MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, DECEMBER 9, 1997 (1)
Wednesday, December 10, 1997
Banks buck lower trend
Financial Post
Bank and utility stocks rose on Bay Street, a trend that partially offset another big loss in the gold sector. Disappointing earnings at Oracle Corp. hit North American techs hard
The Toronto Stock Exchange 300 composite index dipped 20.72 points, or 0.3%, to 6766.99, after a 44-point gain Monday. New York's Dow Jones industrial average fell for a second day, declining 61.18 points, or 0.8%, to 8049.66.
In Toronto, volume was 110.5 million shares, up from Monday's 98.4 million. However, trading value fell to $1.65 billion from $1.83 billion.
The TSE's utility and banking sectors posted big gains in the face of widespread selling elsewhere. Utilities rose 1.02% as Telus Corp. (T/TSE) gained $1.70 to $33.10. The banking subindex jumped 0.84%, as Bank of Montreal (bmo/tse) rose $1.30 to $67.10.
The TSE's gold group again led decliners, dropping 3.77%, following another tough day for the underlying bullion price. On the Comex division of the New York Mercantile Exchange, the gold price fell US$5.10 an ounce to US$282.80. Analysts said investors sold on fears of more central bank selling. With gold trading at levels not seen since 1979, attention is focused on if the price can hold.
Fred Ketchen, senior trader at Scotia McLeod Inc., figured shell shocked gold stock investors are plowing their money into bank and utility stocks. "There's no doubt a lot of people [have been] burned in the gold sector," said Ketchen, noting the gold subindex is down almost 60% on the year.
Among individual blue chips, Northern Telecom Ltd. (NTL/TSE) tumbled $3.15 to $137.20, BCE Inc. (BCE/TSE) gained 15› to $47.35 and Canadian Pacific Ltd. (CP/TSE) fell 45› to $41.35. Laidlaw Inc. (LDM/TSE) climbed 5› to $19.15, Alcan Aluminium Ltd. (AL/TSE) fell 25› to $40.45 and Inco Ltd. (N/TSE) dropped 55› to $26.45.
Shares of Newbridge Networks Corp. got caught up in a wave of selling that hit Canadian and U.S. technology stocks, after Oracle Corp. of Redwood City, Calif., reported lower than expected sales and profit. Newbridge (NNC/TSE) fell $4.55 to $56.20. Analysts said they expect Newbridge and others to rebound over the short term, noting this type of indiscriminate selling is common when a big tech company reports bad news.
Other Canadian markets closed lower. The Montreal Exchange's market portfolio fell 18.76 points, or 0.5%, to 3435.82. The Vancouver Stock Exchange composite index fell 12.81 points, or 2.1%, to 607.4.
In New York, Oracle shares led the decline as the Nasdaq composite index tumbled 30.99 points, or 1.9%, to 1620.56 - its worst drop in two weeks.
Oracle (ORCL/NASDAQ) fell US$9 7/16 to US$22 15/16 as 171.8 million shares changed hands - the most shares traded in a single day among U.S. stocks valued at US$1 or more at the close.
The world's biggest database software maker reported earnings below expectations late Monday, the result of its failure to break into new markets in Asia and elsewhere. Oracle's profit for the quarter ended Nov. 30 rose 4.5% to US$187 million (US19› a share), up from US$179 million (18›) a year earlier. Analysts had expected it to earn about US23› a share.
"[The words] 'below expectations' are the most horrendous words on Wall Street," said John Bogle, chairman of the Vanguard Group of Valley Forge, Penn. "If this persists, it's not a good sign. I don't think anyone knows how big a problem Asia is."
James Solloway, head of the equity management group at Barnett Capital Advisors of Jacksonville, Fla., said Oracle is less of a bellwether stock than Compaq Computer Corp. or Cisco Systems Inc., "but there's still a lot of nervousness about the tech sector and the impact of the tumult in Asia."
Cisco shares (CSCO/NASDAQ) fell US$2 5/16 to US$87 7/16, while Compaq
(CPQ/NYSE) declined US$2 1/8 to US$63 3/8.
