MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, APRIL 7, 1998 (1)
GENERAL MARKET ACTIVITY
Nortel and Newbridge lead Bay Street lower on renewed Asian fears Wall Street retreated as battered Motorola led a decline in tech stocks and banks shed gains made after merger news Monday.
The Toronto Stock Exchange 300 composite index fell 66.02 points, or 0.9%, to 7579.79, its steepest slide since a 1.7% loss on Jan. 22.
About 116.7 million shares changed hands on the TSE, down from 134.1 million shares traded on Monday.
Northern Telecom Ltd. (ntl/tse) fell $3.30 to $85.70, Newbridge Networks Corp. (nnc/tse) slid $1.95 to $35.10 and BCE Ltd. (bce/tse), which owns 51.7% of Nortel, fell 90› to $57.
"There is a lot of concern that earnings in the high-tech sector may be potentially savaged this year because of slowing exports to Asia," said Ross Healy, president of Strategic Analysis Corp.
Nortel attributed 7% of sales to Asia in 1997, while Newbridge reported 18% of sales to the region. Motorola blamed Asian weakness for its earnings woes.
Toronto Dominion Bank (td/tse) climbed $1.10 to $64.50, helped by comments from chairman Charles Baillie, who told the Financial Post he was more open to a merger with another Canadian bank after the Citicorp-Travelers merger news.
Bank of Montreal (bmo/tse) rose $1.75 to $79.05, Canadian Imperial Bank of Commerce (cm/tse) climbed $1.05 to $51.60 and Royal Bank of Canada (ry/tse) gained 30› to $85.60.
Bank of Nova Scotia (BNS/TSE) rose to a record $39.50 intraday before ending 10› lower at $38.90.
Other Canadian markets fell.
The Montreal Exchange portfolio fell 31.01 points, or 0.8%, to 3825.44.
The Vancouver Stock Exchange fell 6.56 points, or 1%, to 637.31.
U.S. stocks suffered their worst decline in a month and Canadian stocks posted their biggest one-day loss in 10 weeks, as Motorola Inc. lowered its estimate for semiconductor sales.
Motorola reported an unexpected drop in its first-quarter earnings after the market closed Monday, raising concern that some of North America's biggest high-tech companies may report lower profits.
"Motorola took the wind from the sails of all tech-stocks," said Conor Bill, director, private client equity trading at ScotiaMcLeod Inc. "And that caused nervousness across the board."
The Dow Jones industrial average fell 76.73 points, or 0.9%, to 8956.5. On Monday, the benchmark closed above 9000 for the first time.
The Standard & Poor's 500 index lost 11.84 points, or 1.1%, to 1109.55.
The Nasdaq composite index fell 30.43 points, or 1.7%, to 1798.71.
About 670.6 million shares changed hands on the Big Board, up from 628.4 million shares traded on Monday.
Motorola (MOT/nySE) tumbled US$6 3/8, or 11%, to US$53 1/2. Intel Corp. (INTC/NASDAQ) fell US$1 1/4 to US$72 5/8 and Microsoft Corp. (msft/nasdaq) lost US$2 11/16 to US$87 1/4.
Citicorp and Travelers Group Inc. lost ground, one day after their merger news sent the shares soaring.
Citicorp (cci/nyse) tumbled US$16 11/16 to US$165 1/8, giving up more than a third of Monday's US$37 5/8 gain. Travelers (trv/nyse) fell US$4 5/8 to US$63 3/8, after jumping US$11 5/16 Monday. J.P. Morgan & Co. (JPM/NYSE) slipped US$4 13/16 to US$139 15/16.
However, not all U.S. financial companies lost ground.
Beneficial Corp. (bnl/nyse) gained US$7 7/16 to US$137 15/16 after Household International Inc. agreed to buy the company for about US$8.15 billion, or US$150 a share. Household (hi/nyse) lost US$6 to US$140 3/4.
Green Tree Financial Corp. (gnt/nyse) soared US$10 to US$39 after Conseco Inc. said it would pay US$7.6 billion in stock for the mobile-home mortgage company. Conseco (cnc/nyse) dropped US$8 3/8 to US$49 3/8.
Xerox Corp. (xrx/nyse) climbed to a record US$112 7/8 intraday after it said it would cut about 9000 jobs worldwide, but the stock closed down US$15/16 at US$106 13/16.
Major international markets were mixed.
