MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 13, 1998 (1)
MARKET WATCH
Bay Street rose to its 11th record of the year as the Toronto Stock Exchange financial services subindex broke through 10,000 for the first time. The Canadian $ loses ground. Bank merger mania spurred Wall Street stocks higher.
Canadian and U.S. stocks advanced on a series of U.S. bank mergers and acquisitions.
The news spurred speculation that major Canadian banks also will be consolidated.
The Toronto Stock Exchange 300 composite index rose 34.78 points, or 0.5%, to a record 7655.42.
"Usually, the Canadian dollar selling off is a weight on financial stocks," said Katherine Beattie, analyst with Standard and Poor's MMS in Toronto.
"But the financial sector did really well. Had we not had that bounce there, (the overall TSE index) would have been down."
There were no fundamental economic reasons for the dollar's slide in thin Easter Monday trading. However, some analysts said currency traders have been disappointed that the Bank of Canada has not raised interest rates.
Beattie said the financial sector would likely be subject to profit taking Tuesday. "That's typical after a day based on speculative activity. It's not as if the banks announced greatearnings or anything like that."
Nine of the 14 TSE index groups were lower Monday.
The gold and precious mineral stock group gained 0.67 per cent as the spot price of bullion gained $2.80 US to $310.80 US in New York. Barrick Gold climbed 50 cents to $32.25; Euro-Nevada slipped 55 cents to $25.40.
The TSE communications group gained 0.49 per cent.
Consumer-products issues lost 1.60 per cent; the transportation index shed 1.00 per cent.
Advancers outnumbered decliners 528 to 493 with 274 unchanged in trading of 83.9 million shares worth $1.6 billion.
Hummingbird gained $5.00 to $54.75, Livent $3.60 to $14.75; BioChem Pharma lost $2.25 to $32.00.
Gains by Canada's five largest banks contributed 46 points to the benchmark's advance.
The TSE's financial services subindex climbed 287.56 points, or 2.9%, to a 52-week high of 10,277.38 - the first time the subgroup has closed at more than 10,000.
About 84.5 million shares changed hands on the TSE, down from 115.4 million shares traded on Thursday.
Banks gained after NationsBank Corp. and BankAmerica Corp. agreed to create the largest U.S. bank with assets of US$570 billion, only a week after Citicorp and Travelers Group Inc. said they would link top form the world's largest financial company.
Banc One Corp. also said it would acquire First Chicago NBD Corp.
"Between mergers and U.S. brokerage profits, banks are the only momentum area of the market," said Fred Ketchen, senior trader at ScotiaMcLeod Inc.
Toronto-Dominion Bank (td/tse) rose $2.85 to $68.25, Canadian Imperial Bank of Commerce (cm/tse) advanced $2.10 to $53.50 and Royal Bank of Canada (ry/tse) jumped $2.10 to $89.10 - all record highs.
Other gainers included Livent Inc. and Inter-Tech Drilling Solutions Ltd.
Livent (liv/tse) jumped $3.60 to $14.75, a gain of 32%, after the theater production company said former Walt Disney Co. president Michael Ovitz would invest US$20 million to buy 2.5 million shares of the firm and control 36% of its voting stock.
Inter-Tech (idl/tse) climbed 51› to $2.04 after Precision Drilling Corp. agreed to buy the oilfield services company for $2.10 a share.
Broader gains were limited, with many investors lacking confidence that company earnings will meet expectations.
In the next two weeks Alcan Aluminium Ltd., Falconbridge Ltd., Sears Canada Inc., Avenor Inc., Bombardier Inc., Northern Telecom Inc. and BCE Inc. will report quarterly profits.
Other Canadian markets were mixed.
The Montreal Exchange portfolio rose 25.66 points, or 0.7% to 3865.54. The Vancouver Stock Exchange lost 0.31 of a point to 637.69.
The Dow Jones industrial average advanced 17.44 points, or 0.2%, to 9012.3. J.P. Morgan & Co. (jpm/nyse), the biggest gainer among Dow stocks, soared US$7 1/16 to US$47 5/8.
The Standard & Poor's 500 index fell 0.98 of a point to 1109.69.
The Nasdaq Composite Index rose 4.71 points, or 0.3%, to 1824.95.
About 569.5 million shares changed hands on the Big Board, up from 551.6 million shares traded on Thursday.
NationsBank (nb/nyse) led the charge of the big banks, jumping US$4 7/16 to US$80 7/8, after it and BankAmerica agreed to a $63-billion marriage - the biggest bank merger in history. BankAmerica (bac/nyse) rose US$4 1/2 to US$91 1/8.
First Chicago (fcn/nyse) climbed US$2 5/16 to US$96 1/4 after it said it would link with Banc One in a $30-billion stock swap. Banc One (one/nyse) was unchanged at US$61 3/4.
Other financial issues gained on speculation that they might be next to merge.
Chase Manhattan Corp. (cmb/nyse) gained US$41 5/16 to US$146 9/16, Bankers Trust New York Corp. (bt/nyse) rose US$5 3/16 to US$133 11/16 and Wells Fargo Corp. (wfc/nyse) jumped US$18 5/8 to US$370 3/4.
Shares of K-tel International Inc. (ktel/nasdaq) soared US$8 5/16 to US$14 15/16 after the marketer of recorded music said it will introduce an online music sales service on May 1 called K-tel Express, which will offer more than 250,000 music titles to shoppers on the Internet.
Other Internet business firms gained, too.
DoubleClick Inc. (dclk/nasdaq) soared US$51 5/16 to US$46 15/16 after the Internet advertising company's chief executive, Kevin O'Connor, said on CNBC television that the firm would be profitable next year.
Most overseas markets were closed for an Easter holiday.
