MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, FEBRUARY 4, 1998 (1)
Thursday, February 5, 1998
Investors cash in profits
Stocks lost ground after U.S. and Canadian investors took profits from some of this week's high flyers. In Toronto, gains in the gold group were outweighed by drops in banking and metals
The Toronto Stock Exchange 300 composite index fell 10.82 points, or 0.2%, to 6762.63, paring an earlier 26-point loss.
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About 113.3 million shares changed hands, compared with 136.3 million shares traded Tuesday.
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"Banks have been strong in recent days and we're getting some easing back," said Tom Green, a trader with Commission Direct Inc.
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Toronto-Dominion Bank (TD/TSE) fell $1.10 to $54.40, Canadian Imperial Bank of Commerce (CM/TSE) dropped $1.35 to $40.65 and Bank of Montreal (BMO/TSE) fell $1.30 to $68.40 to pace the financial services subgroup's decline.
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Telecommunications equipment maker Newbridge Networks Corp. was the most active issue for a second day after the company said Monday it expects its third-quarter earnings to come in well below analysts's expectations
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Newbridge (NNC/TSE) fell $1.25 to $27.50 on volume of 5.8 million shares. The shares have fallen 26.7% in the past two days.
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Metal issues weighed on the broader market. Cominco Ltd. (CLT/TSE) fell $1.45 to $23.40 after it posted an unexpected fourth-quarter loss, reflecting lower prices for lead, copper, nickel and gold.
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Alcan Aluminium Ltd. (AL/TSE) fell 65› to $43.85 after it signed a long-term bauxite supply agreement with Brisbane-based Comalco Ltd. that will delay the development of Alcan's Ely deposit in Australia.
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Inco Ltd. (N/TSE), the world's largest nickel producer, fell 70› to $25.45 after falling nickel prices crimped earnings.
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Rising commodity prices drove gold and silver producers higher.
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Barrick Gold Corp. (ABX/TSE) rose $1.35 to $28.05, Placer Dome Inc. (PDG/TSE) gained 45› to $18 and Pan American Silver Corp. (PAA/TSE) climbed $2 to $16.40 to lead the gold and precious metals subgroup higher.
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"Weakness in the US$ is one incentive to buy gold," said Alastair McIntyre, a director of ScotiaMocatta, a division of Bank of Nova Scotia. "Tension in the Middle East is also helping as war and conflict are still reasons to purchase bullion."
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Bullion rose US$4.20 to US$300 an ounce on the Comex division of the New York Mercantile Exchange.
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Pan American rose as silver surged to a nine-year high after U.S. billionaire Warren Buffett, one of the world's most watched investors, said his firm, Berkshire Hathaway Inc., had bought about a fifth of world silver stockpiles.
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The price of silver climbed US40.2› to US$7.02 an ounce on the Comex.
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Other major Canadian markets closed mixed.
The Montreal Exchange portfolio fell 17.07 points, or 0.5%, to 3472.38.
The Vancouver Stock Exchange index rose 5.48 points, or 0.9%, to 618.95.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
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The Dow Jones industrial average fell 30.64 points, or 0.4%, to 8129.71, pausing after two days of gains of nearly 250 points.
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New buying in technology stocks helped lift the Nasdaq composite index 14.1 points, or 0.9%, to 1680.44. The Standard & Poor's 500 composite index rose 0.91 of a point to 1006.9.
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About 700.8 million shares were traded on the New York Stock Exchange, compared with 697.5 million on Tuesday.
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The market showed little reaction to a widely expected decision by the U.S. Federal Reserve to leave interest rates unchanged.
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"The market had already factored that into the equation," said Peter Coolidge, senior equity trader at Brean Murray & Co.
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Profit-taking was focused on large stocks that had led the recent rally, including bank, drug and economically sensitive shares. ÿJ.P. Morgan & Co. Inc. (JPM/NYSE) lost US$1 1/2 to US$107 3/8, Merck & Co. Inc. (MRK/NYSE) was off US$1 3/8 to US$114 15/16 and Caterpillar Inc. (CAT/NYSE) shed 5/8 to US$49 7/8.
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The major overseas markets closed mostly lower.
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London: Profit-takers knocked Britain's leading stock index to its first fall in eight sessions. The FT-SE 100 index closed at 5595.8, down 17 points or 0.3%.
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Frankfurt: German stocks ended weaker, eroded by profit-taking. The Dax index closed at 4486.95, down 45.57 points or 1%.
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Tokyo: Japanese stocks lost ground in a consolidation that followed two days of modest gains. The 225-stock Nikkei average closed at 16,882.62, down 140.36 points or 0.8%.
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Hong Kong: Stocks closed sharply lower in choppy trade. The Hang Seng index closed at 10,302.61, down 222.9 points or 2.1%.
