MARKET ACTIVITY/TRADING NOTES FOR THE DAY ENDING MONDAY, JANUARY 5, 1998 (1)
Tuesday, January 6, 1998
Banks, utilities advance
Canadian stocks rose as record low bond yields sent investors to interest rate-sensitive banks and utilities. Wall Street latched onto small gains as investors worried about deflation eroding corporate profits
The Toronto Stock Exchange 300 composite index rose 30.72 points, or 0.5%, to 6742.1. About 86.6 million shares changed hands, compared with 28.1 million on Friday.
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The yield on Canada's benchmark 30-year bond fell to a record 5.8% on optimism that recent strength in the C$ will deter the Bank of Canada from raising lending rates soon. Comments from U.S. Federal Reserve chairman Alan Greenspan that suggested the next move in U.S. rates may be down also helped bulldoze bond yields lower.
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Of the stocks most responsive to a drop in bond yields are banks and utilities, which are among Canada's biggest holders of debt. They are also known for their steady dividend payments.
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Canadian Imperial Bank of Commerce (CM/TSE) rose $1.60 to $46.15, Bank of Montreal (BMO/TSE) climbed $1.65 to $64.90 and Toronto-Dominion Bank (TD/TSE) rose $2 to $56. Royal Bank of Canada (RY/TSE) jumped $3.65 to $79.45. Among utilities, BCE Inc. (BCE/TSE) rose 70› to $48.20.
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Falling bullion and oil prices hurt shares of producers and slowed the TSE 300's advance.
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Among gold stocks, Barrick Gold Corp. (ABX/TSE) dropped $1.75 to $25.30 and Placer Dome Inc. (PDG/TSE) fell $1.60 to $16.80.
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The price of gold dropped US$6.70 to US$282.70 an ounce on the Comex division of the New York Mercantile Exchange.
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"Oil is off; gold is off. Gold may test its old lows," said Dunnery Best, a senior vice-president and director at Midland Walwyn Inc. "There's a real lack of concern about inflation. All the commodities are trading in the same direction."
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Petro-Canada (PCA/TSE) fell 60› to $24.70 and Talisman Energy Inc. (TLM/TSE) dropped $1.60 to $42.40 after crude oil fell US54› to US$16.89 a barrel on slackening demand and expectations of rising oil supplies if the United Nations approves the third round of limited Iraqi oil exports.
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Other major Canadian markets closed mixed. The Montreal Exchange portfolio rose 40.78 points, or 1.2%, to 3462.38. The Vancouver Stock Exchange index fell 3.86 points, or 0.6%, to 626.34.
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The Dow Jones industrial average rose 13.95 points, or 0.2%, to 7978.99. The broader Standard & Poor's 500 composite index rose 2.07 points, or 0.2%, to 977.07, while the Nasdaq composite index climbed 12.59 points, or 0.8%, to 1594.12. About 633.3 million shares changed hands on the New York Stock Exchange,
compared with 371 million on Friday.
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Record low yields on benchmark U.S. 30-year bonds boosted J.P. Morgan & Co.and other financial shares, but a slide in oil issues tempered the advance.
The yield on the 30-year bond dropped as low as 5.73% in the wake of Greenspan's comments. Investors said if the U.S. central bank does lower interest rates, it will boost the appeal of stocks should weak overseas economies dent U.S. profit growth.
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"If yields are going down because the Federal Reserve is not going to tighten interest rates, then that's a positive," said Richard Cripps, a market strategist at Legg Mason Inc. in Baltimore. "It provides a floor for the market. The only thing that is going to cause this market to go lower is we get a big crack internationally in Japan or Korea."
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J.P. Morgan (JPM/NYSE), the most heavily weighted stock in the average, rose US$4 to US$116. Chevron Corp. (CHV/NYSE), down US$2 5/16 to US$75 11/16, and Exxon Corp.
(XOn/NYSE), down 13/16 to US$61 3/16, were among the Dow's top 10 decliners.
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Netscape Communications (nscp/nasdaq) fell US$4 13/16 to US$18 9/16 -- the lowest since the Internet software company went public -- after it said it lost money in 1997 as rival Microsoft Corp. gained market share.
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The major overseas markets closed mixed.
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London: Britain's leading stock index rose as bond markets responded to fresh hopes that interest rates may have peaked. The FT-SE 100 index closed
at 5262.5, up 69 points or 1.3%.
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Frankfurt: German stocks rallied on the back of a firmer Wall Street. The Dax index closed at 4384.81, up 69.44 points or 1.6%.
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Tokyo: Japanese stocks fell as market participants remained pessimistic about the economy. The 225-stock Nikkei average closed at 14,956.84, down 301.9 points or 2%.
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Hong Kong: Stocks closed sharply lower following steep declines in the value of southeast Asian currencies. The Hang Seng index closed at 10,303.54, down 377.03 points or 3.5%.
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Sydney: A thinly traded Australian stock market locked in gains by the close. The all ordinaries index closed at 2644.3, up 35.2 points or 1.4%.
