MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, JANUARY 6, 1998 (1)
[Posted late. The Croc's hydro was out of commission due to the ice storm in eastern Canada.]
Wednesday, January 7, 1998
Oil price outlook hurts TSE - The Financial Post
Canadian stocks tumbled as crude oil prices at two-year lows felled petroleum companies. U.S. stocks dropped as investors worried again that Asia's economic problems will pinch corporate earnings
The Toronto Stock Exchange 300 composite index fell for the first time in six sessions, sliding 85.84 points, or 1.3%, to 6656.26. About 99.1 million shares changed hands, up from 86.6 million shares traded on Monday.
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Oil and mining stocks accounted for 44 points of the TSE 300's loss. "We're seeing a revaluation of the earnings outlook for [oil] companies as brokers cut their estimates for the price of oil this year," said Aldo Sunseri, chief trader at BPI Capital Management Corp. "It's even affecting the integrated oil companies, which are often seen as a safe haven."
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Oil stocks suffered the heaviest losses in early trading as the price of crude extended its slide from London trading to New York. Crude prices inched up later in the session to trade US2› higher at US$16.91 a barrel.
Petro-Canada (PCA/TSE) fell $1.30 to $23.40, Talisman Energy Inc. (TLM/TSE) tumbled $2.90 to $39.50 and Canadian Natural Resources Ltd. (CNQ/TSE) lost $1.50 to $27.50.
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Financial institutions fell as the C$ slipped, renewing concern that the Bank of Canada may raise interest rates to underpin the currency. Bank of Nova Scotia (BNS/TSE) fell 85› to $68.75, Bank of Montreal (BMO/TSE) slipped 75› to $64.15 and Royal Bank of Canada (RY/TSE) dropped 75› to $78.70.
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Asian equity markets and currencies fell overnight, undermining confidence in companies that rely on earnings from the region.
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Commodity producers fell as copper and gold prices slumped on concern that flagging Asian economies will diminish demand for the metals.
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Barrick Gold Corp. (ABX/TSE) fell $1.10 to $24.20, Placer Dome Inc. (PDG/TSE) slipped 35› to $16.45 and Franco Nevada Mining Corp. (FN/TSE) fell $2.05 to $25.80.
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Among other active stocks, Philip Services Corp. (PHV/TSE) tumbled $2.60 to $16.90 after the company said Robert Waxman had resigned as president of its metals division.
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Other major Canadian markets closed lower. The Montreal Exchange portfolio fell 42.25 points, or 1.2%, to 3420.13. The Vancouver Stock Exchange index fell 8.98 points, or 1.4%, to 617.36.
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The Dow Jones industrial average ended down 72.74 points, or 0.9%, at 7906.25. About 623.7 million shares were traded on the New York Stock Exchange, down from 633.3 million on Monday.
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The Nasdaq composite index ended down 13.98 points, or 0.9%, at 1580.14. The Standard & Poor's 500 composite index lost 10.49 points, or 1.1%, to 966.58.
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Shares in energy and money centre banks were among the hardest hit, with the former dragged by the slide in oil prices and the latter by renewed concerns about the Asian economic crisis. Technology shares also posted heavy losses.
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"We are concerned about corporate earnings," said Phil Orlando, chief investment officer at Value Line Asset Management. "The consensus on Wall Street is that earnings growth will be about half what we had a year ago."
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Dow components Exxon Corp. and Chevron Corp. were both lower after analysts at Goldman Sachs & Co. and ABN Amro lowered their expectations for oil prices and earnings at major oil companies in 1998. Exxon (XON/NYSE) fell US$2 1/8 to US$59 1/16 and Chevron (CHV/NYSE) slipped US$1 15/16 to US$73 3/4.
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Citicorp (CCI/NYSE) skidded US$7 3/8 to US$123 after Merrill Lynch & Co. trimmed its earnings estimates for several other multinational banks, citing worries about the potential effects of global deflation on earnings at financial companies.
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Apple Computer Inc. (AAPL/ NASDAQ) bucked the trend, jumping US$3 1/16 to US$18 15/16. The company said it expected to post a profit of about US$45 million in its fiscal first quarter, a faster return to profitability than analysts had expected.
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The major overseas markets closed mixed.
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London: Britain's leading share index closed higher, rebounding from early weakness as benign inflation prospects continued to lure funds into the likes of insurers and banks. The FT-SE 100 index closed at 5264.4, up 1.9 points.
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Frankfurt: German shares finished weaker after consolidation in the wake of a two-day rally. The Dax index closed at 4352.63, down 32.18 points or 0.7%.
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Tokyo: Japanese stocks fell with yen weakness fuelling bearish sentiment
The 225-share Nikkei average closed at 14,896.4, down 60.44 points or 0.4%.
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Hong Kong: Stocks lurched lower on weaker regional currencies. The Hang Seng index dropped 168.03 points, or 1.6%, to end at 10,135.51.
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Sydney: The Australian share market bolted to its highest close in 10 weeks after bond markets again rallied. The all ordinaries index closed at 2685.3, up 41 points or 1.6%.
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ROGERS CANTEL MOBILE COMMUNICATIONS INC. (RCMb/TSE), down 50› to $12.70, on volume of 6,250 shares. The wireless telecommunications company said it will take an unspecified fourth-quarter charge to restructure its money-losing personal communications service phone business. It also named Charles Hoffman as chief executive and president.
