MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, FEBRUARY 18, 1998 (1)
Thursday, February 19, 1998
Wall Street climbed to a sixth record close as investors bought companies whose earnings are expected to grow even if the U.S. economy slows. Weakness in bank and oil stocks hurt the TSE
The Dow Jones industrial average rose 52.56 points, or 0.6%, to 8451.06 - a sixth straight record.
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The Standard & Poor's 500 composite index rose 9.3 points, or 0.9%, to a record 1032.06.
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The Nasdaq composite index, which is laden with computer companies, rose 12.3 points, or 0.7%, to 1715.73.
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About 610.9 million shares changed hands on the Big Board, up from 594 million shares traded Tuesday.
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Economic reports of growth with no inflation reinforced what investors already believed, traders said. Asia's slowing economies and weak currencies are widely expected to drag down U.S. growth.
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"Slow and steady growth is better for the market than erratic growth," said Joe Joshi, chief investment officer at Systematic Financial Management LP in Fort Lee, N.J.
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Merck & Co. (mrk/nyse) rose US$41 1/88 to US$124 to lead the Dow's advance.
Intel Corp. (intc/nasdaq) rose US$2 5/16 to US$86 15/16.
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Computer stocks have outperformed the market this year on expectations that profits will grow faster in that industry than for companies overall. Dell Computer Corp. (dell/nasdaq) rose US$17 1/88 to US$113 3/16 as investors anticipated a strong earnings report after the market closed. Dell said later its fiscal fourth-quarter profit climbed 52%, beating expectations for the eighth straight quarter. Net income for the three months ended Feb. 1 rose to US$285 million, or US81› a diluted share, from US$188 million, or a split-adjusted US50›, a year earlier. Dell also announced a two-for-one stock split, its fifth split in six years.
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Oil stocks rallied on news that Saudi Arabia, the world's largest oil producer, may support action to reduce production by the Organization of Petroleum-Exporting Countries. Crude oil rose US59› to US$16.25 a barrel on the New York Mercantile Exchange.
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Exxon Corp. (xon/nyse) rose US$1 11/16 to US$63 13/16 and Mobil Corp. (mob/nyse) gained US$13 1/84 to US$71 13/16.
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Canadian stocks fell as investors sold shares that have gained most in recent weeks.
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Banks were hurt by concern Canada's largest financial institutions may not be allowed to join forces in a series of mergers.
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The Toronto Stock Exchange 300 composite index fell 16.25 points, or 0.2%, to 6944.21 with Canada's five largest banks numbering among the 10 worst-performing stocks.
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About 113.5 million shares changed hands, down from about 129.3 million shares on Tuesday.
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Royal Bank of Canada (ry/tse) slid 65› to $82.45, Canadian Imperial Bank of Commerce (cm/tse) fell 65› to $45.45 and Bank of Montreal (bmo/tse) slipped 60› to $74.20.
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Any sign the Canadian government will block Royal's acquisition of Bank of Montreal could reverse a 20% advance by the TSE's financial services subindex, analysts said.
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Imasco Ltd. (ims/tse) shares fell $1.05 to $53.95 after RBC Dominion Securities Inc. analyst Irene Nattel cut her rating on the stock to "hold" from "buy" because the shares have neared her target price.
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Bombardier Inc. class B shares (bbdb/tse) fell 70› to $30.85 and Inco Ltd. (n/tse) fell 15› to $25.25.
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Other Canadian markets finished lower.
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The Montreal Exchange portfolio fell 8.37 points, or 0.2%, to 3593.95.
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The Vancouver Stock Exchange fell 1.69 points, or 0.3%, to 630.62.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
REFERENCE: Canadian Market Summary
canoe2.canoe.ca
Major international markets ended mixed.
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London: Britain's FT-SE 100 index climbed to its second consecutive closing high, buoyed by yet another powerful performance among bank stocks. The FT-SE 100 closed at 5723.4, up 13.9 points or 0.2%.
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Frankfurt: German shares rose. The Dax Index closed at 4628.83, up 26.43 points, or 0.6%.
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Tokyo: Japanese stocks closed moderately lower. The 225-share Nikkei
average closed at 16,613.89, down 176.82 points or 1.1%.
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Hong Kong: Stocks staged a strong rally to close at the day's high as the government's budget for 1998-99 boosted sentiment with proposals for personal tax allowances and a cut in corporate tax. The Hang Seng index closed at 10,670.95, up 438.92 points or 4.3%.
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Sydney: The Australian stock market ended slightly firmer after a late burst of strong company profit results was added to the Dow's record close. The all ordinaries index closed at 2,661.2, up 4.2 points or 0.2%.
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Cdn wages increase, inflation same in 1997
OTTAWA (CP) - Wages rose an average 1.6 per cent in 1997 in major collective agreements, the same as the average annual inflation rate, the Human Resources Department reported Wednesday.
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That was an increase from 0.9 per cent in both 1995 and 1996 when the inflation rate was 2.1 per cent and 1.6 per cent respectively.
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The 359 major settlements in 1997 covered 660,060 employees, the department said. Private-sector wage changes averaged 2.1 per cent compared with 1.2 per cent in the public sector.
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The private sector signed 151 agreements covering 303,025 employees; 357,035 employees were covered in 208 public-sector signings.
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Wholesale trade figures show economy reviving
By DAVID THOMAS -- Economics Reporter The Financial Post
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News yesterday of a large increase in wholesale trade in December provided more proof the economy roared back after a poor November.
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Wholesalers' sales soared 2.9% in December, Statistics Canada said. That jump is more than three times economists' average forecast of 0.9%.
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The sales numbers followed Monday's release of figures on manufactured goods shipments, which were also higher than expected.
