MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 16, 1998 (1)
MARKET WATCH
Street Loses Its Momentum
Bay Street took a breath yesterday to contemplate interest rate concerns and a merger rumor between TD Bank and CIBC. Wall Street ended its winning ways as bank merger mania began to fizzle
Persistent bank merger rumors buoyed a sinking Toronto Stock Exchange. Revived takeover speculation sent the shares of Canadian Imperial Bank of Commerce and Toronto-Dominion Bank to records, offsetting concern that higher interest rates and sluggish Asian economies may crimp profit growth.
Speculation that Toronto Dominion, Canada's fifth-largest bank, will unite with Canadian Imperial Bank of Commerce, the second-largest, bolstered the financial services index while the TSE 300 composite lost 13.74 points to close at 7,803.91.
Toronto Dominion Bank shares rose by as much as $3.55 during the session before ending up $1.60 at $73.00. CIBC gained $1.70 to $58.10 as the financial services sector moved up about two-thirds of one per cent.
"When the financial services subindex closes up, that certainly helps the whole TSE 300," said Katherine Beattie, a technical analyst with Standard and Poor's MMS in Toronto.
TD and CIBC have consistently refused to discuss the merger rumors.
But TD chairman Charles Baillie said he was more open to a merger with another Canadian bank after last week's union proposed between American giants Citicorp and Travellers Group.
CIBC has been a subject of merger talk since January, when the Royal and Bank of Montreal announced their intention to wed.
The Toronto Stock Exchange 300 composite index fell 13.74 points, or 0.2%, to 7803.91 after seesawing between an 11-point gain and a loss of 53 points. Decliners outnumbered advancers 623 to 457 with 288 unchanged in trading of 130 million shares worth $2.63 billion. 134.6 million shares traded on Wednesday.
Only two of the 14 TSE index groups rose. Financial services gained 0.64 per cent and transportation was up 0.20 per cent.
The biggest decliner was communications, down 1.35 per cent, followed by paper and forest products, which fell 1.30 per cent, and real estate and construction, down 1.18 per cent.
The TSE 100 slipped 0.89 to 474.39.
TD Bank shares (td/tse) led the recovery of banks, surging $1.60 to $73, after touching an intraday record of $74.75. CIBC (cm/tse) rose $1.70 to $58.10 and Bank of Nova Scotia (bns/tse) climbed 40› to $43.05.
Royal Bank of Canada (ry/tse) fell 50› to $90.40 and Bank of Montreal (BMO/TSE) lost 40› to $85.
A threat of higher interest rates also hurt the shares in rate-sensitive utilities. BCE Inc. (bce/tse), Canada's largest telecommunications company, fell 5› to $59.05. Telus Corp. (t/tse) lost 45› to $42.80.
On Wednesday, Call-Net Enterprises Inc.'s unsolicited $1.79 billion cash, stock and assumed debt takeover bid for Fonorola Inc. boosted the TSE's utilities subindex to a record on speculation that the Canadian telephone sector is poised for a series of takeovers. The utilities subindex fell 23.09 points to 7805.76 yesterday.
Other Canadian markets also lost ground. The Montreal Exchange portfolio fell 8.02 points, or 0.2%, to 3939.85. The Vancouver Stock Exchange slipped 2.45 points, or 0.4%, to 631.77.
U.S. stocks fell for the first time in five days, led by banks and brokerages, as investors grew less confident that financial mergers are in the pipeline.
The Dow Jones industrial average fell 85.7 points, or 0.9%, to 9076.57.
About 702 million shares changed hands on the Big Board, up from 683.4 million shares traded on Wednesday.
The Standard & Poor's 500 index lost 11.15 points, or 1%, to 1108.17. The Nasdaq composite index declined 5.02 points, or 0.3%, to 1858.24.
J.P. Morgan & Co. (jpm/nyse) lost US$5 13/16 to US$142 7/8, accounting for more than a quarter of the Dow's decline.
Traders said comments by BankBoston Corp. and Merrill Lynch & Co. that they are not pursuing mergers hurt financial shares. BankBoston shares (bkb/nyse) fell US$2 3/4 to US$113, and Merrill Lynch (mer/nyse) lost US$2 11/16 to US$92.
