MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, JANUARY 28, 1998 (1)
Thursday, January 29, 1998
U.S. stocks rose for a second day, led by computer-related and airline issues, on optimism that corporate profits will top expectations. Profit-taking among bank stocks tempered the Toronto market's advance
The Dow Jones industrial average rose 100.39 points, or 1.3%, to 7915.47.
The benchmark has climbed more than 214 points during the past three sessions.
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The Standard & Poor's 500 index jumped 8.44 points, or 0.8%, to 977.46.
The tech-heavy Nasdaq composite index posted a solid gain of 31.91 points, or
2%, to 1610.82.
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Computer-related shares led the market's advance as many investors reconsidered whether a recent tumble in the stocks was justified.
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Oracle Corp. (ORCL/NASDAQ) rose US$23 1/816 to US$213 1/816 after chairman Lawrence Ellison said he expects North American sales to grow 25% in the fiscal third quarter.
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The Morgan Stanley high-tech index jumped 15.99 points, or 3.6%, to 463.65.
UAL Corp., the parent company of United Airlines, and aerospace and auto equipment maker Allied-Signal Inc. were among companies to exceed fourth-quarter earnings estimates. UAL (UAL/NYSE) rose US$111 1/816 to US$881 1/84 after the airline said fourth- quarter profit rose 63% from the year-earlier period and AlliedSignal (ALD/NYSE) rose US$21 1/82 to US$395 1/816 after it said fourth-quarter profit rose 15%.
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Advancers topped decliners on the New York Stock Exchange where about 713.5 million shares changed hands, up from 684.7 million shares traded Tuesday.
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Canadian stocks rose, sent higher by another strong performance by Northern Telecom Ltd. and Canadian Pacific Ltd. Declining bank shares tempered the advance.
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The Toronto Stock Exchange 300 composite index rose 9.35 points to 6731.07.
TSE advancers outpaced decliners with more than 134 million shares changing hands, up from 131 million shares traded Tuesday.
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Northern Telecom (NTL/TSE) rose $1.55 to $65.30, while CP (CP/TSE) rose 90› to $38.85.
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All five of Canada's largest banks fell. "We are seeing some profit-taking in the bank sector after good rallies in the past four days, but it is not a big thing," said Stephen Gauthier, a fund manager with Pictet Canada Inc. "We could see another $2 or $3 come off Bank of Montreal and Royal Bank of Canada." Bank of Nova Scotia (BNS/TSE) fell 65› to $66.35, Canadian Imperial Bank of Commerce (CM/TSE) slipped 90› to $40.90, Toronto- ÿDominion Bank (TD/TSE) slid $2 to $55.40, Bank of Montreal (BMO/TSE) dropped 90› to $69.05 and Royal Bank (RY/TSE) fell 50› to $77.80.
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Other Canadian markets ended higher. The Montreal Exchange portfolio was almost unchanged, rising 0.86 of a point to 3490.14.
The Vancouver Stock Exchange rose 4.71 points, or 0.8%, to close at 600.84.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to: quote.yahoo.com .
European markets roared to record highs on the back of a stronger US$ and receding worries about the Asian crisis.
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Stock market peaks were recorded in London, Madrid, Milan and Zurich, while benchmark indexes in Frankfurt and Paris closed within sight of their highs.
The US$ weakened against the yen, but rebounded against the German mark, giving a lift to the prospects of European exporters. Individual companies continue to report the effects of Asia's financial problems, but there is a feeling that the sharp falls in world equity markets in late 1997 may have been overdone.
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To date, the most significant impact of Asian events has been beneficial, with bond yields falling and expectations of interest rate increases diminishing, given the expected disinflationary effect of the slump in Asian demand.
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Shares in Italy and Spain have also been lifted by the prospect of further interest rate cuts as rates across Europe equalize this year in the runup to European economic and monetary union.
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London: The FT-SE 100 index gained 46.3 points, or 0.9%, to a record close of 5372.6, after reaching an intraday high of 5415.3.
Frankfurt: German shares ended trade with robust gains but off the day's best levels. The Dax index closed at 4391.02, up 112.26 points, or 2.6%.
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Tokyo: Japanese stocks gained in early trading on news of the resignation of the finance minister Hiroshi Mitsuzuka, but ended flat after investors took profits. The 225-share Nikkei average closed at 16,973.83, down 7.79 points.
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Hong Kong: The market will remain closed for the rest of the week for the Chinese New Year holiday. On Tuesday the Hang Seng index had closed at 9252.36, up 278.5 points or 3.1%.
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Sydney: An overnight jump in U.S. stocks, healthy gains in Tokyo and rallying gold stocks pushed the Australian market higher. The all ordinaries index rose 17.2 points, or 0.7%, to 2621.1 - FP, Bloomberg, with wire services
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Wall Street looks to Greenspan for comfort -- By WILLIAM HANLEY
In "normal" times, when Washington is merely a political behavioral sink and not a massive stage for the theatre of the absurd, the appearance today of Alan Greenspan before the Senate Budget Committee might be more than a minor sideshow.
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The U.S. Federal Reserve chairman's testimony on the state of economic affairs after the Asian crisis and ahead of next week's Fed policy making meeting might be almost lost amid the various comings and goings in the U.S. capital. But Wall Street will be watching and listening for clues to what the world's most powerful central banker is thinking.