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Both sets of figures point to a strong performance in the balance of trade, scheduled to be released this morning, said Avery Shenfeld, senior economist at CIBC Wood Gundy Securities Inc.
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The trade surplus is expected to widen from $1 billion in November to about $1.2 billion in December, according to forecasts by leading economists.
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Shenfeld expects the surplus will remain steady, but said "there's a chance it might be a bit better, given the manufacturing and wholesale trade figures we've seen this week."
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In the wholesale trade figures released yesterday, December's performance was led by an increase in sales of household goods, up 9.5%, and lumber and building materials, up 9%.
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Sales were up 17.6% from a year earlier and their value climbed to $25.7 billion from November's $24.9 billion. All figures are seasonally adjusted.
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The December numbers boosted wholesale sales in 1997 to $287.1 billion, up 13.1% - the biggest annual advance in 18 years - from $253.9 billion in 1996.
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For the year, autos and auto parts fared best in terms of sales growth, up 26.9%, while sales of lumber and building materials gained 19.5%.
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Both sectors benefited from buoyant consumer confidence and low interest rates, StatsCan said.
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If this week's trade figures add up to an improvement on December's trade surplus, the C$ is likely to get a boost, said many economists and currency traders. It gained US0.34› yesterday to close at US69.81›.
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Shenfeld said there might be some short-term fluctuation, but the C$ is unlikely to get much of a boost because the surplus needs to widen dramatically to remove the deficit in the current account.
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That measure includes the trade balance plus trade in services and investment flows.
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The current account deficit reached an annualized $25.5 billion in the third quarter of 1997. The fourth-quarter statistics, which will be released on March 2, are expected to show the 1997 deficit topped $30 billion.
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In the winter Bank of Canada Review released yesterday, the central bank said it estimates fourth-quarter gross domestic product grew by 3% to 3.5%.
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The report reiterated recent comments by governor Gordon Thiessen that the Asian financial crisis is likely to take a bite out of growth in 1998, but strength in the U.S. and Mexican economies would reduce the impact.
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Meanwhile, the U.S. economy is going through a bout of Asia-related disinflation, according to the producer price index. The PPI, which measures domestically produced goods, plunged 0.7% in January and was down 1.8% from a year earlier.
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"The downward trend indicates that the crisis in Asia is suppressing inflation in the U.S.," said Vincent L‚pine, a Montreal-based economist with L‚vesque Beaubien Geoffrion Inc.
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"Deflation has emerged at the wholesale price level," said Stan Shipley, senior economist at Merrill Lynch & Co.
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Central bank expects slower growth
OTTAWA (CP) - The Bank of Canada says it expects the fourth quarter of 1997 to show slower economic growth than expected.
The central bank also said Wednesday in its latest quarterly it is too early to tell what effect the Asian crisis and the January ice storm have had on the economy.
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But developments in Asia warrant a careful reassessment of the bank's growth projections, it said.
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The final quarter of 1997 can be expected to show annual growth between 3.0 per cent and 3.5 per cent when the gross domestic product for the last three months is reported by Statistics Canada.
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The central bank had been expecting growth of more than 4.0 per cent.
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The economy grew at the annual rate of 4.1 per cent in the third quarter of 1997 and at 5.4 per cent in the second quarter.
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The central bank said partial information about the fourth quarter shows the economy continued to grow at a solid pace.
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In addition, gains in full-time employment, retail and wholesale trade, auto sales and business investment have all been strong.
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But the bank said activity in new and resale housing remains soft and exports to Asia are declining.
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Also putting a drag on the economy were the Ontario teachers strike and the postal strike, both of which lasted two weeks.
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Those two disputes alone likely reduced growth in economic output by 0.8 per cent, the bank said.
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The bank said it will have a full assessment of the fallout from Asia in its next quarterly, published in May.
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The annual inflation rate has been below one per cent for two straight months. The bank said inflation is below expectations but it expects it to be back within its target range of 1.0 per cent to 3.0 per cent in the early part of 1998.
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RRSP savings rise
OTTAWA (CP) -- Changes to the Income Tax Act and growing concerns about how much retirement income people can expect from government prompted increased RRSP savings in 1996, Statistics Canada says.
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Annual contributions to the retirement plans rose to more than $26 billion in 1996 from $15 billion in 1991, a 74 per cent increase.
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During the same five-year period the number of contributors increased by 28 per cent to almost six million from 4.7 million, the agency said Wednesday.
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However the participation rate remained low, with 35 per cent of taxfilers making a contribution.
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The agency cited growing concerns about the future of the Canada and Quebec Pension Plans, the Old Age Security-Guaranteed Income Supplement programs and lower participation in employer registered pension plans as reasons more people got into RRSPs. And it noted that the growth in group RRSPs likely played a role in the increased numbers.
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Taxfilers in the two territories led the way in contributions in 1995.
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The average contribution was $4,632 in the Northwest Territories and $4,065 in Yukon. British Columbia topped the provinces at $3,875 and Ontario was next at $3,749.
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Pre-retirement withdrawals from RRSPs rose to $4.4 billion from $3.2 billion between 1991 and 1996. And the number of people making withdrawals rose to 851,000 from 604,000, with most the increase occurring in lean times between 1991 and 1994.
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The number of people with room to contribute to RRSPs increased by one third to 19 million from 1991 to 1997. And the amount of room grew nearly five-fold to $216 billion from $45 billion, the agency said.
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But the proportion of room used fell yearly between 1991 and 1995 and levelled off at 12 per cent in 1996. One reason for the standstill in 1996 was a reduction in the maximum contribution allowed to $13,500 from $14,500.
Taxfilers who use their RRSP room tend to be 45 to 64 and have an income of $40,000 or more, the agency said. A large proportion of unused RRSP room is held by those under 45 and people with low incomes.
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