Shares of Cendant Corp. collapsed after the direct marketer said it will restate earnings because of accounting irregularities.
Cendant shares (cd/nyse) plunged US$16 15/16 to US$19 1/16 in the busiest day for a New York Stock Exchange listed stock since 1988.
A flood of sell orders delayed trading on the exchange for more than 90 minutes.
Drug shares declined after Merck & Co. reported earnings of US95› a share, US2› short of analysts' estimates.
Merck, the largest U.S. pharmaceutical company, lost ground in the lucrative anti-cholesterol market to Lipitor, a drug made by Warner Lambert Co. and marketed by Pfizer Inc. Merck shares (mrk/nyse) fell US$4 1/8 to US$119 3/8. Warner Lambert (wla/nyse) lost US$1 15/16 to US$168 13/16. Pfizer (pfe/nyse) rose US$3 1/16 to US$100 9/16.
Excite Inc. shares (xcit/nasdaq) rose US$8 1/8 to US$91 1/8 as the market eagerly awaited the release of its first-quarter results.
After the market closed, the Internet directory company said it lost US$5.98 million, or US28› a share, in the first quarter, a big improvement on its loss of US$4.51 million (US38›) a year earlier. Revenue more than tripled to US$23 million from US$7.5 million.
Major international markets were mixed.
London: The British blue-chip index was weighed down by losses in banking shares. The FT-SE 100 index fell 72.1 points, or 1.2%, to 6002.
Frankfurt: The Dax index fell 64.33 points, or 1.2%, to 5324.14.
Tokyo: The Hang Seng index dropped 183.28 points, or 1.6%, to 11,187.78.
Hong Kong: The fall in the Japanese yen after a meeting of G7 nations in Washington accelerated selling. The 225-share Nikkei average slumped 415.53 points, or 2.6%, to 15,883.77.
Sydney: The Australian stock market notched up its third consecutive day of record highs. The all ordinaries index rose 10.9 points, or 0.4%, to 2881.4.
FRIDAY MORNING EUROPE MARKET ACTIVITY
Focus-Euro Shares Extend Falls,dlr Slips off Perch
LONDON, April 17, (Reuters) - European bourses extended their losses on Friday, taking their cue from Wall Street's overnight retreat, dollar weakness and further losses in key Asian markets.
The dollar was knocked off its perch against the yen on fears of fresh Bank of Japan intervention and a denial from U.S. rating agency Standard & Poor's of a market rumour that it was considering a negative rating action against Japan.
In London, Europe's biggest share market, the FTSE 100 index tumbled by more than one percent to 5,939.2 in volatile trade at the session's start, spooked by the expiry of April index options.
"I think we are going to see a few wild movements as the derivatives boys move in," said one trader. At 0930 GMT, the index was down 1.16 percent at 5932.6.
European shares were expected to consolidate further in the wake of a 85.70 point drop in the Dow Jones Industrial Average on Thursday, which was overshadowed by a crash in Cendant Corp's share price on news of a possible accounting fraud.
Growing pessimism over the limited clout expected from Japan's forthcoming economic stimulus measures helped send the 225-share Nikkei average down 1.13 percent and the Hang Seng Index down 1.67 percent on Friday.
Details of the 16 trillion yen ($121 billion) package will be announced next week, but calls this week from G7 finance chiefs for bolder action appear to have fallen on deaf ears, analysts said.
"I'm afraid that the ruling party and the prime minister have not yet realised that if you liberalise capital flows and deregulate financial markets, it is the government that will be tested in its economic management, not just the banks," said Takashi Kiuchi, a senior executive research fellow at LTCB Research Institute.
The dollar slipped off overnight highs above 132 yen in early European trade, retreating after remarks from Eisuke Sakakibara, one of Japan's top international monetary policy officials, suggested the BOJ could intervene.
"I have grave concern over the recent development on the exchange rate market," Sakakibara, Japan's vice finance minister for international affairs, told reporters at a meeting of the International Monetary Fund in Washington.
