MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING THURS., MAY 21 1998 (1)
MARKET FOCUS
Canada
Seagram Co. led Canadian stocks higher after it announced the purchase of PolyGram NV for US$10.6 billion.
The Toronto Stock Exchange 300 composite index rose 22.83 points, or 0.3%, to 7718.23. Seagram was the single biggest contributor to the index, adding 13.3 points to the advance.
About 106 million shares changed hands on the TSE, up from 100.2 million shares traded on Wednesday.
Seagram shares (vo/tse) rose $4.75 to a record high $64.10. PolyGram is 75% owned by Royal Philips Electronics NV, Europe's biggest electronics company. In New York, Seagram stock (vo/nyse) was the S&P 500's biggest gainer, climbing US$31 1/82 to US$441 1/82.
The entertainment and liquor company said it will spin off its Tropicana juice unit in an initial public offering that the company expects will generate as much as US$4 billion.
Rogers Communications Inc.'s class B shares were the most active issue in Toronto, with more than 4.9 million shares changing hands, almost seven times the three-month daily average. Rogers shares (rcib/tse) rose $1.05 to a record high of $11.90. The stock was raised to "buy" from "accumulate" by analyst Glen Campbell of Merrill Lynch & Co.
MetroNet Communications Corp. said Wednesday it will buy Rogers Telecom, a wholly owned subsidiary of Rogers, for cash and stock valued at $1 billion. MetroNet class B shares (mncb/tse) rose 80› to $39.80.
Canada's banks also were shouldered higher. Bank of Nova Scotia (bns/tse) rose 45› to $39.15, Royal Bank of Canada (ry/tse) jumped $1.25 to $88.25 and Bank of Montreal (bmo/tse) rose 90› to $79.10.
Newbridge Networks Corp. (nnc/tse) fell $1.60 to $40.60 and Northern Telecom Ltd. (ntl/tse) lost 65› to $98.20 to cap the index's advance. Early in the session, Nortel touched a record high of $100.25.
BCE Inc. (bce/tse), which owns a 51.7% stake in Nortel, rose to a record intraday high of $66.30 before closing down 20› to $66. BCE and Nortel account for 11% of the TSE 300.
BioChem Pharma Inc. (bch/tse) rose 80› to $39.30 after U.S. patent authorities recognized the pharmaceutical research company was the first to file a patent for AIDS drug 3TC.
Yogen Fruz World-Wide Inc. class A shares (yfa/tse) climbed 70› to $13.60 after the TSE said it would be added to the TSE 300, replacing YBM Magnex International Inc.
The TSE Oil & Gas Composite Index gained 0.1% or 5.55 to 6315.58, thanks to the integrated oils whose sub-index gained 0.9% or 81.37 to 8731.60. Suncor Energy led the group, gaining $0.85 to $53.15. The oil & gas producers index fell .2% or 12.07 to 5494.03. Decliners included Amber Energy $0.765 to $14.25, Baytex Energy $0.75 to $14.25, Nortrock Resources $0.55 to $18.75 and Rio Alto Exploration $0.55 to $15.45. Reversing the trend, Pinnacle Resources gained $0.75 to $13.00. The oil & gas services index fell 0.3% or 1.08 to 2925.32. Decliners included Precision Drilling, down $0.55 to $31.50 and NQL Drilling $0.50 to $10.50. Enerflex Systems gained $0.85 to $53.15.
Other Canadian markets were mixed. The Montreal Exchange portfolio rose 35.6 points, or 0.9%, to 3933.22. The Vancouver Stock Exchange lost 2.99 points, or 0.5%, to 608.86.
United States
U.S. Stocks Off As Oil, Tech Stocks Weak; Bonds Down Late
U.S. share prices ended slightly lower Thursday with weakness centered in technologies, stores, and oil shares amid worries over Federal Reserve tightening, Market News Service reported.
Uncertainty over Indonesia despite the resignation of President Suharto and worries over the Asia contagion added to the market's soft tone Thursday, traders said.
