MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 2, 1998 (1)
Saturday, January 3, 1998
Dow's New Year cheer - The Financial Post
U.S. stocks staged a late rally to finish with solid gains in a quiet post-holiday session. Canadian stocks rose in seesaw trade, but gains were tempered by declines in oil and gas issues
The Dow Jones industrial average closed at 7965.04, up 56.79 points or 0.7%, for a gain of 3.7% on the week.
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The Nasdaq composite rose 11.18 points, or 0.7%, to 1,581.53, a 4.6% increase on the week. The Standard & Poor's 500 composite index ros 4.57 points, or 0.5%, to 975, an increase of 4.1% on the week. About 371 million shares changed hands on the New York Stock Exchange, compared with 472.9 million on Wednesday.
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Investors wrestled with economic data that painted a mixed picture for stocks. The data, which showed U.S. manufacturing activity in December increased at a slower than expected pace, buoyed sentiment in the bond market and sent interest rates to their lowest levels in four years. But equity investors took a mixed view of the data, which suggested a tempering of U.S. economic growth.
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"There were a lot of crosscurrents," said Hugh Johnson, chief investment officer at First Albany. "The good news that inflation and interest rates are headed lower was offset by worries about the strength of the economy and earnings."
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AT&T Corp. (T/NYSE) held down the Dow, falling US$2 7/16 to US$58 13/16 in reaction to Wednesday's court ruling that struck down key provisions of the 1996 Telecommunications Act. The decision could mean quicker entry for regional telephone companies into the long-distance market, a prospect that boosted the group. Local carriers SBC Communications Inc. (SBC/NYSE) climbed US$1 15/16 to US$75 3/16 and
Ameritech Corp. (AIT/NYSE) gained US$1 9/16 to US$82 1/16. Sybase Inc. (SYBS/Nasdaq) tumbled US$3 3/8, or 25%, to US$9 15/16 after the database software provider warned weak sales in North America and a tax-related charge could cause it to lose money in the fourth quarter. The Toronto Stock Exchange 300 composite index rose 11.94 points, or 0.2%, to 6711.38 on the first day of trading in 1998. Only 28.1 million shares were traded, compared with 58 million on Wednesday. For the week, the TSE 300 rallied 2.6%.
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Canadian stocks were propelled by the U.S. report pointing to subdued economic growth with tame inflation. Earlier in the session the benchmark index slid as much as 35.14 points, dragged down by gold stocks. Gold shares recovered losses after the price of the metal pared early declines on the New York Mercantile Exchange's Comex division to close at US$288.70, down US50›.
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Barrick Gold Corp. (ABX/TSE) rose 40› to $27.05, Placer Dome Inc. (PDG/TSE) climbed 40› to $18.40 and TVX Gold Inc. (TVX/TSE) rose 15› to $5.
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Lower crude oil prices in New York, amid concern that a shortage of North Sea oil supplies will be offset as early as next week, hurt shares of oil and gas companies. Petro-Canada (PCA/TSE) fell 70› to $25.30, Imperial Oil Ltd. (IMO/TSE) sank $1.50 to $90.50 and Canadian Occidental Petroleum Ltd. (CXY/TSE) declined 55› to $31.80. Renaissance Energy Ltd. (RES/TSE) fell 25› to $29.25 and Precision Drilling Corp. (PD/TSE) fell $1.30 to $33.55.
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Battered metals stock rose. Inco Ltd. (N/TSE) rose 65› to $24.95, Alcan Aluminium Ltd. (AL/TSE) climbed 60› to $40 and Noranda Inc. (NOR/TSE) climbed 25› to $24.85.
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"Nothing's reacting in its normal fashion," said Rolie Bradley, an institutional salesman at Maison Placements Canada Inc. "The obvious stocks to buy, banks and utilities, are down."
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Bank of Montreal (BMO/TSE) fell 10› to $63.25 and Canadian Imperial Bank of Commerce (CM/TSE) slipped 5› to $44.55.
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BCE Inc. (BCE/TSE), a telecommunications holding company that is the most heavily weighted stock on the TSE, slid 15› to $47.50, depressing utility issues.
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Other Canadian markets closed higher. The Montreal Exchange portfolio rose 17.14 points, or 0.5%, to 3421.6, a gain of 3.4% on the week. The Vancouver Stock Exchange index rose 11.72 points, or 1.9%, to 630.2, a gain of 4.8% on the week.
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The major overseas markets closed mixed.
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London: British stocks breezed into 1998 with strong gains on the back of a rising US$. The FT-SE 100 index closed at 5193.5, up 58 points or 1.1%, an increase of 3.6% on the week.
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Frankfurt:Germany's blue-chip index started the year with a surge. The Dax index closed at 4315.37, up 65.68 points or 1.6%, and up 4.7% on the week.
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Tokyo: Japanese stock markets were closed Friday for a holiday. On Tuesday, the benchmark 225-stock Nikkei average closed 483.52 points, or 3.3%, higher at 15,258.74.
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Hong Kong: Stocks closed lower. The Hang Seng index closed down 42.19 points, or 0.4%, at 10,680.57, for an increase of 3.3% on the week.
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Sydney: The Australian stock market ended lower. The all ordinaries index closed at 2609.1, down 7.4 points or 0.3%, but up 2.1% on the week.