Volume on the New York Stock Exchange was 543.5 million shares, against Monday's 580.8 million.
Most major overseas markets were lower.
London: British shares slipped as a report of weak consumer spending hit retailers. The FTSE 100 index closed at 5177.1, down 10.3 points or 0.2%.
Frankfurt: German blue chips ended lower after profit-taking. The Dax index closed at 4184.91, down 38.45 points or 0.9%.
Tokyo: Tokyo stocks spiked up as the market hailed news that the government may issue 10 trillion yen (US$76.3 billion) in new bonds to support the financial system. The 225-share Nikkei average closed at 16,686.51, up 554.94 points or 3.4%.
Hong Kong: Hong Kong stocks ended sharply lower as investors took profits after a three-day winning streak. The Hang Seng index fell 232.28 points, or 2%, to close at 11,490.66.
Sydney: The Australian share market ended a dull session slightly lower. The all ordinaries index closed at 2582.8, down 4.2 points, or 0.2%.
DAILY MORNING MARKET UPDATE
Today's Expectations
Canadian dollar - Neutral, 1.4210 - 1.4230
Canadian money market - Neutral, no curve bias
Canadian bond market - Slightly stronger, steepening bias
US bond market - Slightly stronger
Canada - US spreads - No significant changes
Today's Markets
Bond Market: The US Treasury market is expected to retain a slightly positive bias today, as market participants remain optimistic regarding US inflation. This week's economic numbers are likely to be market supportive, although tomrrow's retail sales should bounce back somewhat from the past two months' negative numbers. The Canadian bond market is expected to see better interest today, ending the market's recent underperformance.
Money Market
No material change is anticipated for the Canadian money market today. A lack of significant economic news combined with the flat tone in the currency will give domestic investors little to look at during the session. Continued speculation over a potential Bank of Canada rate action will leave most players focused on the shortest maturities. Quiet trading in the US will do little to alter the balance.
Foreign Exchange
Last night's very tight trading ranges for the Canadian dollar are not expected to widen significantly today. In the absence of a rate hike by the Bank, interest on either side remains muted and with little visible momentum, trading volumes will continue to be subdued. The weakening in the US dollar against both the Yen and DEM will further reduce interest in Canada today.
Overnight Activity
The US dollar fell sharply versus the Yen overnight, following comments from a senior Japanese Ministry of Finance Official. Haruhiko Kuroda suggested that the Japanese and other Central Banks may start to sell USD to prevent a further appreciation of the currency. The USD was slightly weaker versus the DEM as well. US Treasuries were little changed overnight while the Canadian bond market traded slightly softer. Activity was light in the Canadian money market. The Canadian dollar traded in a tight range of 1.4217 - 1.4230.
Yesterday
A Fed coupon pass and early indications of a less than buoyant Christmas shopping season gave the US bond market a lift on Tuesday. Fed Vice Chairman Rivlin's statements that the Asian crisis would lead to slower growth were also supportive. Long Treasury yields ended the day at 6.11% on a modest advance of approximately 3/8 of a point. Canadas drifted lower under the weight of further supply, resulting in further widening in Canada - US spreads. The Canadian dollar closed softer at 1.4226, while T-Bill yields were up 4 basis points in each of the 3 and 12 month terms.
WEDNESDAY MORNING'S WORLD MARKETS
Profit-taking dragged stock prices down in Tokyo, Manila, and Jakarta Wednesday, while Hong Kong and Singapore closed lower on concerns over renewed Asian currency woes.
Taipai: The index soared to its highest level since Oct. 3 as investors disregarded bad news in overseas markets and rode a wave of financial share buying. The Weighted Index jumped 170.06 points to 8,503.55.
Seoul: Share prices closed mixed with the key index sharply higher, boosted by the market stabilization measures announced by the government earlier in the day. The Korean Composite Index gained 11.85 points to 399.85.
Sydney: Australian share prices fell as investors sold down their stakes in resource stocks on the back of falls in base metals prices and lower Asian markets. The All Ordinaries Index shed 28.1 points to 2,554.7.