An afternoon selloff in U.S. Treasuries helped push stocks into negative territory, with bonds weakening in response to news that the Fed shifted its policy stance at its March 31 meeting to a bias toward raising interest rates.
Market participants generally played down the day's price action in the major indexes. ''Thirty to 60 points doesn't count for much these days,'' said John Benning, a trader at BT Brokerage.
Declining oil prices have hurt oil company shares, and computer companies have been hit by the rapid product cycle, associated price cuts, and heavy inventories, Benning said.
Among technologies, Dell lost 4 11/16 to 87 1/16; Compaq was down 1 1/16 at 28 1/2 and Intel was down 2 7/8 to 74 1/8. In the oil sector, Exxon was down 11/16 to 70 9/16. In the retail sector, Sears fell 3/8 to 62 7/8 while Kmart fell 1/8 to 19 1/8.
U.S. stocks fell, as Intel Corp. and other computer-related shares slumped on concern that profits will suffer this year amid stifling competition. Pfizer Inc. led a drop in drug stocks.
The Dow Jones industrial average fell 39.11 points, or 0.4%, to 9132.37.
The Standard & Poor's 500 composite index slipped 4.42 points, or 0.4%, to 1114.64.
About 556.4 million shares changed hands on the Big Board, down from 591.7 million shares traded on Wednesday.
The Nasdaq composite index, heavy on computer shares, dropped 10.76 points, or 0.6%, to 1820.99.
Intel, Dell Computer Corp. and Compaq Computer Corp. slid amid signs that the industry overproduced personal computers and semiconductors. Intel (intc/nasdaq) lost US$2 7/8 to US$74 1/8 and is down 13% since May 13.
Dell (dell/nasdaq) fell US$4 11/16 to US$87 1/16 and Compaq (cpq/nyse) slipped US$1 1/16 to US$28 7/16.
Pfizer (pfe/nyse) dropped US$3 13/16 to US$109 1/8 after the drug maker said it will warn paramedics and emergency room physician not to treat patients on its impotence pill Viagra with nitrates. Viagra's label already contains a warning on nitrates, used to treat chest pain.
A rally in auto and retail stocks kept losses from widening. General Motors Corp. (gm/nyse) gained US$1 1/8 to US$74 5/8, Ford Motor Co. (f/nyse) jumped US$1 15/16 to US$51 3/16 and Wal-Mart Stores Inc. (wmt/nyse) rose 7/8 to US$55 3/4.
Manugistics Group Inc. (manu/nasdaq) tumbled US$8 7/8 to US$47 7/8 after BT Alex Brown analyst Christopher Mortenson warned that the manufacturing software maker may not meet analysts' expectations in its fiscal first quarter because it might have trouble closing orders.
International
Stocks markets rose from Sydney to Tokyo yesterday, on news of Indonesian President Suharto's resignation after 32 years in power.
The departure of the 76-year-old Suharto after weeks of bloody riots marks a significant political change for Indonesia and its neighbors, but may do little to help the region's struggling economies.
"What I'm going to do this week is sell," said Patrick Choo, a fund manager at Sun Hung Kai Fund Management Ltd. in Hong Kong. "You're not going to get any economic good news for a few more months at least."
European stocks closed a quiet day with some comfortable gains, buoyed by receding concerns about Indonesia and an overnight rally on Wall Street. Most European bourses, including Paris and Frankfurt, kept their doors closed for national holidays.
In Jakarta, where business has been at a standstill for more than a week, the stock exchange was also closed for a holiday. The rupiah was little changed at 11,000 to the US$ after wiping out a 7% decline.
London: Britain's leading share index rose for a third consecutive day, lifted by the rallies across Asian markets and as weaker than expected retail sales data allayed fears of higher interest rates. The FT-SE 100 index climbed 28.2 points, or 0.5%, to 5935.6. The economic data put further pressure on the pound, which has recently come off highs against the German mark, and encouraged buying in a basket of currency sensitive engineering stocks. LucasVarity rose 11p, or 4.1%, to 277.5p, while Siebe was driven up 44p to 1,514p.
