1.40-1.60 per GJ, down another 55 cents on the day.
Conversely at the Sumas/Huntingdon border point, prices remained steady at US$1.62-1.68 per million British thermal units (mmBtu) as northwestern buyers demanded more gas.
Barrick Gold Corp. was the sixth most active stock, rising C$0.55 to C$29.20 with 2.15 million shares traded. Rival Placer Dome gained 50 cents at $21.90.
The industrial products sector gained 1.25 percent with steelmaker Dofasco Inc. up C$0.75 to C$20 after it and two other steelmakers appealed to Canada's Federal Court to reinstate import duties on cold-rolled steel.
Three of the 14 stock groups fell.
Metals and minerals were down 0.66 per cent, conglomerates 0.63 per cent and real estate 0.54 per cent.
Bid.Com International Inc. (BII/TSE), up 10¢ to $3.15, on volume of two million shares. Stock in the online auctioneer rallied yesterday after four consecutive sessions of declines. Bid.Com rose 3.3% on the heels of a news report in which Jeff Lymburner, the company's president, lashed out at an analyst questioning the stock's price. Mr. Lymburner told Reuters news agency that a report by analyst Adam Adamou, of Taurus Capital Markets Ltd., contained comparisons that were "spurious" and "superficial."
On the week, mines and minerals posted the worst performance, losing 6.19 per cent, followed by gold and silver, which dropped 5.84 per cent. Oil and gas was the week's third-worst performer with a 5.51 per cent loss.
Only two of the 14 groups were in positive territory for the week, with consumer products gaining 1.91 per cent and communications and media stocks gaining 0.56 per cent. Merchandising stocks lost 0.12 per cent.
Friday's most active stock was CIBC, which gained $1.20 to $34.65 on 3.2 million shares traded. Shares in Canada's second-largest bank had lost $1.05 Thursday after CIBC posted disappointing earnings.
On the Montreal Stock Exchange, the exchange index closed up 28.19 to 3298.56 on volume of 15.0 million shares worth a value of $189.4 million.
Northstar Energy was the most active traded issue with Talisman Energy, Poco Petroleums and Suncor Energy also among the top 25 listing.
On the Alberta Stock Exchange, the combined value index fell 18.47 to1724.54. 11.63 million shares were traded amounting to a dollar value of $3.35 million. 406 total issues were traded with 102 advancing, 172 declining and another 132 were unchanged.
Among the top 20 most actives, Serval Integrated Energy Services closed -$0.05 to $3.25, Anvil Resources +$0.07 to $0.59, Willow Creek unchanged at $0.26 and First Star Energy unchanged at $0.30.
Among the top 20 net gainers were Hyduke Capital +$0.15 to $0.85, Energy North +$0.10 to $0.20 and Foothills Oil & Gas +$0.10 to $0.20.
Losers included Solid Resources -$0.25 to $7.00, Red Sea Oil -$0.11 to $1.20, Avid Oil & Gas -$0.10 to $0.60, Seventh Energy B -$0.10 to $0.40 and Westlinks Resources -$0.10 to $0.30.
On the Vancouver Stock Exchange, trading was moderate on a volume of 22.8 million shares worth 16.2 million dollars, with 149 advances, 137 declines and 322 issues unchanged. The VSE Composite Indicator closed up 0.94 at 389.18 The VSE Mining Indicator closed down 1.84 at 284.30 .
Stanford Oil & Gas Ltd. (SOG) was the most active issue, closing at $2.41 up $0.59 on volume of 2,238,175 shares. Also among the top 10 were Hilton Petroleum +$0.70 to $4.35 and Ultra Petroleum +$0.11 to $1.35.
Canadian $ Flat Despite Stronger Jobs Data
The Canadian dollar closed slightly softer at C$1.5345 ($0.6517) on Friday, failing to turn a morning boost from much stronger than expected Canadian employment numbers into a sustained rally.
Traders said the dollar failed to break a key strong-side level of C$1.5260 ($0.6553) and slid back into a narrow range in the afternoon. Traders said strong U.S. retail numbers, also released Friday, kept the Canadian dollar in check.
Canada's unemployment rate fell 0.1 percentage point to 8 percent in November, its lowest level since July 1990. There were 103,400 jobs created in the month, far exceeding expectations.
"The jobs numbers were exceptional, but we couldn't get a sustained break through the C$1.5260 level," a foreign-exchange trader in Montreal said.
"It's the year end, which usually means U.S. dollar buying, so we couldn't get a rally off the employment data," he added.