CGI GROUP INC. (GIBa/TSE), up $3.75 to $27.05, on volume of 22,000 shares. BCE Inc. (BCE/TSE), up 50› to $48.70, on volume of 1.4 million shares. BCE said it will increase its stake in CGI from 23% to 43% in a complex deal worth about $335 million in cash and stock. BCE has the option to buy another 13% of the Montreal-based information technology consulting company over the next eight years. It will purchase a further 8.6 million shares as CGI absorbs the company's Bell Sygma subsidiary
PETRO-CANADA (PCA/TSE), down $1.30 to $23.40, on volume of two million shares. Ranger Oil Ltd. (RGO/TSE), down 5› to $9, on volume of three million shares. Gulf Canada Resources Ltd. (GOU/TSE), down 50› to $8.80, on volume of 1.6 million shares. Expectations of swelling inventories due to warm temperatures and increased supply are driving oil prices lower.
PRECISION DRILLING LTD. (PD/TSE), down $3.80 to $27.70, on volume of 483,433 shares. Precision is Canada's predominant oil sector drilling company, with 38% of the market in Western Canada, said David McCracken, an analystat Newcrest Capital Inc. in Toronto. "Energy services sector stocks in general are reacting to weaker oil prices," he said.
NORANDA INC. (NOR/TSE), down 80› to $24.40, on volume of 356,986 shares. The shares fell after the three-month forward price of copper fell US$11 to US$1,691 a tonne on the London Metals Exchange. The diversified natural resource company produced more than 474,000 tonnes of copper in 1996.
INCO LTD. (N/TSE), down 40› to $24.75, on volume of 2.3 million shares. The decline was also blamed on falling commodity prices. The three-month forward price of nickel fell US$95 to US$5,830 a tonne on the LME. The company delivered more than 558 million pounds of nickel and more than 313 million pounds of copper in 1996.
ANDRES WINES LTD. (ADWa/TSE), up $3.45 to $28, on volume of 1,950 shares. Glynn Williams, analyst at Newcrest Capital Inc. in Toronto, said thin trading volume does not give an indication of the true value of the stock. He has a one-year price target of $28 to $30 on the shares. Andr‚s is benefiting from increased exports of Canadian wines and increased strength of foreign currencies relative to the C$, Williams said. The holiday season also helped the industry, he said.
CLEARLY CANADIAN BEVERAGE CORP. (CLV/TSE), up 45› to $2.20, on volume of 3,500 shares. The Vancouver-based beverage producer, in an effort to cut costs, announced the voluntary acceptance by employees of a decrease in salary in return for stock options.
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Inside the Market
Stock market chickens coming home to roost - By PATRICK BLOOMFIELD
In years gone by, this was the time of year that an investment columnist could simply murmur "January effect" and be proved prescient once again.
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This year, pontificating about market direction is a little more difficult. Yes, there was the usual burst of new money coming into North American markets as 1997 gave over the stage to 1998.
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But this time around, there was as big a volume of selling by the investment pros as there was buying -- proving once more that some of these oft-labeled experts can indeed spot a nasty global scene when one is thrust before their faces.
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This spread of opinion is precisely why the major market indicators in Wall and Bay streets were all doing passable imitations of a spider trying to climb out of a polished bathtub.
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Now that these indicators have failed to break above their previous highs for a third and crucial time, the stock markets' chickens have been coming home to roost.
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The past reality, of course, is that there never was the market momentum for new highs. Instead, the tanking of the economically sensitive side of the markets was being cushioned by falling bond rates.
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As the likelihood of the U.S. Federal Reserve's next interest-rate move swung 180 degrees from upward to downward, and talk of inflation turned to nervous talk of deflation, interest rate-sensitive stock sectors became a lifebuoy.
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But that was no longer the case yesterday. It needed but one major Wall Street brokerage firm to say some unkind things about bank stocks and the damage began.
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The case against the banking sector is somewhat technical. It rests mainly on the thought that declining bond yields are not always an automatic benefit for all financial institutions, particularly the U.S. thrifts.
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If long rates fall faster than short rates, which is what had been happening, then the spreads responsible for making money for bankers can be affected. There is also the additional spectre of mortgage refinancing.
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That was not all. In the manner that often happens, mumbles of nervousness over the supply balance in the world oil business turned to open fear and downgradings.
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Quite apart from Iraq's special dispensation to sell some of its oil, member nations of the Organization of Petroleum-Exporting Countries recently agreed to abandon their fantasy world in which all members were adhering to their quota levels, and raised quotas across the board.
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Will world supplies increase at the time that demand from limping Asian economies declines? The mere question proved enough to send stocks of producers stumbling.
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The most significant development yesterday, however, was none of these, but the disturbing evidence that the bond and stock markets were going in opposite directions.
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For many moons now, bond market prices and the major stock indexes have moved in tandem, stock investors taking comfort from the thought that declining returns in the credit markets can do good things to the interest-rate factor used in stock valuations.
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Yesterday, however, a late rally drove 30-year treasury bonds to new heights, dropping their yield to a new low. But, instead of their usual whoop of joy at the news, investors allowed stock prices to remain lower.
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The divergence means that investors are now paying more attention to the prospect of lower corporate profits in the months ahead than to the going level of interest rates and bond rates.
To mix my metaphors with gay abandon, that parting of the ways could be one of the final nails in the bull's coffin.
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So is there a safe harbor? To answer that one, I compared yesterday's Toronto Stock Exchange sectoral subindexes with their levels in mid-November, when the main index was only about 100 points above yesterday's level.
ÿThe clear winners look to be the other two major interest-rate sensitive sectors -- pipelines and utilities.
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Both were still well up yesterday on their mid-November levels (13% and 8% respectively), while the TSE's utility and communication subindexes were both bright spots amid yesterday's gloom.
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In weeks past, the TSE's publishing and food store groups have also held up well, while the software side of the technology sector has been a better place to be than the hardware side.
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