At 0920 GMT, the dollar stood at 131.46 yen, compared to an overnight high of 132.18 and 131.72/82 in late European trading on Thursday. The dollar slipped to 1.7997 marks from Thursday's 1.8085.
"The dollar does look offered at 132 and obviously that (intervention) is at the backs of people's minds," said Nick Probert, head of spot trading at Bank of America.
The yen was also helped by U.S. rating agency S&P's denial of a rumour that it was considering a negative rating action against Japan.
German shares fell in light trading early on Friday, with the Xetra DAX electronic index down 1.12 percent at 5264.28. Traders said a correction was long overdue in the wake of this week's early record-breaking gains.
"We could go a bit lower because of a weaker dollar and a fall on Wall Street," said one.
The sluggish dollar dragged German export stocks lower. German software manufacturer SAP AG's preferred shares -- which had gained on the back of firm first quarter results on Tuesday -- slid 17.5 marks to 855 marks.
In France, the CAC-40 index was down 33.36 points, or 0.87 percent, at 3,812.58 at 0930 GMT. French bank stocks, which have seen meteoric rises over the past six months, led the retreat, with BNP down 3.56 percent, Societe Generale down 2.75 percent and CCF 2.96 percent weaker by 0849 GMT.
"We're falling after Wall Street, and the main losers are the stocks which added the most weight recently," said one trader.
French microchip maker SGS Thomson bucked the trend, rising almost four percent, after announcing overnight that first quarter profits were steady and revenues up.
Computer services and consultancy group Cap Gemini also gained against the grain for a second day running on the back of a 30 percent rise in first quarter sales to 5.85 billion francs.
MARKETS AT 0941 GMT
CURRENCIES (bracketed figures previous London close)
Dollar/mark 1.7989 marks (1.8076)
Dollar/yen 131.55 yen (131.7850)
STOCK MARKETS
LONDON - FTSE 100: 5943.0 points, down 59 or 0.98 percent
FRANKFURT - Xetra DAX: 5268.71 points, down 24.26, or 0.46 percent
PARIS - CAC-40: 3814.48 points, down 31.46, or 0.82 percent PRECIOUS
METALS (figures in brackets previous London PM fix) Gold - $308.4 per ounce ($306.30) Silver - $6.28 ($6.24)
BRENT CRUDE OIL futures $14.68, up $0.04
Canadian Dollar Bounces To $69.77 After Rough Week
The wobbly Canadian dollar battled back a little Thursday amid rumors that a robust trade report due out today could trigger a rise in interest rates.
The loonie lost almost a half cent on Monday and has remained stuck below 70 cents US since then. But it showed some signs of life Thursday, gaining 0.26 of a cent to close at 69.77 as the markets buzzed about whether the Bank of Canada will move to slow economic growth.
The central bank is no longer in the business of using rate hikes to prop up the currency, said Katherine Beattie, an analyst at Standard and Poor's MMS in Toronto.
"I don't think (the dollar) is going very far in either direction unless the bank does raise rates, and we're not looking for that," Beattie said.
"There is no fundamental reason why the Bank of Canada would raise rates except to support the dollar, and they've made it clear that that's not their chief aim."
The bank is focused on keeping inflation in check and there's little evidence that prices will rise any time soon.
But traders are hoping today's international trade report will show the economy is growing at a robust pace, prompting the central bank to boost its benchmark rate.
Standard and Poor's is calling for a healthy $1.9-billion trade surplus for the month of February, which would suggest the demand for dollars is on the rise.
Still, the dollar's fate may be swayed by less logical sources, said Beattie.
"The thing with the Canadian dollar, if it doesn't start improving, people seem to like selling it a lot more than they like buying it," she said.
On Wednesday, the loonie closed at 69.51 cents US, down 0.26 of a cent
from Tuesday's close. At one point, it slipped as low as 69.46, two-thirds of a cent less than what it was worth in the U.S. last Friday.
The shaky currency shocked the financial markets Monday when it shed 0.46 of a cent to close at 69.66 cents US. Before this week, the last time the dollar sank below 70 cents US was Feb. 17.
"There's really no good reason for the one-cent selloff in the last six days," Beattie said.
The 140-year-old currency reached its all-time closing low - 68.25 cents US - in January.
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