MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JANUARY 19, 1998 (1)
Tuesday, January 20, 1998
Rates outlook boosts TSE - By THE FINANCIAL POST
Canadian stocks rose as investors snapped up issues expected to perform well against a backdrop of low inflation and steady interest rates. U.S. markets were closed for the Martin Luther King holiday
The Toronto Stock Exchange 300 composite index rose 56.93 points, or 0.9%, to 6475.61. ÿAbout 65.2 million shares changed hands, compared with 133.5 million shares traded Friday. ÿBanks, which account for 22% of the total market capitalization of the TSE 300, gained amid expectations of steady interest rates. ÿRoyal Bank of Canada (RY/TSE) rose 75› to $75, Toronto-Dominion Bank (TD/TSE) advanced 70› to $52.10 and Bank of Montreal (BMO/TSE) climbed 40› to $59.20. ÿ
Rising Asian and European markets bolstered optimism that profits of Canadian exporters, including resource companies, will grow. ÿAlcan Aluminium Ltd. (AL/TSE), the world's second largest aluminum producer, jumped $1.40 to $40.40. Inco Ltd. (N/TSE) rose 50› to $23.70. ÿ"Maybe we want to believe the worst in Asia is over," said Fred Ketchen, a senior trader with ScotiaMcLeod Inc. "But I would not close the book on that one just yet." ÿNatural resource issues, including paper, metals and oil producers, also gain from lower interest rates. Lower borrowing costs encourage consumption of commodities, raising profits. ÿ
Computer-related and telecommunications issues gained on expectations that Asia's economic slowdown will have less impact on future profits than first thought. ÿ
Northern Telecom Ltd. (NTL/TSE), which in 1996 attributed 6% of sales to regions outside North America and Europe, gained $1.10 to $62.85. Newbridge Networks Corp. (NNC/TSE), which reported 18% of sales came from the Asia Pacific region last year, rose $1.55 to $43.80. ÿ
Suncor Energy Inc. (SU/TSE) climbed 65› to $46.15 after it reported better than expected fourth-quarter earnings of 66› a share, up from 43› a share a year ago. Five analysts surveyed by IBES International Inc. had expected earnings of 56› a share. Petro-Canada (PCa/TSE) rose 85› to $25 and Talisman Energy Inc. (TLm/TSE) gained $1.30 to $40 on concern that tension between Iraq and the United Nations might culminate in a military strike against Iraq, which would jeopardize the flow of crude from the Persian Gulf region, a quarter of the world's supply. Oil prices could be lifted further by colder weather heading for the U.S. Northeast and poor weather disrupting North Sea supplies. ÿOn London's International Petroleum Exchange, March Brent oil futures rose US36› to US$15.83 a barrel. ÿ
Gold producers dropped with the price of bullion amid prospects for subdued inflation in much of the industrialized world and concern that central banks will sell more of the precious metal. Gold for immediate delivery fell US$2.70 to US$287.45 an ounce in inter-bank trading. ÿPlacer Dome Inc. (PDG/TSE) slipped 15› to $18.35, Euro-Nevada Mining Corp. (EN/TSE) fell 50› to $17.85 and Echo Bay Mines Ltd. (ECO/TSE) dropped 27› to $2.37. ÿ
Seagram Co. Ltd. (VO/TSE) rose 75› to $49.75 to lead consumer issues higher on speculation that Allied Domecq PLC, a British drinks and retailing company, may merge its alcoholic drinks business with that of Seagram. ÿOther major Canadian markets closed higher. The Montreal Exchange portfolio climbed 23.1 points, or 0.7%, to 3322.18. The Vancouver Stock Exchange index rose 1.01 points, or 0.2%, to 594.89. ÿ
The major overseas markets closed higher. ÿ
London: Britain's leading share index jumped to a 15-week high, lifted by firm Asian markets, but drifted back as the pound's strength hit stocks in exporters and overseas earners. The FT-SE 100 index closed at 5273.6, up 10.5 points or 0.2%. ÿ
Frankfurt: German stocks ended trade with substantial gains after briefly rallying above the key 4300-point level. The Dax index closed at 4284.94, up 100.48 points or 2.4%. ÿ
Hong Kong: Stocks closed sharply higher, in line with the healthier tone in other Asian markets, but brokers said that with regional economic problems lurking in the background, the market remained vulnerable. The Hang Seng index closed at 9400.42, up 500.38 points or 5.6%. ÿ
Tokyo: Japanese stocks, which gained more than 6% on Friday, extended their rally on speculation the government is trying to alter its fiscal reform plan and implement measures to boost the economy. The 225-stock Nikkei average closed at 16,262.04, up 215.59 points or 1.3%. ÿ
Sydney: The Australian stock market ended higher as continued gains in Tokyo and Hong Kong fuelled hopes that the worst of the Asian economic crisis could be over. The all ordinaries index closed at 2650.7, up 36.7 points or 1.4%. ÿ