Tokyo: Japanese shares finished higher as the Indonesian news calmed domestic tensions and relieved market players. The 225-share Nikkei average closed up 192.3 points, or 1.2%, to 15,845.25. The rally in Tokyo, the region's largest market by value, was helped by record profits on Wednesday from Honda Motor Co. and Ricoh Co. Honda rose 100 yen to 4,690 yen.
Singapore: The Straits Times industrials index posted its biggest gain in 14 weeks after tumbling 20% in two months as the political situation in Indonesia deteriorated. Yesterday, it rose 45.87 points, or 3.6%, to 1319.65. Wing Tai Holdings Ltd., the property developer that accounts for 1.4% of the index, rose 5.9% to S$1.08.
Hong Kong: The benchmark Hang Seng index surged 2% as Suharto stepped aside, wiped out that gain, then then rallied again to close up 121.27 points, or 1.3%, at 9670.45. HSBC Holdings PLC and other banks with loans to Indonesian companies rose on hope that relative calm will return to the country and help firms repay their debts. HSBC, which controls two of Hong Kong's biggest banks, is expected to have to follow Singapore's banks in raising its provisions against losses in Indonesia, and so is sensitive to developments there. HSBC rose almost 2% to HK$201.
Sydney: Indonesia helped Australian shares to a mainly firmer close, but disappointment over Suharto's successor pulled stocks off their midday highs. The all ordinaries index climbed 10.3 points, or 0.4%, to 2733.5.
OIL & GAS
World Oil Edges Up, Doubts Linger On Supply Cuts
LONDON, May 21 - World oil prices were tentatively higher on Thursday but brimming oil storage tanks are likely to dampen gains, oil traders said.
Brent crude futures recovered to end Thursday's trading 26 cents higher at $13.98 a barrel but prices have fallen more than a dollar over the past couple of weeks and tumbled 40 cents on Wednesday alone.
Prices have stabilised either side of $14 in recent weeks after a recent agreement in Riyadh at which oil producers agreed to cut two percent from global supply.
But confidence in tighter supply has been shaken this week by rising oil stocks in the United States, signs that Iraqi oil exports may continue unabated and fears that OPEC might struggle to agree fresh output cuts.
Iraqi oil exports, under the U.N. ''oil for food'' deal, have been eroding the impact of the Riyadh pact.
Supply from 10 OPEC members, excluding Iraq, was down about 900,000 bpd last month from February's benchmark for the cuts, a Reuters survey found.
But Iraqi output, which was excluded from the Riyadh pact, rose some 300,000 bpd.
With oil supply still plentiful and seasonal demand on the wane, oil traders have been watching for any signs of a temporary break in Iraq's oil sales.
Iraqi oil exports have been delayed twice before because of hold-ups in renewing its six-monthly oil sales deal.
Iraq and the United Nations have disagreed how to distribute proceeds from the fourth round of the deal, but U.N. sources said on Tuesday that the gap was narrowing.
Approval by U.N. Secretary-General Kofi Annan of the distribution plan would trigger the fourth round, which calls for an increase in the oil sales limit to $5.256 billion from $2 billion every six months.
But at current world oil prices, Iraq would only raise about $2.9 billion over a six-month period, assuming it was exporting at its capacity of 1.6 million bpd. In the past four weeks, Iraq's exports have averaged just over 1.4 million bpd.
Earlier this year revenues among oil producers were hit so hard that the Organisation of Petroleum Exporting Countries
(OPEC) and non-OPEC countries hammered out a pact to remove some 1.5 million bpd of supply from world markets.
But, after a brief rally on news of the cuts, prices retreated again to some 28 percent under last year's average.