London: British shares were lower after four consecutive record highs. The FT-SE 100 index lost 11.8 points, or 0.2%, to 6094.
Frankfurt: The Dax index rose 85.4 points, or 1.6%, to 5357.05.
Tokyo: Japanese shares rose on expectations that the government may make bold moves to revive the economy. The 225-share Nikkei average climbed 272.73 points, or 1.7%, to 15,978.72.
Hong Kong: The Hang Seng index lost 3.25 points to close at 11,049.43.
Sydney: Australian stocks failed to hold on to intraday record highs. The all ordinaries index lost 0.8 of a point to close at 2794.8.
OIL & GAS
No Quick Respite For OPEC From Oil Price Pain
LONDON, April 7 - OPEC producers faced further disappointment on Tuesday as oil markets took another bite from price gains established in the wake of the Riyadh accord.
Benchmark Brent blend for May loading lost 17 cents a barrel by 1600 GMT to trade at $13.70 a barrel.
The crude has slumped quickly from a recent peak of $15.82 in the week after the end-March announcement that producers were clubbing together in a bid to erase unwanted supplies from a glutted market.
Producers have seen Brent average a disastrous $4.50 a barrel less so far this year than in 1997, cutting export earnings for OPEC member countries by some $8 billion in the first quarter of 1998.
Dealers blame uncertainty over the likely impact of the oil producers' pact which on paper should extract 1.5 million barrels a day (bpd) from the 75 million barrel daily world market.
Traders have still to see firm evidence of the reductions which came into effect on April 1, led by a 1.25 million bpd reduction by Organisation of the Petroleum Exporting Countries members.
''There's still some suspicion about exactly how it will be done by individual countries and for the time being storage tanks remain bung full,'' said a trader in London.
''The market is pretty weak because basically, there is too much crude out there and this is creating pressure,'' said Jim Ritterbusch at Chicago's Sweeney Oil.
Oil exporters outside the cartel have pledged an additional 400,000 bpd of cuts led by Mexico and Norway and helped by surprise cooperation from China announced on Friday.
Signs that competition among the world's biggest oil exporters remains tough came on Tuesday from Saudi Arabia's announcement of another round of price cuts to its key U.S. customers.
The battle for market share between Saudi Arabia and its Latin American rivals has taken Saudi discounts versus benchmark grades to record levels for U.S. refinery buyers.
Rising UN-monitored Iraqi oil exports also are counteracting the impact of the Riyadh cuts.
Baghdad exported an average of 1.31 million bpd in March, up 200,000 bpd from February. Shippers say April exports are expected to top 1.4 million bpd for record post-Gulf War supplies from the sanctions-bound Middle East producer.
NYMEX Crude, Products End Lower Ahead Of APIs
NEW YORK, April 7 - NYMEX crude futures chalked up more losses on Tuesday as traders paused to get a sense of direction from the American Petroleum Institute's weekly inventory data.
Weakness in crude futures that began Monday continued throughout the day and the effects spilled over to refined products.
May crude settled at $15.22 a barrel, down 23 cents, trading off the day's low of $15.17 as traders fretted over the lack of news from producers who pledged to cut their output as a way to boost prices.
Heating oil for May delivery settled at 42.46 cents a gallon, off 0.37 cent while prompt gasoline lost 0.17 cent at 49.58 cents a gallon.
The crude oversupply remained the main concern of traders and analysts, who kept harping at the need for more evidence from producers to show that those countries are indeed adhering to their promise to cut their outputs.
''But these promises of cuts takes time to manifest themselves in the system,'' said ARB Oil's Gerald Samuels, who appeared resigned to the market moving sideways for some time.
There have been no ''real news'' and ''fresh fundamentals'' coming into play, accounting for the market's drifting lower in the past two days, Samuels said.
''The market may drop further if API's figures are bearish,'' he added, noting that analysts see the market heading at the $14.80-$15.00 range.
As for gasoline, which in previous years seasonally led the market at this time, ''we have not seen good demand,'' thus far, he said, as the summer driving season is still a few months away.
"This makes the market vulnerable at this time," he said.
Other traders agree that the market may be headed down some more before it finds any opportunity to rally, unless some positive, significant fundamental news develops.
''We feel the market is near the bottom, but we don't think it is reaching for new lows,'' said Sam Weaver, a trader for Atlanta-based GSC Energy.
''The market may have a little bit more to go downside, before it hits support levels,'' he said.
A poll showed that analysts and traders forecast a build of 2.0 million barrels in crude in the API data for the week ending April 3.