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Sydney: The Australian stock market finished flat as early U.S.-inspired gains were reversed by quick profit-taking. The all ordinaries index closed at 2656.9, up 2.5 points.
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RRSP contribution period could be extended
OTTAWA (CP) - Finance Minister Paul Martin left the door open Wednesday to an extension on the period some Canadians might have to contribute to Registered Retirement Savings Plans this year. ÿWhen asked outside the Commons whether he was considering an extension beyond March 2 for the 1997 tax year, Martin replied: "I will be making an announcement on that very soon." ÿIt wasn't clear how the extension would work nor who would be affected by it.
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Silver surges to 10-year high on Buffet's bet, will investors follow?
NEW YORK (AP) - A huge endorsement by one of the world's richest investors sent silver prices surging to a 10-year high Wednesday, raising memories of a speculative binge that wound up trashing the metal.
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Silver surpassed $7 an ounce for the first time since January 1988 after legendary investor Warren Buffett's company disclosed late Tuesday it had acquired 130 million ounces of silver, now worth $910 million.
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Buffett has legions of followers that track his every move, but rarely has the famed advocate of buy-and-hold stock investing steered them to the commodities pit.
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"In my opinion, he's saying that common stocks are a bit rich," said Michael Metz, chief investment strategist at CIBC Oppenheimer. "If Mr. Buffett can't find any attractive common stocks, maybe that means you can't either, and should begin taking a look at commodities."
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The silver contract for delivery in March rose 40.5 cents Wednesday to close at $7.02 a troy ounce on the New York Mercantile Exchange, giving it a two-day gain of more than 12 per cent.
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Since Buffett's company, Berkshire Hathaway Inc., began buying silver in July, the metal's value has soared 62.5 per cent. Berkshire's stakerepresents an estimated 20 per cent of the world's silver supply, excluding jewelry and other manufactured items.
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The developments evoked memories of 1980, when the Hunt brothers of Texas tried to corner the market and drove prices from around $6 an ounce to a high of $52.50. That led people to melt down trophies, sell heirloom place settings and search frantically for old silver quarters.
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But when the silver market collapsed just weeks after hitting its peak, the Hunt brothers were left with $1 billion in losses.
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Unlike the Hunts, who borrowed heavily on a losing bet, Buffett's company has deep pockets. Silver represents just 2 per cent of its holdings.
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The current increase comes at a time when precious metals should be out of favor. Like gold, silver is seen as a hedge against big jumps in inflation or uncertainty caused by world turmoil.
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In fact, gold has been languishing around $300 an ounce or lower as inflation remains tame and central banks sell off their holdings.
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"Generally silver and gold trade within bands of each other, and its unusual to have this kind of divergence," said Robert Brusca, chief economist at Nikko Securities International Inc.
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But silver has one advantage over its costlier counterpart: heavier industrial use. For several years, demand from makers of film, jewelry, electronics and even dental equipment has far outstripped production.
Also driving up prices recently have been allegations that a commodities dealer - the one used by Berkshire Hathaway for its silver purchases - conspired with others to manipulate the market.
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Phibro Inc. has denied the charges, which were contained in a lawsuit filed last week by a Canadian silver options trader. Berkshire Hathaway owns a stake in Phibro's parent company, Travelers Group.
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Berkshire Hathaway said it began buying silver last July, when it was $4.32 an ounce. It said it finished its buying Jan. 12 and has no plans for additional purchases or sales of its holdings.
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Buffett's investing savvy has made him one of the world's richest men. Last year's Forbes magazine estimated his net worth at $21 billion, putting him second only to Microsoft's Bill Gates in its ranking of the 400 wealthiest Americans.
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Berkshire Hathaway, the most expensive stock traded in the United States, rose $200 on Wednesday, or 0.38 per cent, to close at $52,800 a share on the New York Stock Exchange.
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POLL-Canada poised for strong economic growth
Canada will post strong economic growth in the next two years despite the negative impact of the Asian financial crisis, a Reuters poll of economists showed on Wednesday.
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The quarterly survey, which polled 20 economists in Canada and the United States, predicted the Canadian economy would grow by 3.2 percent in 1998 and 3.1 percent in 1999.
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Canada's economy grew by about 3.7 percent in 1997. Strong growth, however, would not trigger higher inflation in Canada, the survey said.
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The consumer price index (CPI) is expected to fall to 1.3 percent this year, nudging up to 1.6 percent in 1999. Canada's inflation rate in 1997 was 1.6 percent.
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"The domestic side of the economy is going to outpace expectations and basically lead the economy higher. Investment and the consumer will be the leaders," said Mario Angastiniotis, economist with MMS International in Toronto.
