MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THURS. JUNE 10 1998 (1)
MARKET OVERVIEW
Toronto stocks lose more ground on Asian Fears
Toronto's stock market continued to swoon on Thursday as ongoing problems in Asia weighed heavily on North American equity markets. A crumbling C$, falling commodity prices and the continuing Asian slump drove the TSE's key index to its biggest one-day drop since March 9.
"It's definitely fear that the market hasn't discounted the impact Asia will have on our economy, which is not going to be pleasant," said Philip Strathy, a portfolio manager at Strathy Investment Management Ltd. "Investors are selling the most liquid stocks."
The Toronto Stock Exchange's key 300 composite index dropped 138 points or 1.86 percent to 7295.76. Barrick Gold Corp. and Bank of Nova Scotia wiped 22 points from the benchmark index. Volume was light at 88.9 million shares, up from 78.7 million shares on Wednesday. Trading value was worth C$1.88 million. Declining stocks obliterated advancing stocks 812 to 238 with another 275 issues unchanged. With Thursday's 138-point loss, the Toronto market has lost 261.43 points or 3.5 percent in the past three days.
Similarly in New York, the Dow Jones Industrial Average fell 159.93 points or 1.8 percent to close at 8811.77, for a three-day total loss of 257.83 points or 2.9 percent.
"The basic outlook a few days ago was that we would be in a quiet period and that's changed dramatically because Asia has had so much trouble," said Todd Kapala, a market specialist at Priority Brokerage, in Toronto. "I think we're paying the price." Asian markets have taken a hammering in recent days. Overnight Japan's Nikkei 225 average lost 325.22 points or 2.1 percent, while Hong Kong's Hang Seng index slipped 93.30 points or 1.2 percent.
Concerns over the impact of Asia's woes spilled over into the North American markets and in the process blindsided the Canadian currency as investors sought a safe haven in the U.S. dollar.
The Canadian dollar sank to a record low in intraday trading of C$1.4711 (US$0.6798), before rebounding to C$1.4690 (US$0.6807). Traders said the dollar's downward trend is not over yet. "There is speculation out there that the Canadian dollar could go lower because we didn't take a strong stance to support it," he said.
Banks accounted for a third of the decline as the TSE's financial services subindex tumbled 172.8, or 1.8%, to 9812.7. Scotiabank (BNS/TSE) fell $1.15 to $35.15, Bank of Montreal (BMO/TSE) fell $1.10 to $80.10 and Canadian Imperial Bank of Commerce (CM/TSE) lost 95c to $46.55.
"Although less than for U.S. banks, Canadian banks' debt exposure to Asia is significant enough to have people worried," said John Zemanovicz, investment adviser at Fortune Financial Corp.'s Charlton Group. "The weakening C$ could trigger higher interest rates."
The country's resource exports, which are vital to the whole of the Canadian economy, have been hurt by the Asian crisis. "A lot of demand for our resources comes from overseas and all of the foreign economies are very weak and because of that the demand for our resources seems to be diminishing," Kapala said.
Gold stocks declined as bullion fell US$6.20, or 2.2%, to US$286.70, its largest one-day drop since Feb. 3, on concern over possible future central bank sales and speculation South African producers have been selling as the rand weakens. The gold and precious metals index took the most punishment. Franco-Nevada Mining Corp. Ltd. led the way, dropping C$1.40 or 4.8 percent to C$28.00. Gold heavyweight Barrick Gold Corp. slipped C$1.25 or 4.7 percent to C$25.40. Euro-Nevada Mining Corp. fell $1.65 to $19.35 The gold and precious metals subindex has fallen 7% in the past three days, its biggest three-day slide since Jan. 27.
Crude oil fell almost 6%, it lowest price since October 1988. The oil and gas subindex fell 148.76 points, or 2.5%, to 6018.42. Renaissance Energy Ltd. (RES/TSE) fell 30c to $22.20, Alberta Energy Co. (AEC/TSE) fell 80c to $30.90, Petro-Canada (PCA/TSE) fell $1.10 to $22.70 and Suncor Energy Inc. (SU/TSE) fell $1.10 to $50.30.
BCE, the index's most heavily weighted stock, declined for the second day after it reached a record $67.60 on Monday. The stock also went ex-dividend yesterday, meaning shareholders could sell the stock knowing they've already captured the 34c dividend. BCE, which owns 51.7% of Nortel, fell 85c to $65.70. Northern Telecom Ltd. (NTL/TSE) fell $1.50 to $93.75.
The metals and minerals index also took a beating falling 2.1 percent with Alcan Aluminium Ltd. losing C$0.60 or 1.5 percent to C$39.60.
The transportation, financial services and conglomerates sectors also faced sizable losses.
Although the market has lost considerable ground this week, Kapala believes it could slip another five to 10 percent before bottoming out. "It all seems pretty negative right now," he said.