The poll also showed draws of 1.0 million barrels and 2.0 million barrels in distillates and gasoline, respectively. It also shows a consensus of 0.4 percent rise in refinery utilization.
NYMEX crude peaked at $23.15 in early October but has fallen since then following OPEC's increase in its official production quota by 10 percent to 27.5 million barrels per day, the weakening of demand from troubled Asian economies, the mild winter in the western hemisphere and increases in oil exports from Iraq.
Three weeks ago, NYMEX crude hit a nine-year low of $12.80, prompting oil producers led by Saudi Arabia, Venezuela and non-OPEC member Mexico to craft an agreement to cut oil production by 1.5 million barrels per day.
US Cash Crudes - Light Louisiana Sweet Weakens
NEW YORK, April 7 - U.S. cash crudes continued their slow price slide on Tuesday as traders spoke of an oversupplied domestic crude oil market.
And there's little chance of a quick rebound because high volumes of foreign crude coming into the U.S. Gulf Coast, traders and brokers said.
Light Louisiana Sweet/St. James on Tuesday slipped to less than 70 cents below West Texas Intermediate/Cushing. LLS began the day trading at 69 cents below WTI/Cushing but then pushed to 70, 71 and finally 72 cents below the U.S. cash crude benchmark WTI/Cushing.
Some traders blamed lower LLS differentials on the weakness of Dated Brent. Dated Brent for delivery April 13-15 was done on Tuesday at $1.00 below the May Brent futures contract. This was eight cents weaker than the last cash Brent deal done on Friday.
''With Dated Brent at a dollar under, that's going to push down the domestic grades,'' said a Houston-based trader.
On Tuesday afternoon, the American Petroleum Institute reported that U.S. crude stocks fell 415,000 barrels for the week ending April 3.
Immediate reaction from analysts was that the statistics will have little impact on the crude oil futures market.
However, before the statistics were released, traders had been told to expect a two-million-barrel build in crude oil stocks, not a 0.4-million-barrel decrease.
At 1735 EST/2235 GMT, the NYMEX access trading showed front-month crude up 12 cents to $15.34 per barrel.
The NYMEX May crude contract closed Tuesday down 23 cents to $15.22 per barrel.
With the exchange-for-physicals (EFP) premium added for those who wish to be assurred of domestic crude deliveries, WTI/Cushing was talked in a range of $15.30 to $15.35 after the close of NYMEX.
EFPs were talked at a eight- to 10-cent premium.
The May/June spread widened to about 35 cents, which caused WTI/Cushing postings-plus to come in a couple of cents. Postings-plus was done Tuesday at WTI/Cushing plus $1.96 and $1.97.
West Texas Sour/Midland remained weak, but differentials were unchanged. Traders and brokers said there is simply too much sour crude on the market for WTS to firm.
WTS/Midland was done Tuesday at WTI/Cushing minus $2.34 and $2.32.
June-delivery WTS/Midland was done at WTI/Cushing -$2.14 and -$2.13.
On the back of WTS weakness, Heavy Louisiana Sweet/Empire lost about four cents in differentials to WTI/Cushing minus $1.29/-$1.24. HLS was reported done at -$1.28/-$1.27.
West Texas Intermediate/Midland was unchanged and talked at a -39 cents bid and a -37 cents offer. It was done often on Tuesday at -38 cents.
Offshore sour crude Eugene Island was at -$2.14/-2.09 to WTI/Cushing and done at -$2.13 and -$2.12.
NYMEX Natural Gas Ends Up Sharply, Most Hit New Highs
NEW YORK, April 7 - NYMEX Hub natural gas futures ended up sharply Tuesday in an active session, with technical buying and short covering driving most months to new highs despite a lagging cash market, industry sources said.
May rallied 13.3 cents to close at $2.668 per million British thermal units after setting a new contract high of $2.675. June, which also hit a new benchmark of $2.695, settled 12.8 cents higher at $2.694. Other months ended up 5.5 to 11.9 cents, with most also hitting new highs.
''You've got to shake your head, but when they couldn't take it down early, the locals bought it and then the shorts started to cover,'' said one Midwest trader, noting buy stops were hit when May broke above its previous contract high of $2.605.
Despite the mild weather this week and ample storage, traders said bullish technicals and concerns about dwindling coal stocks ahead of the peak-demand, summer air conditioning season should limit pullbacks for a while.