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HOT STOCKS
INTERNATIONAL PETROLEUM CORP. (IRP/TSE), up 45› to $6.80, on volume of 8,000 shares. Gulf Canada Resources Ltd. (GOU/TSE), up 5› to $8.70 on volume of 59,129 shares. The two oil companies will benefit from agreements signed between the Albanian National Hydrocarbons Agency and two international consortia. International Petroleum will have a 20% stake in Occidental Petroleum Corp.'s control of three onshore exploration and production sharing contracts. Gulf Canada, through its Clyde Petroleum subsidiary, will own a 15% share of a second group's three onshore blocks led by Austrian oil and gas company OMV. ÿThe price of crude oil also jumped yesterday over concerns that tensions between Iraq and the United Nations could jeopardize a quarter of world oil supplies. ÿBenchmark North Sea Brent crude climbed US36› a barrel to US$15.83, a hefty US73› above a low of US$15.10 touched last week,
ASHTON MINING OF CANADA INC. (ACA/TSE), down 75› to $5.55, on volume of 376,575 shares. Pure Gold Resources Ltd. (PUG/TSE), down 14› to $1.25, on volume of 755,350 shares. Ashton Mining announced drilling results from its Buffalo Hills project in north-central Alberta. ÿAnalyst Bill Belovay, of CIBC Wood Gundy Securities Inc., said the results are neither negative nor conclusive. Ashton, which is 62% owned by Ashton Mining Ltd. of Melbourne, Australia, has an option agreement with Alberta Energy Co. to earn a 15% interest in Buffalo Hills. Pure Gold could earn 42.5%. Belovay said speculators drove Ashton's stock price to $5.90 when initial results were released on Nov. 11. His 52-week target price is $3.60. "They only have 40-odd tonnes of sample material and need in the thousands of tonnes to [be able to] draw conclusions," he said.
LIVENT INC. (LIV/TSE), down $1.25 to $14.50, on volume of 23,960 shares. The company's production of Ragtime opened Sunday on Broadway amid mostly rave reviews - except in the New York Times. ÿ"I wouldn't read too much into one less than favorable review," said Bill Wolfenden of Deacon Capital Corp. ÿU.S. stock markets were closed for Martin Luther King Day and Livent is a story in which the American investors are
INTERNATIONAL VERIFACT INC. (IVI/TSE), up 85› to $11.25, on volume of 40,320 shares. Shares in the Toronto-based technology firm continued to rise as the market voiced its approval over IVI's merger with U.S rival Checkmate Electronics Inc.
CFM MAJESTIC INC. (CFM/TSE), up $2 to $29.50, on volume of 1,340 shares. The Toronto-based fireplace manufacturer's shares continue to rise from their 52-week low of $23.20 on Aug. 5. Michael Van Aelst, an analyst with CIBC Wood Gundy, rated the stock a "strong buy" after the firm agreed to purchase Illinois-based Harris
Systems Inc. on Dec. 24. ÿThe acquisition will add $40 million to $45 million to CFM's revenue, said Van Aelst, who has a 52-week target price of $34 on the shares.
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Tuesday, January 20, 1998
Market Eye -- By WILLIAM HANLEY The Financial Post
Some comfort to be had in debate on deflation
Some economists are dismissing the deflation versus inflation debate out of hand, calling the threat of deflation an "absurd" notion - "hogwash" that deserves no serious analysis. ÿBut the "D-bate" is not about to go away while investors are still trying to gauge the eventual impact of the Asian crisis. ÿDouglas Porter and David Rosenberg, senior economists at Nesbitt Burns Inc. in Toronto, have joined the debate with a report on the risks of deflation that should comfort stock investors. They note that in the past, falling U.S. producer prices have failed to dent equity prices and that stocks actually rose during two post-war periods of retreating consumer prices. ÿ"Those concerned about deflation should note that the worst times for the stock market have been periods of high and rising inflation - prompting aggressive [U.S. Federal Reserve] tightening and surging long-term interest rates." ÿPorter and Rosenberg concede that equities will remain vulnerable to the Asian turmoil, given that 16% of Standard & Poor's 500 earnings come from that region. "But a deflation-induced bear market is unlikely against the backdrop of strong U.S. economic fundamentals, which will be further reinforced by declining interest rates and accelerating tax relief." ÿThat sanguine view appears to be gaining ground, judging by the Toronto Stock Exchange 300 composite's solid advance yesterday in the wake of stronger Asian markets.