Tokyo: Japanese shares finished lower in thin trading as investors showed caution in the absence of further details of the government's economic stimulus package. The 225-share Nikkei average fell 163.54 points, or 1%, to 16,317.58.
Market Caught Off Guard By C$'s Drop
The Financial Post
The C$ tumbled nearly half a cent yesterday, falling back below the US70› level for the first time since mid-February.
The Bank of Canada was forced to intervene in currency markets, selling its US$ reserves and buying C$s in order to minimize the slide, which analysts said was accelerated by thin holiday trading flows.
The C$ closed at US69.66›, down US0.46› in its largest one-day decline in five months.
"The C$'s bucket has once again sprung a leak," said David Ebata, senior Canadian analyst at Boston based Technical Data.
The C$ had been trading steadily lower in recent weeks after receiving a boost last month from the prospect of a Quebec Liberal party victory with Jean Charest replacing Daniel Johnson at the party's helm.
The C$ hit its 1998 high on March 11, when Johnson announced his resignation and Charest became the top candidate. But the currency has fallen back, even after Charest decided to run for the top job.
"This totally caught the market off guard," one trader said of the C$ fall.
Now the Charest factor has dissipated, attention may have returned to some of the negative factors weighing on the C$ for months, said Avery Shenfeld, senior economist at CIBC Wood Gundy Securities Inc.
With the current account deficit growing, Canada must get foreign capital to fund the shortfall and the difference between Canadian and U.S. rates is bad for the C$, he said.
Lower yields on Canadian bonds make C$-denominated securities less attractive than higher yield fixed income investments in the U.S.
Analysts said some traders may be preparing to test the Bank of Canada's resolve again, after getting the bank on the defensive during a 5% slide in the C$ between September and February.
In that period, the bank raised its benchmark overnight lending rate from 3.5% to 5%. The corresponding U.S. federal funds rate is still half a percentage point higher at 5.5%.
Asian Fallout 'Will Reduce' Economic Growth By 25%
The Financial Post
The Asian crisis is set to reduce the rate of global economic expansion by a quarter in 1998, but the fallout will be "relatively mild" when compared with other major shocks of the past three decades, the International Monetary Fund says in its latest World Economic Outlook.
The semi-annual report, made public yesterday, also discounted talk that deflation will prove a real threat, with booming domestic demand in most industrialized countries providing enough momentum to offset weaker commodity prices.
Asia's financial crisis will slash global gross domestic product by one percentage point to 3.1%, the IMF said.
The damage to major industrial economies "is expected to be modest" compared with the effects of the Arab oil embargo of 1974-75, the sovereign debt crisis of 1980-83 and oil market shocks in 1990-91 related to Iraq's invasion of Kuwait.
While the estimated hit to global output is twice the size of the IMF's earlier forecast, released in December, the picture is starting to clear.
"The financial turmoil in Asia that erupted in mid-1997 has abated since January and markets have partially recovered from their troughs," the IMF said.
It echoed some of the comments made by U.S. Federal Reserve chairman Alan Greenspan when it forecast the slowdown in
Asia would have a positive effect on major economies by throwing some cold water on red-hot growth.
"On balance, the Asian crisis is likely to exert a moderate contractionary and disinflationary effect on the industrial ... economies, thus reducing the risk of overheating in those countries operating at high levels of resource utilization, in particular the United States."
Some economists warn a recent slide in commodity prices is leading the way to widespread deflation, with prices falling in most sectors.
However, the report said deflation "doesn't seem to be a major risk" and would be held at bay by strong consumer and industrial demand.
The near-term outlook for commodity prices remains cloudy but there were signs prices were bottoming, it added.
"On the basis of futures and forward market prices and other information, the projected level of non-fuel commodity prices for ... 1998 is about 3% above the current level."
Since mid-1997, prices of primary commodities have fallen by more than 10%. The crisis brought higher import costs resulting from devalued national currencies, less credit to finance imports and sharp reductions in demand.
World copper prices plunged 33% between June 1997 and January 1998, mostly because of falling demand in Asia. Timber prices were off 24%, nickel 20%, zinc 16%, hides 15% and soybean meal 11%.
Junior Capital Pools Remain Hot On Alberta Exchange
The Financial Post
Last year's junior capital pool frenzy on the Alberta Stock Exchange hasn't slowed, the exchange says in its first quarter activity report.
Of the 45 new companies on the ASE in the first three months of 1998, 34 were junior capital pools, compared with 24 in the same period last year. They bring the total number of pools to 174, 17% of the exchange's listings.
Tim Daly, vice-president of market surveillance, said yesterday the program is attracting more small companies from outside Alberta. "It's a really good program [by which] to go public."
Bruce Ramsay, president of Acumen Capital Finance Partners Ltd., said interest in the pools is also gaining popularity among a new breed of company, such as real estate firm Torode Realty Ltd. The Calgary based firm, which went public using the vehicle, announced a major transaction and raised $3 million in a private placement in a brief period.
What was once a blind pool is evolving into a "visually challenged pool," said Ramsay, with more companies revealing plans for a transaction ahead of time.
The 12-year-old junior capital pool structure allows smaller companies to raise up to $300,000.
Mike Hill, a Calgary analyst with Acumen Capital, said that despite its successes, the program also allows companies to raise just enough money to get them in trouble, as amounts are frequently not enough to help execute a business plan.
Because of the cap on financing, the program is also subject to abuse as a vehicle for stock promotion, say other industry observers.
"What companies get out of a JCP is the listing, not the capital," said Ramsay.
At March 31, the ASE had 1,020 listings, up from 889 a year ago.
In the first quarter, trading activity, in terms of volume, value and number of trades, was down from the record levels of last year, but picked up toward the end of the period. Volume fell 29% to 848 million, with a value of $645 million, down 53%.
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