Other Canadian markets closed lower. The Montreal Exchange portfolio fell 60.81 points, or 1.6%, to 3741.68. The Vancouver Stock Exchange dropped 12.82 points, or 2.3%, to 554.07.
The Canadian dollar hit an all-time low again yesterday, closing at 68.04 (U.S.) cents -- the lowest level since the Canadian dollar was created in 1858.
Economists say they have no idea how much further the Canadian dollar will fall as money continues to flee to the safe haven of the U.S. dollar, driving currencies lower around the world.
The dollar dropped as low as 67.98 cents (U.S.) during trading yesterday, breaking the intraday trading floor of 68.10 cents, set on Jan. 29. The previous low close for the dollar was set on Wednesday at 68.20 cents.
Economist Douglas Porter of Nesbitt Burns Inc. said it is difficult to predict when the Bank of Canada will intervene with an interest rate hike to try to support the sinking loonie, but he doesn't expect a big improvement in the currency any time soon.
"I don't think there are any magic numbers now that we are in uncharted territory," he said. "I don't think there is any specific trigger point.
"And even if the currency were to turn around, there's nothing to say it wouldn't go through another spell such as this later on down the road. All I can say is that there really is little to hold the currency from falling further."
A lower Canadian dollar may spell good news for Canadian companies exporting to the United States, whose goods become comparatively cheaper for their U.S. customers. But it doesn't help importers buying from the United States, nor is it welcomed by tourists heading south of the border.
If there is any comfort for Canadians watching the dollar get pounded daily in world markets, it may be that Canada is not alone. Many other currencies are being caught in the same downward trend, generated by growing fears that the Asian financial crisis will become a pervasive, long-term drag on the world economy.
"What markets are trying to adjust to is the fact that the fallout from Asia is much greater and will have a much longer impact than was previously thought," said economist Aron Gampel of Bank of Nova Scotia.
Yesterday, the U.S. dollar rose to an eight-year high against the Japanese yen, and hit a seven-week high against the German mark. The U.S. currency also hit an all-time high against the Mexican peso.
Mr. Gampel said money is flowing into highly liquid U.S. fixed-income securities, such as Treasury bills.
"There really are very few pockets of strength out there. Most global stock markets are coming under pressure at the same time. Most currencies are coming under pressure at the same time. What you're seeing is a very pronounced vote in favour of being in the U.S. at this time."
Economist Carl Weinberg at High Frequency Economics in Valhalla, N.Y., said he believes that the Bank of Canada will be compelled to raise interest rates any day now. He said an increase of half a percentage point would help keep the Canadian dollar at current levels.
"The near-term stability of the loonie hinges on a rate hike by the [Bank of Canada] for now," he said.
Other economists said they, too, expect the central bank to raise rates if the weakening continues, but couldn't predict when it may decide to step in.
Canada's weakening trend has intensified this week amid further dramatic evidence that Asia's economic woes are not going to fade away any time soon. Currencies and stock markets across Asia, including Indonesia, Malaysia and India, have been hit hard this week.
Economist Rob Palombi of Standard & Poor's MMS International said the weakness in the Canadian dollar is "not a made-in-Canada depression," blaming factors largely outside the country's economic control.
For example, he said, weakness in Asia hurts Canada because the region is an important export market, while continuing weakness in world commodity prices is also affecting Canada's commodity-sensitive currency. Oil prices dropped 73 cents a barrel to $12.75 yesterday, while gold continued to sink, hitting $286.70, down $6.20.
Forecasters at the University of Toronto say the dollar's current weakness is far from temporary. They think it's likely to remain below 70 cents until 2001 and won't reach 71 cents until 2004.
Economist Peter Dungan of the Institute for Policy Analysis told a conference in Toronto yesterday that because inflation will remain below 1.5 per cent until 2003, the Bank of Canada will have little room to raise interest rates.
If it did, the dollar would rise, but the combination of higher rates and a higher dollar would slow the economy. As a result, he said, the inflation rate would fall to less than 1 per cent -- which is the floor of the bank's 1- to 3-per-cent target for annual increases in the general price level.
The forecast, which is based on the institute's computer model of the Canadian economy, pegged the country's growth rate over the next year at 2.5 per cent. That's well below the 3.5-per-cent pace predicted last month by the Bank of Canada and reiterated yesterday by Bernard Bonin, deputy governor of the central bank.
U.S. MARKETS
The Dow shed nearly 160, the S&P 500 lost almost 18, and the Nasdaq
closed down 23.50.
Tech stocks were hit hardest by the tumult. Oil names were the other big drag on stock indices as crude prices tumbled for the fifth straight day.
Gold and tobacco stocks were also negative, while nearly all major groups were down on the session and the vast majority of stocks were
losers.
The dollar rose above 143 yen in New York trading, its highest level versus the Japanese currency in eight years, as dealers reacted to signs that the world's leading economies were not about to intervene to support the yen.