IBM isn't what it used to be. Just calling it "Big Blue" sounds like an anachronistic throwback to at least the mid-1980s, when International Business Machines Corp. was market-cap champion. ÿToday, IBM is dwarfed in market cap, if not in sales, by the new star techs, Microsoft Corp. and Intel Corp., and by No. 1 General Electric Co. ÿBut when IBM unveils its fourth-quarter results today after the market closes, the Street will be hanging on every line of numbers because it is still a focus stock that says much about earnings trends in general and about technology earnings in particular. Also fascinating is the way that management has been able to put and keep a positive spin on a company that has struggled to maintain profit and revenue growth. One strategy has been to buy back shares, thereby keeping earnings per share rising while actual profit is basically flat. ÿ
The Street is very bullish on IBM, with Bloomberg reporting that of 21 analysts' recommendations it tracks, 18 are buys, two are holds and there is a lone sell. ÿThe stock closed Friday at US$105, up US$1 9/16 and close to the record high of US$113 1/2. That IBM is within striking distance of a record when many other star techs have stumbled is testimony to the stock's appeal. ÿAnalysts' estimates for fourth-quarter earnings have been downgraded slightly in light of the Asian slowdown, with US$2.15 a share the average call. IBM has groomed expectations very nicely in the past three quarters, managing to beat expectations by just enough. ÿAnd because meeting or beating expectations is so important to the stock price, the likelihood is that IBM will manage to do just that again this afternoon. Yet hard-eyed analysts will be reading the fine print and between the lines to find out how the company and the tech sector are actually faring. ÿ
Two other techs, Microsoft and Compaq Computer Corp., announce their results before the markets open tomorrow morning, helping to give a broader reading of a key sector at a crucial juncture. Remember, Intel disappointed the Street last week with a warning that revenue growth has slowed and margins are falling. ÿDon't be surprised if Microsoft (msft/nasdaq) announces a two-for-one splitting of its shares, which closed Friday at US$135 1/4. ÿ
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Mutual fund sales fall off - By SUSAN HEINRICH
After record sales in 1997, funds report slower pace as RRSP season hampered by volatile markets
ÿMutual fund sales in this year's RRSP season will [MUTUAL FUND NET SALES] likely fall short of last year's, as volatile markets send nervous investors in search of safer choices. ÿSome analysts also think fund sales throughout this year will be challenged to match 1997 levels - the industry's best year ever. ÿ"I'm being told by [some mutual fund companies] that in January, it is noticeable that sales are off a bit from last year," said Tom Hockin, president of the Investment Funds Institute of Canada. ÿHockin attributed the slip to market volatility, which "is making some investors timid." As a result, "there might be a slight tendency [for mutual fund sales] to bleed off into GICs and other fixed securities." ÿ
IFIC is considering asking the federal government to extend the March 2 RRSP deadline, Hockin said, to accommodate "the 5% to 10% of Canadians who [were] absolutely paralysed by the ice storm" in Eastern Canada. ÿIFIC released its December and yearend figures yesterday, showing $52.33 billion in net sales in 1997 (not including re-invested distributions) to make it the best year ever. Net sales in 1996 were $40.95 billion. ÿTotal fund assets at the end of December were $283.16 billion, up 34% from $211.8 billion at the end of 1996. December's total was also up 1.9% from a month earlier. ÿBut the latest numbers indicate the pace of sales has started to slow. Net sales were $3 billion last month, compared with $3.6 billion a year earlier and $4.3 billion in November 1997. ÿ
Dan Richards, president of Toronto-based Marketing Solutions, said it's unlikely the 1998 RRSP season will beat the 1997 season, which "was extraordinary." ÿRichards estimates net sales for all of 1998 will be between $35 billion and $40 billion, a 20% to 30% drop from 1997. "And that assumes flat interest rates and modest growth in the stock market - single digit returns," he said. ÿHe said volatile markets are pushing some investors into other investments they believe are safer. "We think there will be a splintering of [investment] options - some will look at GIC's, which are paying 4%, some will look at strip bonds.... This will not be as pure an equity-driven market." ÿ