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That the Fed will change interest rates next week is about as likely as Bill Clinton and Monica Lewinsky having another hug for the cameras on the White House lawn. Rates were most recently raised last March when the Fed opted for a quarter-point boost to signal that the U.S. economy needed to cool off a little.
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Now the talk is that the next move is likely to be a rate cut in the wake of the drag created by Asia, though no action is expected any time soon, with the economy still throwing off conflicting signals.
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One positive signal Greenspan can and will send is that of the calm super-banker at the eye of the political storm. Coming after President Clinton's solid performance Tuesday night, the Street should feel more comfortable.
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Unless, of course, Greenspan slips in something along the lines of "irrational exuberance" to stir things up.
It is said the Street does not like uncertainty, which is hogwash. Investors do not like uncertainty; traders thrive on it.
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The political uncertainty this week has been the most palpable since Watergate. But the Dow Jones industrial average's second straight 100-point rise yesterday means that the market's favorite measure is modestly ahead since penile dementia began sweeping Washington last Wednesday.
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This has been a great traders' market since last fall; Willygate has done nothing to change that.
Speaking of traders, the bullion price appears to be on the verge of sending a strong technical buying signal to traders of gold and gold stocks.
Bob Hoye, editor of Vancouver's Quantum Research newsletter, says breaking through the US$305-US$306 level (it reached US$304.75 yesterday) will reaffirm that gold is breaking out. He notes the recent steepening of the U.S. yield curve and the rapid rise in the gold-silver ratio are leading
items for a gold rally.
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The rally in semiconductor stocks also coincides nicely with the rally in base-metal issues, Hoye says. Both were off up to 40% at the lows and they tend to move together.
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The upshot of this and the tally of the new highs versus new lows each day on the New York Stock Exchange, showing the divergence in the market, tell historian Hoye that a "tidal change" is in the making.
The yield on the benchmark U.S. 30-year bond continues to creep back up toward 6%, erasing almost four weeks of gains in the price as the US$ weakens and some investors switch into stocks.
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But Ned Davis Research Inc. says the shifting allocation from stocks to bonds is likely to be a major theme this year because the relative appeal of bonds versus stocks is the highest since 1992.
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NDR is advising clients to keep an eye on insider selling this year as an early warning system on earnings problems, which are likely to be a major threat to stocks. "A renewed round of selling would be the precursor to a new round of trouble."
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Economists split over bank rate hike -- By DAVID THOMAS
Although higher interest rates may be unwarranted for anti-inflationary reasons, some Bay Street economists called for a rate hike yesterday to prop up the ailing C$.
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Despite the critics' warnings the Bank of Canada is losing credibility in currency markets, other economists had nothing but praise for its decision to stay on the sidelines.
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The most outspoken critic was Sherry Cooper, Nesbitt Burns Inc.'s chief economist, who urged the central bank to raise rates or risk a speculative attack on the C$.
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"The bank's credibility is clearly at stake and the loonie is ripe for the kicking by global hedge funds if the bank does not respond soon."
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The C$ ended yesterday at a record closing low of US68.57›, down US0.13› in a volatile trading session that saw it slip as low as US68.48›.
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Cooper said the slide of the C$ is a sign foreign investors are losing faith in Canada's central bank. She expressed concern the currency's woes will undermine the domestic bond market and lead to higher mortgage rates.
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"It is urgent that the bank hike interest rates by at least 50 basis points to restore investor confidence."
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Andrew Pyle, an economist with ABN Amro Bank Canada, agreed that a rate increase was overdue.
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After senior central bank officials signalled last week in various comments the bank's course of higher rates is on hold, or may even be reversed, the absence of a rate hike is not surprising, Pyle said.
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Data released yesterday showed no sign of inflation in industrial product and raw materials prices. The price of raw materials in December actually fell 4.1% from the previous month. For 1997, prices declined 1.7%.
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Despite its consistency, Pyle said, the bank's new direction is puzzling. He predicted currency traders will test the bank's patience, taking the C$ to new lows. "The bank might be content to let the C$ go down to US65› for all we know."
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But other economists said the decision to let the C$ slide is the right move and the bank has been consistent in its actions.
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"The Bank of Canada in my view is pursuing an appropriate policy," said Michael Gregory, an economist with Lehman Bros. Canada Inc.
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Although already undervalued, the C$ may be poised to slide below US67› butwill eventually turn around once Asian uncertainty diminishes and commodity prices bounce back, he said.
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The C$ is weakening because of external factors. Raising interest rates by 50 or even 100 basis points wouldn't turn it around, he predicted. It would take at least 200 basis points to have an impact.
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Jeff Rubin, chief economist at CIBC Wood Gundy Securities Inc., also supported the bank's stand and said at least 100 basis points would be needed before the C$ got any relief.
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Canada Nov weekly earnings rise 1.5 pct on year
OTTAWA, Jan 28 (Reuters) - The preliminary estimate of average weekly earnings for Canadian workers in all industries except agriculture and fishing rose 1.5 percent in November from a year earlier to a seasonally adjusted C$601.64, Statistics Canada said on Wednesday. ÿ From the month before, earnings rose 0.9 percent. ÿ Seasonally adjusted payroll employment rose 0.7 percent in November to 11.39 million from a 11.32 million in October, revised down from 11.33 million. ÿ A Reuters survey of economists had forecast that average weekly earnings would rise by 0.4 percent, year on year, after a 0.3 percent rise in October.
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