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HOT STOCKS
BARRICK GOLD CORP. (ABX/TSE), down $1.60, to $25.30, on volume of 853,127 shares. Placer Dome Inc. (PDG/TSE), down $1.60 to $16.80, on volume of 977,733 shares. TVX Gold Inc. (TVX/TSE), down 60› to $4.40, on volume of 483,016 shares. Gold producers saw their stock prices plummet as the price of bullion dipped US$6.70 to an 18-year low of US$282.70 an ounce. The Toronto Stock Exchange gold and precious metals subindex tumbled 383 points, or 5.9%, to 6073.
SOUTHERNERA RESOURCES LTD. (SUF/TSE), up $1.35 to $15.75, on volume of 99,168 shares.ÿThe Toronto-based company's shares will join the TSE 300 on Jan. 16. SouthernEra has diamond interests in the Northwest Territories, Uruguay, Ukraine and throughout Africa. It recently reported it had recovered more than 3,000 carats of diamonds from its Luo concession in Angola.
DRUG ROYALTY CORP. INC. (DRI/TSE), up 18› to $2.08, on volume of one million shares. The company said it has completed an agreement to sell to Dura Pharmaceuticals Inc. (DURA/NASDAQ) the royalty interests granted to Drug Royalty by Dura in Aug. 1994. The $20 million sale will provide a pre-tax gain of about $18 million, said the Toronto-based medical technology investment company. "It is the largest transaction completed to date by Drug Royalty," said company president and chief executive officer Ian Lennox.
CANADIAN IMPERIAL BAMK OF COMMERCE (CM/TSE), up $1.60 to $46.15, on volume of 1.4 million shares. Toronto Dominion Bank (TD/TSE), up $2 to $56, on volume of 1.2 million shares. Royal Bank of Canada (RY/TSE), up $3.65 to $79.45, on volume of 804,515 shares. Bank of Nova Scotia (BNS/TSE), up $2.15 to $69.60, on volume of 842,819 shares. Bank of Montreal (BMO/TSE), up $1.65 to $64.90, on volume of 821,366 shares. National Bank of Canada (NA/TSE), up $1.05 to $24.35, on volume of
995,984 shares. The TSE financial services subindex surged more than 3% after U.S Federal Reserve chairman Alan Greenspan raised the prospect of deflation in the U.S. this year.
SUN MICROSYSTEMS INC. (sunw/nasdaq), up US$1 3/4 to US$43 1/4, on volume of 9.2 million shares. Intel Corp. (intc/nasdaq), up US$1 7/8 to US$74 1/2, on volume of 19.6 million shares. Texas Instruments Inc. (txn/nyse), up 1/2 to US$48 5/16, on volume of 3.2 million shares. Applied Materials Inc. (amat/nasdaq), up US$2 1/8 to US$33 1/8, on volume of 12.9 million shares. Semiconductor shares gained in New York, extending a five-day rally. San Jose, Calif.-based Dataquest, a research firm that specializes in the computer industry, said the semiconductor market rebounded with positive growth in 1997, with industry sales reaching US$150 billion.
CON AGRRA INC. (CAG/nyse), down US$2 3/8 to US$30 13/16, on volume of 4.9 million shares. The shares fell on concern that falling beef prices and the Hong Kong poultry virus may cause the food products company's earnings growth to sink into single digits. Analyst Nomi Ghez, of Goldman, Sachs & Co., removed ConAgra from the firm's "recommend list," lowering her opinion to "market perform."
BCE INC. (BCE/TSE) yesterday raised its stake in high-flying CGI Group Inc. in a complex deal worth about $335 million in cash and stock. If completed, the agreement in principle would give BCE 43% of CGI, with an option to buy another 13% of the Montreal-based information technology consulting company over the next eight years. "This deal will complement our existing operations," said Jean Monty, BCE's president and chief operating officer.ÿBCE currently owns 23% of CGI. In the new deal, BCE will buy six million CGI class A shares for $22.98 each from a group of investment brokers who acquired 10.5 million shares from Teleglobe Inc. late last year. The investment firms still intend to sell the other 4.5 million shares to the public in the next few months.
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In a related transaction, BCE plans to roll its Bell Sygma subsidiary into CGI in exchange for a further 8.6 million class A shares. Finally, in yesterday's agreement, BCE will hold an option to buy more CGI shares for two years from the beginning of 2004. CGI's revenue is expected to reach $550 million in fiscal 1998 (ended Sept. 30), up from $122 million in 1996. The company already has a relationship with Bell Sygma, which in November 1995 invested $18.4 million in return for 26.5% of CGI.
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The addition of Bell Sygma's revenue will push the firm above $1 billion in sales, said Serge Godin, CGI's chairman and chief executive officer. "This will allow us to bid on very large-scale projects." As part of the deal, BCE will receive one more seat on CGI's board, bringing its total to three. ÿBoth sides said the incorporation of CGI into BCE will not threaten CGI's reputation for aggressiveness. BCE shares (BCE/TSE) closed yesterday at $48.20, up 70›. CGI's stock (GIBa/TSE) was halted at the opening. It last traded at $33.30 Dec. 30.
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