James Dancy, an analyst with C.M. Oliver Ltd. in Toronto, agreed the 1998 RRSP season will likely slip a notch, but he thinks it will still be a strong year. "So far, net sales for January from the major [fund companies] are, for the most part, pretty good. Last year's RRSP sales were $23 billion, and I think this year they could be between $15 billion and $20 billion. ÿ"I'm going to remain optimistic, because where else are you going to put the money, [while interest rates are still low]." ÿMark Maxwell, vice-president and analyst at CIBC Wood Gundy Securities Inc., is more optimistic and believes this season's sales will keep pace with 1997. He conducted a survey of fund companies on Jan. 12, and it indicated sales and redemptions in line with last year. ÿ "My feeling is they are going to be at least equal to, or maybe better than, last year. I think the way Canadians save has changed." Maxwell believes investors recognize the advantages of buying when the markets are down. ÿ
December sales also revealed that Toronto-based Altamira Investment Services Inc. is no longer the largest independent no-load fund seller in Canada. ÿVancouver-based Philips Hager & North Ltd. has surpassed Altamira in asset size. PH&N had $5.61 billion in assets at the end of December, making it the 18th largest fund company. Altamira dropped to 19th spot with $5.45 billion. In 1997, PH&N grew by 53.1% and Altamira shrunk 11.6%.
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NEW YORK -- Wall Street was shuttered Monday in observance of Martin Luther King Jr. day, but that doesn't mean there wasn't any action in the financial world -- the operative word being "world."
International markets shot higher Monday, led by Asia -- where investor confidence continues to re-emerge -- reminiscent of all those folks who claim they've always been fans of the NFL's Green Bay Packers. The performance of Asian bourses, barring a sharp reversal overnight Tuesday, should lead to a positive session Tuesday for U.S. markets as well, and should keep trading buoyed amid a sea of corporate earnings due in the coming days.
Of course, if the Packers should by some miracle lose in Sunday's Super Bowl to the AFC's Denver Broncos, any good tidings that emerge from this week's action might soon evaporate. That's because one of the quirkier anomalies of trading in the past 25 years is that when teams that are original NFL franchises win the "big game," the stock market does well; when the AFC upstarts win, the market struggles. (Non-sports fans should note that the AFC has not won the Super Bowl since 1983.) Traders, many of whom read the sports page before the financial section, do pay attention to such idiosyncrasies.
They also pay very close attention to what's going on in Asia, where the focus overnight was again on Japan. The Japanese yen gained versus the U.S. dollar in currency trading and the Nikkei 225 Index climbed 1.3%, following a more-than-6% rise on Friday amid optimism that the government will alter its fiscal-reform plan and implement measures to boost the economy. Such hopes have proved unfounded in the past, and Trade Minister Mitsuo Horiuchi said Monday that the government would look at changes in economic conditions before deciding whether to take additional stimulus steps, and attributed the market's recent gains to prior measures.
Still, there seems to be at least a necessary sense of urgency from Prime Minister Hashimoto's government this time around.
Elsewhere in the region, stocks were sharply higher across the board. Hong Kong's Hang Seng Index closed up 5.6%, South Korea's Composite Index gained 6.6%, Thailand's SET and Malaysia's KLSE Composite each surged over 9%, and Singapore's Straits Times and Indonesia's Jakarta Index both gained more than 6%.
Tempering the enthusiasm, some traders said the drastic reduction in the size of these markets had exaggerated market movements, with small amounts of money generating big index moves. Nonetheless, Wall Street would much rather see "up" days in those markets then "down" ones.
The gains registered by Asia's markets had European indices rallying as well, but the lack of trading on Wall Street tempered some of the gains on the Continent, traders said. Germany's DAX was the best of the bunch, rising 2.4%. London's FTSE 100 Index and Paris' CAC Index both finished off their best levels of the day with fractional gains.
When traders return from the Monday holiday, they'll not only have to deal with two trading days in Asia and Europe but also with corporate earnings from tech heavyweights IBM (IBM), Computer Associates (CA) and Lucent Technologies (LU). Also due to report on Tuesday are Ascend Communications (ASND) and KLA-Tencor (KLAC). There's no respite the next day with reports expected from Microsoft (MSFT), Compaq Computer (CPQ), and Texas Instruments (TXN).