Estimates for Wednesday's weekly AGA gas storage report range from a draw of 12 bcf to a build of 50 bcf. For the same week last year, stocks gained 21 bcf. Overall stocks are still 175 bcf, or 21 percent, above year-ago.
Forecasts this week still call for slightly below-normal temperatures in the East before moderating to normal or slightly above by early next week. Texas is expected to remain several degrees F above normal for the period, while the Midcontinent should warm from slightly below normal to as much as 15 degrees above later in the week.
On the technical side, traders said May's strong close today will likely lead to another leg up, possibly to the low-$2.80s, despite an overbought RSI near 80. Resistance was now seen at today's high of $2.675, which also roughly corresponds to a measurement objective from the previous leg up. Further selling should emerge at $2.812, a prominent spot continuation high from December.
Interim May support lies at $2.605 and $2.46, both previous contract highs, with further support seen at the $2.33 double bottom. Major buying was expected at the $2.135 recent low.
In the cash Tuesday, Gulf Coast swing quotes slipped a few cents early, then climbed a penny or so later to about the $2.50 level. Midcon pipes mostly held steady in the high-$2.30s. Chicago city gate gas firmed two cents to the high-$2.50s, while New York was down three cents to the low-$2.70s.
The NYMEX 12-month Henry Hub strip jumped 9.8 cents to $2.703. NYMEX estimated volumes were not available at 1615 EDT, but total trade was in excess of 74,000 lots, up sharply from Monday's revised tally of 30,402.
NYMEX will be closed Friday for the Good Friday holiday.
US Spot Natural Gas Prices Remain Firm In Active Trade
NEW YORK, April 7 - U.S. spot natural gas prices lingered in recent ranges Tuesday, with some higher-priced deals surfacing late in conjunction with a futures rally, traders said.
Henry Hub swing gas traded at $2.47-2.54, little changed from $2.49-2.52 on Monday. NYMEX's May contract, however, was stretched 13 cents higher to a new level at $2.665.
In the Midcontinent, prices also remained steady at $2.38-2.39, with Chicago city-gate values seen a little firmer in the high-$2.50s.
In the West, where temperatures still hovered below normal, southern California border prices eased one cent to $2.47-2.49. Permian Basin prices were also a tad lower at $2.27-2.28, while San Juan prices were talked mostly at $2.16.
In the Northeast, New York city-gate prices retreated a few cents to about $2.73, while Appalachian values on Columbia were quoted again at $2.65.
Adding more supply to the Northeast market was the return of some nuclear generation. GPU Nuclear's 620 MW Oyster Creek unit, shut Sunday while in the process of restarting from a maintenance outage, was beginning to restart again this morning.
But remaining off line was PP&L Resources' 1,094 MW Susquehanna 2 unit, which was shut Sunday to repair a leak. The unit is expected to return to service later this week.
Also, PECO Energy's 1,055 MW Limerick 1 unit in Pennsylvania and Baltimore Gas & Electric's 850 MW Calvert Cliffs unit 1 in Maryland were both off line for refueling.
Forecasts are calling for slightly below-normal temperatures in the East through this week before moderating to slightly above normal by Monday. Cooler-than-normal weather is also continuing in the West, while above-normal temperatures are expected to cover most of the southern plains and parts of the Midwest into next week.
Separately, estimates for tomorrow's American Gas Association storage report were a draw of 12 bcf to a build of 28 bcf.
Canada Spot Natural Gas Still Supported By Tight Supply
NEW YORK, April 7 - Canadian spot natural gas prices firmed in Alberta but softened at the export points, industry sources said Tuesday.
Spot gas at the AECO storage hub in Alberta was quoted at C$2.22-2.24 per gigajoule (GJ) from about C$2.19-2.20 on Monday. Winter business was also reported done higher at C$2.68 from Monday's quotes at C$2.57-2.60, while one-year prices moved up to about C$2.40 per GJ.
About 150 million cubic feet per day (mmcfd) of gas was injected into western storage on Monday following a few days of withdrawals, one Calgary-based trader said.
Also leading forward markets higher, traders said, was news that NOVA Gas Transmission may be short supply this summer by about 400-500 million cubic feet per day.
In the export markets, prices at Sumas, Wash., slipped two cents to about US$1.78-1.80 per million British thermal units (mmBtu).
In the east, Niagara prices also softened by about one cent to US$2.64-2.65 per mmBtu in tandem with weaker New York city-gate values.
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