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HOT STOCKS - Financial Post
PETROBANK ENERGY AND RESOURCES LTD. (PBG/TSE), up $1.20 to $3.35, on
volume of 240,150 shares. The shares jumped on news that the Calgary-based oil and gas exploration company had made a potentially big natural gas discovery. Petrobank said deep exploration had confirmed a large natural gas deposit in the Nisku area of its property in Alberta.
WESTMIN RESOURCES LTD. (WMI/TSE), up 15› to $5.65, on volume of
706,238 shares. Vancouver-based Westmin said Friday it had obtained an extension to Jan. 21 on an offer by Boliden Ltd. to acquire all Westmin's common shares. Boliden's offer of $5.40 a share was to have expired next Friday. In exchange for the extension, Westmin will waive its shareholder rights plan and will give Boliden access to its data room. Westmin chairman Terry Lyons said it was a good deal because the extension will allow other potential suitors time to make a higher bid.
AMERICA MINERAL FIELDS INC. (AMZ/TSE), down $1.60 to $1.80, on volume
of 133,650 shares. The company said New Year's Eve that its agreement with Gecamine, a state-controlled mining company in the former Zaire, had been terminated and that Gecamine wanted to renegotiate the deal. The project is said to contain one of the largest cobalt reserves in the world.
COREL CORP. (COS/TSE), up 50› to $2.80, on volume of 180,415 shares. Analysts said the there is little to explain the bounce in value of the troubled software maker. Since it warned several weeks ago that it would post a larger-than expected loss in its final quarter, the stock has been hammered. But some analysts are beginning to think that even based on takeover value, the stock has been hit too hard.
CROSSKEYS SYSTEMS CORP. (CKY/TSE), up $2.50 to $21.10, on volume of
43,937 shares. Spun off by Newbridge Networks Corp. last month, Ottawa-based CrossKeys' stock price has been climbing while other technology firms languish. CrossKeys makes network management software for phone companies.
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Inside the Market -- by Patrick Bloomfield
Where does all the optimism come from?
The thin volumes of the past week said little of the mood of financial markets. We will know more in the week to come, when everybody gets back from their seasonal break.
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But we certainly live in two worlds. There is the one world of devaluations, developing deflation and, maybe further down the line, rising protectionism. And there is the world of those who keep on assuring us that everything is going to be all right.
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I could not believe my eyes when I read in one of those yearend business magazine roundups that 1998 will see the fastest rate of economic growth in a decade, the best of it in Latin America, India and China. Such reassuring words persisted through the holiday season. One roundup of the 1998 expectations of a whole slew of business leaders mentioned the threat of price competition from across the Pacific just once. One look-ahead at markets suggested we should still hope for further gains.
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Then there has been that persisting semantic illusion that the Asian financial mayhem is really a blessing in disguise, because it will spare U.S. Federal Reserve chairman Alan Greenspan the unpleasant task of raising interest rates.
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Believe me, I would far rather have had U.S. short-term interest rates lifted a notch or two than have to live through the fallout of imprudent foreign borrowing and developing overcapacity in Asia -- not to mention the spinoff effect on an already stagnant Japanese economy. The resulting financial mess may, or may not, be cleaned up in the months ahead. The more significant underlying concern, however, is the effect on global growth and global pricing.
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I have heard of one deservedly respected U.S. market watcher suggesting that European growth may take up the 1998 slack from the Asian slowdown. I sincerely hope that he is right. But that does not suggest an overall growth acceleration.
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I also recall a recent time when all the pundits were assuring us that the new engine of world economic growth would be those billions of new consumers in Asia. Today, those same new consumers face certain financial hardship and an uncertain political future. More to the point, the survivors among the manufacturers and producers in that corner of the world now have a currency advantage over their North American and European competitors.
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As an example, I recently noted one of those little filler items in the press that often speak much more presciently for the future than the big roundup numbers. Seems retail prices in China in November were actually lower than 12 months earlier.
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Think about that and do a simple test. Turn over the label of any of your Christmas gifts. It is a fair bet that the item under scrutiny was made in China. Consider the effect of falling, or even static, Chinese price levels on the profit margins of corporate North America.
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Though companies with offshore manufacturing capacity may benefit, there has to be a degree of earnings-growth fallout. Keeping in mind that price-earnings multiples in North American markets are at historically high levels, and that, in Canada, short-term interest rates are trending higher, will that constitute an ideal environment for stock-price gains?
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Sure, we in Canada are singularly blessed. Even the more pessimistic forecasts suggest that we will be one of the few global economies sticking to our growth trend.
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Even so, I find it difficult to believe that the consensus expectation of Canadian financial analysts for 1998 per-share earnings from companies in the Toronto Stock Exchange's 300 composite index is a combined $394.
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At last sighting, those same earnings (as adjusted to the index) were running at an annual rate of $293, based largely on the year ended Sept. 30. So, the forecast increase over a period of 15 months is $101, or 34%.
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I can remember a property appraiser telling me that, whenever he had run through the numbers on a property, he would always stand back and ask
himself if they made sense. Well, I think that anybody who is calling for $394 earnings on the TSE 300 for 1998 might do the same. Base metal prices have been going down the tubes, taking about 5% of the composition of the index with them, gold prices are already down the tubes, crippling about 6% of the index, and petroleum prices do not seem to be going anywhere fast, affecting about 9% of the index represented by producers and developers.
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Seems to me the remaining 80% of the gallant 300 are going to have be mighty profitable to make up the difference, and still achieve 34% growth in a period of 15 months. Or am I missing something?
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