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"We're acknowledging the potential impact of Asia, but I think that is going to be a lot smaller than people estimate," Angastiniotis added.
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Economists estimated that the turmoil in Asian markets could shave between 0.3 to 1 percent off Canadian growth in 1998.
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The survey suggested that slower growth in the Canadian economy should keep interest rates relatively steady in the next two years.
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The Bank of Canada has raised its key bank rate -- similar to the U.S. Federal funds rate -- by 125 basis points since November. Last week, the central bank hiked rates by 50 points to bolster the troubled Canadian dollar and rebalance monetary conditions.
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The bank rate, now at 5 percent, is the top of the central bank's target range for overnight lending to financial institutions. It determines prime lending rates by commercial banks, which are at 6.5 percent.
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"Interest rates are probably fairly close to where the Bank of Canada wanted them to be by about the middle to the end of this year, so basically the Canadian dollar weakness has accelerated the tightening process," said Doug Porter, senior economist with Nesbitt Burns in Toronto.
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"It also looks like the ultimate tightening they wanted to put in place is not as aggressive as they may have wanted a few months ago because of Asia," Porter said.
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The survey also indicated the Canadian dollar should rebound from its recent historic lows as Asian economies improve and world commodity prices rise through 1999.
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The dollar, currently at about 69.12 U.S. cents, is expected to strengthen to 71.50 U.S. cents by the end of this year and to 72.50 U.S. cents by the end of 1999.
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But some economists see rough waters ahead for the Canadian economy. Mark Mullins, chief economist with Midland Walwyn, predicted Canada would slide into a mild recession later this year due to continuing turmoil in Asia and the impact of a strong U.S. dollar on the U.S. economy.
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A strong U.S. dollar could substantially reduce U.S. exports, slowing economic growth and reducing U.S. demand for Canadian imports.
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The United States is Canada's largest trading partner.
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"We had some peak growth back in July and since then we've been seeing a gradual slowdown and the issue is how much further are we going to slow," Mullins said.
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An economic slowdown would come at an inopportune time for unemployed Canadians who have seen signs of improvement on the jobs front.
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Unemployment fell more than one percentage point in the past year to 8.6 percent in December, but the survey said the unemployment rate would hover around 8.5 percent in the next two years.
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HOT STOCKS
Imax Corp. (IMX/TSE), up 35› to $35.10, on volume of 15,510 shares. Shares of the Toronto-based maker of giant screen theatres rose on the news that it has agreed to build 10 Imax 3D theatres in new and existing Famous Players theatres in Canada. ÿFamous Players, a subsidiary of Viacom Inc., will have certain rights of exclusivity to the Imax 3D system in Canada. The deal [Imax] includes a previously announced joint venture location in downtown Toronto, The Paramount Theatre. ÿImax has more than 150 permanent theatres in 22 countries and has a backlog of 65 theatre systems to open during the next few years. ÿFamous Players operates 106 locations with 550 screens across Canada.
Cognicase Inc. (COG/TSE), up $1.35 to $20.75, on volume of 26,225 shares. CGI Group Inc. (GIBa/TSE), up $1 to $35, on volume of 50,700 shares. ÿBoth Montreal-based information technology service companies are benefiting from the impending year 2000 computer crisis. ÿCognicase went public in October 1997 and its shares have gained 20% since the beginning of 1998. ÿThe firm said its net income climbed to 16› a share in the first quarter of fiscal 1998 from 1› a share in the year-earlier period. Revenue climbed to US$4 million, up 238% from US$1.7 million in the first quarter of fiscal 1997. ÿ"Over a four-month time span Cognicase has transformed itself into a solid information technology solution provider, in part because of a growing awareness of the [year 2000] situation," said Damian Rinaldi at First Albany Corp. in Boston. ÿRinaldi said the crisis not only opens a door for emerging information technology firms, it also puts them in a good position to exploit other challenges after 2000. ÿCGI's shares, which are 43% owned by BCE Inc., have soared 50% since Jan. 2.
Newbridge Networks Corp. (NNC/TSE), down $1.25 to $27.50, on volume of 5.8 million shares. ÿShare of the telecommunications equipment company continued to slide in reaction to Monday's news that the firm's third-quarter earnings would be much lower than analysts expect. ÿVolatile markets in Asia and Latin America reduced the company's third-quarter earnings to 10› a share on revenue of $360 million.
Potash Corp of Saskatchewan Inc. (POT/NYSE), up US$3 3/8 to US$91, on volume of 583,200 shares. ÿShares of the fertilizer giant have climbed 14% in the past 10 days. ÿ"IMC Global released better than expected numbers and Potash's earnings should follow suit," said Jeffrey Pittsburg at Goldis-Pittsburg Institutional services. "There is also the rumor that the Saskatchewan government is going to lower their taxes."
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