OPEC producers are struggling to rescue glutted oil markets from uncertainties about output policy, analysts say. At the core of the producer club's predicament is a dilemma about the much-touted prospect of fresh output cuts aimed at curbing oversupply, they say.
OPEC may have painted itself into a corner by signalling intentions it cannot fulfil.
Having publicly flirted with the possibility of fresh reductions, OPEC ministers risk undermining prices if they now fail to deliver, analysts say.
''People have been talking too much,'' said a senior source in an OPEC member Gulf state. ''They've almost got themselves into a trap. There will be a psychological let-down in the market if they don't follow through.''
Traders are now focusing on the approaching June 24 OPEC meeting, but speculation that key producers Saudi Arabia, Venezuela and Mexico could meet before that date to forge a further agreement has so far come to nothing.
The prospect of further cooperation between OPEC and non-OPEC members got a boost this week when Russia said it would attend the Vienna OPEC meeting.
Russia agreed to cut oil exports by 61,000 bpd as part of the producer pact.
Adding downward pressure to prices has been sluggish Asian demand in recent weeks and poor refinery profit margins in the West.
''The margins in Europe have fallen, which is bearish for crude,'' said Scott Carter of Tosco Petroleum.
NYMEX Crude, Products Rebound On Short-Covering
NEW YORK, May 21 - A short-covering spurt lifted NYMEX July crude before easing early Thursday, recovering partly from Wednesday's slide, traders said.
At 1126 EDT/1526 GMT, July crude was up 36 cents at $14.53 a barrel, just off an early session high of $14.57.
''There's a bit of profit-taking going on,'' said a NYMEX floor trader in explaining the short-coverings.
Another trader said the market was correcting after having been oversold on Wednesday.
Refined products also rebounded.
June heating oil gained 0.67 cent at 39.95 cents a gallon, after trading as high of 40.00 cents earlier.
June gasoline rose 0.67 at 49.10 cents a gallon, easing after hitting an early high of 49.15 cents.
Traders said that despite the early bounce, the market cold go lower as there have been very little change in fundamentals.
Wednesday's slide was caused by large crude builds reported by the American Petroleum Institute and the Department of Energy that put U.S. crude stocks at their highest since the summer of 1993.
The slide came on top of volatile expiration-day trading of the June crude on Tuesday, which saw the contract hitting lows not seen in 9-1/2 years.
With storage at the Cushing, Okla., hub at near capacity, traders were pressured into liquidating positions rather than opt to take delivery, with the risk of not finding storage. Cushing is a key Midwest terminal where NYMEX crude is delivered.
Traders say that while prices may be going up now, the situation will be short-lived because of the lingering oversupply problem.
Recent OPEC talk has focused on the possibility of a further production cut of 500,000 barrels per day (bpd), but traders do not see any action by the group until it meets on June 24 in Vienna.
Until then, traders see the market trading mostly on technical factors with occasional rebounds on market-moving headlines.
Late U.S. Crude Oil Prices Extend Daytime Gains
LOS ANGELES, May 21 - U.S. crude oil futures rose Thursday during ACCESS trade, fueled by speculators who were buying up contracts to lock in profits, traders said. By 1730 PDT, July crude oil rose eight cents a barrel to $14.71, ACCESS traders said.
That extended a daytime rally in which front-month crude gained 45 cents to $14.63.
''It's short-covering ahead of the weekend,'' an ACCESS trader said.
July volume was 743 lots by 1730 PDT. Overall volume stood at 1,060 lots.
Traders said they did not want to be caught short, with crude prices on the rebound and the three-day U.S. Memorial weekend coming up.
June gasoline on the ACCESS market traded at 49 cents a gallon, up 0.12 cent a gallon from settlement. In daytime trade, gasoline rose 0.45 cent a gallon, in line with crude gains.
Roughly 37 lots changed hands for June unleaded gasoline futures on ACCESS, while 52 traded for all months by 1730 PDT.
Heating oil for June rose 0.61 cent a gallon to 40.40 cents, traders said, with 179 lots traded overall.
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