And that's to name just a few. Outside of technology, earnings are due next week from Chrysler (C), plus Dow components like The Travelers Group (TRV), Caterpillar (CAT) and McDonald's (MCD), as well as many big money-center banks, oil drilling-and-services firms, and airlines.
Evincing the positive tone of trading, there's a sense that some of these big names -- particularly tech heavyweights Compaq and Microsoft -- will provide the market with uplifting positive earnings surprises. The "consensus" estimate for Compaq's fourth-quarter earnings is 84 cents per share; analysts are expecting Microsoft to earn 82 cents per share in its fiscal second quarter.
In sum, it will be a hectic week. A period in which sentiment on Wall Street likely will shift between euphoria and despair more rapidly than normal, depending on the "all-encompassing" release of the moment.
As for economic data, the "big" numbers aren't until the week of Jan. 26, though the trade-balance data due on Wednesday might get more scrutiny than usual, due to the ongoing turmoil in Asian economies. And for a look at how the domestic economy is performing, the Fed's Redbook survey, also due Wednesday, will also garner a close look.
MONDAY'S NEWS
Chip-equipment maker Novellus Systems (NVLS) said it earned 64 cents per share in its fourth quarter, a penny ahead of the consensus estimate.
Tobacco firms agreed to pay Texas $15.3 billion over 25-years to repay medical costs stemming from smoke-related illnesses. The settlement avoids a trial, but similar legal proceedings are set to get under way soon in Minnesota, according to The Wall Street Journal.
Shares of ICN Pharmaceuticals (ICN) were trading lower in after-market trading after the Securities and Exchange Commission recommended civil action against the company's chairman, Milan Panic (no puns about his last name). The company said the SEC's action is "inappropriate."
Microsoft (MSFT) asked an appeals court to suspend the activities of the "special master" directed by Federal Judge Thomas Penfield Jackson to investigate the software giant's business practices.
FRIDAY'S MARKETS
It was a blue-chip bonanza for much of the day on Friday, as stocks barreled higher on the heels of overnight strength in Asian markets. A late-day slide took some of the bloom off Wall Street's rose, however, as many players apparently feared taking long positions into the three-day weekend. After climbing as high as 109 points, the Dow closed 62 points up, while the Nasdaq maintained its footing, rising nearly 16.
A sense that the worst has passed in Asia and some strong earnings from Sun Microsystems (SUNW) reinvigorated the market's confidence in technology stocks, although there were a few individual disasters, and semiconductor stocks lagged. In the broader markets, financial stocks rallied on the easing of Asia worries while oil stocks, airlines and drug stocks all were smartly higher.
The Dow Jones Industrial Average ($INDUA) jumped nearly 80 points higher in its opening move, following a stellar overnight performance for Asian bourses. A brief dip of about 30 points soon gave way to more strength, and the index climbed steadily higher through the morning. By 1 p.m. EST, the index was up more than 105 points and traded in a range of between 109 and 80 points up heading into the last hour. After re-testing its best level of the day about a half-hour before the closing bell, the blue-chip proxy turned sharply lower heading into the close. The Dow ended the session up 61.78 points at 7,753.55. For the week, the index gained 2.3%.
The Nasdaq Composite Index (COMP) was able to hold onto more of its early gains. The tech-heavy index opened with a double-digit gain, slid briefly, then moved steadily higher throughout the morning session. At about 1:30 p.m., the index was up nearly 20 points from its opening level and demonstrated tenacity in hanging onto its gains for the rest of the day. While the Dow lost more than half of its best level at one point, the Nasdaq never came closer than within 12 points of break-even. The index ended up 15.82 points at 1,562.88, closing the week with a gain of nearly 4%.
The S&P 500 (SPX) finished the session up 10.78 points to 961.51, climbing 3.6% for the week. The small-cap proxy Russell 2000 Index (RUT) demonstrated strength on the day, rising 4.50 points to 426.25 while ending the week up 3.2%.
Traders said some computer-driven sell programs contributed to the late-day downturn, but that did not obscure the generally positive mood among many market players.
On the NYSE, 673 million shares were traded while advancing issues beat out decliners by a 21-to-8 margin. In Nasdaq trading, 706 million shares were exchanged and advancing issues bested declining stocks by a 26-to-17 spread.
The international stability came at the expense of the U.S. bond market, which has benefited in recent weeks from the "flight to quality" trade as Asian markets tumbled. On Friday, bond prices fell more than 7/8 of a point, sending the yield on the benchmark 30-year Treasury bond up to 5.80%.
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