U.S. nonfarm payrolls were also much stronger than expected, vaulting to 267,000 jobs added in November from 145,000 in October. The U.S. jobless rate dipped to 4.4 percent from 4.6 percent. The numbers gave the U.S. dollar an immediate boost, but that currency's rally also fizzled.
Canada's dollar has been stuck in a C$1.5200 ($0.6579) to C$1.5400 ($0.6493) range for the past two weeks and has not been able to break out either way, traders said. The dollar is trading flat since the November 30 Quebec provincial election, unable to build on the removed fear of a Quebec referendum on sovereignty because of a continuing depression in commodity prices.
After earlier than expected rate cuts from core EMU nations on Thursday and much stronger jobs data from both Canada and the United States, the focus will turn to the December 22 Federal Reserve meeting.
The Fed eased its key lending rate to 5.25 percent on September 29, to 5.00 percent October 15 and to 4.75 percent on November 17. Each cut was mirrored.
Canada bonds end weaker as stocks rebound on jobs
Canadian government bonds ended weaker on Friday as a week-long rally gave way to a stock market rebound that was sparked by the latest sign of a strong North American economic heartbeat.
On the week, however, bonds gained strongly, with the long bond price rising C$3, pushing down the yield steadily towards the record lows hit in early October.
"The employment report boosted confidence in the outlook for the North American economies, and that helped stocks rebound, which is putting pressure on bonds. (It was) just profit-taking on the recent safe-haven gains," said Rob Palombi, senior fixed-income analyst at Standard & Poor's MMS.
U.S. non-farm payrolls came in much stronger than expected, jumping 267,000 in November from an upwardly revised gain of 145,000 in October. The jobless rate fell to 4.4. percent from 4.6 percent. Economists on average had forecast that the non-farm payrolls would show a rise of 158,000 in November and the jobless rate would be unchanged at 4.6 percent.
Canada's benchmark 30-year bond due June 1, 2027, after initial gains, slumped $0.72 to C$140.48, pushing back the yield up to 5.246 percent. It is still away from a record low of 5.13 percent in early October.
"With the Fed already having eased three times and the economy showing no significant signs of slowing, that should benefit the stock market and put a floor under the bond yield," Palombi said.
The U.S. 30-year bond extended drops, down 19/32 to yield 5.042 percent. The Canada-U.S. spread was 20 basis points after 19 at the previous close here.
Friday's profit-taking was somewhat anticipated after the recent rally in Canadian bonds, and the safe-haven status in bonds appeared intact. Bonds first gained in illiquid U.S.-holiday trading last week, then surged on renewed safe-haven buying sparked by concerns about Latin American and other emerging economies.
Canada's jobless rate fell to an eight-year low of 8 percent in November from 8.1 percent in October. Employment surged 103,400 against analysts' forecasts of 10,000 to 26,000.
In contrast, Canada's building permits in October fell 7.9 percent from September to the lowest level in two years.
The market wants to see if the Fed will hold interest rates steady at the next meeting of the Federal Open Market Committee on December 22, as forecast by many analysts. Some expect a possible rate cut at a February FOMC meeting.
"We are not going to see rate cuts this month. That's pretty certain at this point," said Andrew Pyle, chief strategist at ABN AMRO Bank Canada. "But the rate-cut forecast for the first half of 1999 is still intact based on the probable requirement of central banks to ease liquidity in the face of what's happening in the global financial markets."
The Fed reduced borrowing costs by lowering key lending rates three times in less than two months up to mid-November. The latest move was to quell fears of a global financial system breakdown after huge losses incurred by a speculative U.S. hedge fund.
The Bank of Canada has followed the U.S. Federal Reserve closely in the latest credit easing cycle. Canada's central bank has lowered interest rates, unwinding 75 percent of the credit tightening of a full percentage point conducted in August in defense of the currency.
A sharp increase of flows into bonds out of equities this month in portfolio shifts could go into reverse because the bond buying was not only based on safe-haven bids but in reaction to declines in North American stock markets, Pyle said.
"I wouldn't be surprised to see, at least in the near term, stronger flows into equities at the expense of bonds. That partially reflects lesser concern about the state of the global economy, but I think it's more technical," he added.
The money market weakened off after strong gains this week.
"We are just erasing a little bit of the gains that we made in the last couple of days. I wouldn't say that we are sliding into a bear cycle here," a money trader said. "The market still has a little bit of underlying bid to it. It seems to me there are buyers on dips."
Canada's three-month when-issued T-bill yielded 4.65 percent after 4.60 percent at the previous close.
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