Wellington: New Zealand share prices fell, halting a seven-session advance following losses on Wall Street and rising domestic interest rates which affected leading issues. The NZSE-40 Capital Index slipped 13.96 points to 2,396.12.
In London, share prices on the London Stock Exchange were lower at midday Wednesday. At noon, the Financial Times-Stock Exchange 100-share index was down 64.9 points at 5,112.2. The U.S. dollar fell against other major currencies in early European trading Wednesday. Gold prices rose.
HOT STOCKS
Westmin Resources Ltd. (WMI/TSE) shares closed up 25› at $5.80. Lead and zinc giant Cominco Ltd. has emerged as an outside candidate to mount an offer to rival Boliden Ltd.'s $520 million ($5.40 a share) takeover bid for Westmin Resources Ltd. Cominco chief executive David Thompson told analysts in Toronto yesterday his Vancouver company is definitely interested in taking a look at Westmin. Having already signed a confidentiality agreement with Westmin, sources say Cominco is one of several companies scheduled to visit Westmin's operations in British Columbia and Chile over the next few weeks.
Rogers Communications Inc. (RCIb/TSE) closed up 5› to $6.30 yesterday. The company will separate Rogers Network Services from its cable company and do a public finance issue, president Ted Rogers told an investment conference in New York yesterday. Rogers Network Services has 2,200 kilometres of fibre connecting 1,000 office buildings in the company's main cable markets of Toronto, Vancouver and Ottawa. It is a competitive access provider (CAP) of local point-to-point communication services to business customers, including alternative long-distance providers, banks, insurance companies and governments. With expected revenue of about $55 million in 1997, RNS gives Rogers its best shot to compete with the big telecommunications firms for local telephone and other business services, Rogers said in a speech at a PaineWebber Inc. conference. "To more effectively surface the value of RNS's CAP business and to position us better for potential entry into the CLEC [competitive local exchange carrier] business we will separate it from Rogers Cablesystems in the near future and do public issues," Rogers said.
Cadillac Fairview Corp. (TSE/CDF) shares closed down $0.05 to $35.10. The company has bought the Canadian Occidental Petroleum building in downtown Calgary for about $41 million. The property has 273,620 square feet of space and is 99% leased. Its lead tenant is Canadian Occidental Petroleum Inc. "This acquisition is consistent with Cadillac Fairview's ongoing strategy to acquire properties in key Canadian markets," said Jon Hagan, executive vice-president and chief financial officer. Cadillac Fairview owns interests in or manages 93 retail centres and office buildings amounting to more than 48 million square feet, including the Eaton Centre in Toronto and the Pacific Centre in Vancouver.
Spar Aerospace shares (SPZ/TSE) fell 40› to $8.30. The company is buying CAE Inc.'s aircraft repair and overhaul business. Spar said yesterday it has reached an agreement to purchase CAE Aviation Ltd. of Edmonton for $62 million cash in a deal expected to be finalized by yearend. CAE said in August it wanted to sell the unit, which has annual revenue of $70 million, because it no longer fits the company's focus on electronic and industrial engineered products. Since then, Spar has been viewed as a likely buyer because it wants to build its aviation services business, which accounted for $36.7 million of its $295-million revenue in the first nine months of the year.
Hartco Enterprises shares (HTC/TSE) closed unchanged at $13.50 yesterday. Their 52-week range is $13.90 to $6.50. Strength in its computer retailing and distribution business kept Hartco Enterprises Inc. on a roll in the third quarter. Net income for the three months ended Nov. 1 was $3.2 million (25› a share), up 34% from $2.4 million (19›) a year earlier. Revenue rose 24% to $191 million from $153 million. The computer communications operations, accounting for 85% of revenue, posted a 27% sales gain. The department store division was up 8%. Nine-month profit was $6.5 million (52›), up 44% from $4.6 million (36›) a year earlier. Revenue was up 27% to $518 million, compared with $407 million. Computer division sales rose 33%. "The computer division won a large Alberta government outsourcing contract in the third quarter and we've strengthened our network there," said president Harry Hart. "We see further good growth in revenue and profit in the final quarter, usually the most active and profitable," he said.
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