Once again, the surging dollar and unrest overseas gave U.S. bonds a lift. Bond prices rose 5/8 of a point, sending the yield on the benchmark 30-year Treasury bond down to 5.66%, a record-setting low for the second straight session.
The Dow Jones Industrial Average ($INDUA) actually rose at the onset of trading, ticking up some 20 points. But the blue-chip proxy soon reversed course and tumbled precipitously through the morning. The index spent most of the afternoon mired between 90 and 130 points off its opening level, hitting an intraday low of 8,808.53. The Dow closed off 159.93, or nearly 2%, at 8,811.77.
The Nasdaq Composite Index (COMP) followed a pattern nearly identical to the Dow's, rising nearly 5 points initially and then retreating sharply. The tech-shackled index fell as low as 1,748 before closing off 23.50, or 1.3%, at 1,749.75.
The S&P 500 (SPX) slid 17.70 to 1,094.58, while the Russell 2000 ($IUX) lost 6.73 to 444.35 a day ahead of the rebalancing of the small-cap proxy. After the close of trading Friday, the Russell will announce its preliminary list of stocks being dropped from the index and those being added.
In NYSE trading, 608 million shares changed hands, while declining stocks swamped advancers by a spread of better than 3-to-1. In Nasdaq activity, 729 million shares were exchanged, while the breadth of the market was overwhelmed by losers, which led gainers 30-to-13.
Technology stocks
Concern about pricing pressures from the Asian economic crisis and another cadre of profit warnings slammed into the tech sector Thursday. The Morgan Stanley High Tech Index (MSH) lost 8.93 to 539.97 while the Nasdaq 100 (NDX) shed 14.22 to 1,185.08.
Exerting a big drag on tech indices was WorldCom (WCOM), which fell 1 13/16 to 42 1/4 as Cable & Wireless Plc (CWP) said it's seeking an injunction to require MCI Communications (MCIC) to comply with its agreement to sell its wholesale Internet business to Cable & Wireless. MCI shares closed off 1 1/2 to 48 5/8, while Cable & Wireless ADRs slid 1 7/16 to 33 13/16.
Other bellwethers in retreat included both of the Dow's tech components: IBM (IBM) fell 1 1/2 to 115 13/16, and Hewlett-Packard (HWP) slid 1 13/16 to 60 5/8. Additionally, Microsoft (MSFT) dipped 11/16 to 85 3/8, Dell Computer (DELL) shed 1 to 82 11/16, Adobe Systems (ADBE) slid 1 3/16 to 40 13/16 and Seagate Technology (SEG) lost 1 5/16 to 20 7/8.
PeopleSoft (PFST) shed 2 1/8 to 43 15/16 after Furman Selz initiated coverage of the stock with a "hold" rating.
Compaq Computer (CPQ) fell 11/16 to 28 1/16 as shareholders approved its merger with Digital Equipment (DEC).
Once again, the chip-and-equipment sector was at the vanguard of the sector's decline. The Philadelphia Semiconductor Index (SOX) fell 4.65 to 238.19.
Hit hardest were Novellus Systems (NVLS), off 2 to 33 1/16; KLA-Tencor (KLAC) down 7/8 to 27 1/8; and Texas Instruments (TXN), which fell 2 7/16 to 49 3/4.
Aetrium Inc. (ATRM) fell 3 15/16 to 7 9/16 after the semiconductor-equipment maker warned that second-quarter results would be "significantly below'' analysts' estimates.
National Semiconductor (NSM) rose 1/4 to 15 3/8 as it announced a fourth-quarter loss of 42 cents a share, 6 cents wider than the loss expected by analysts.
Elsewhere, Creative Technology (CREAF) fell 2 1/2 to 13 5/8 after saying sales and margins will fall short of analysts' forecasts for its fiscal fourth quarter.
Adflex Solutions Inc. (AFLX) dropped 2 1/2 to 8 1/2 after announcing that it will have a second-quarter loss of $3 million to $3.2 million, including charges.
Sawtek Inc. (SAWS) plummeted 8 31/32 to 13 9/32 after the wireless-equipment company said fiscal fourth quarter earnings will not meet expectations. In sympathy, PowerWave Technologies (PWAV)
shed 3 1/8 to 15 7/8.
America Online (AOL) slid 2 1/4 to 87, but Internet stocks were a somewhat safe port in the tech maelstrom for the second straight day. The AMEX Internet Index (IIX) closed off 4.03 to 328.99.
Amazon.com Inc. (AMZN) soared 8 3/8 to an all-time high of 62 1/2 as the online book retailer said it's expanding to include music.
In reaction, shares of CDNow (CDNW) fell to 7/8 to 17, but K-tel International (KTEL) closed up 4 7/16 to 13 3/4.
Infoseek Corp. (SEEK) rose 1 15/16 to 28 after debuting its new Home Page Center, which has larger capacity. The company also said it has acquired San Francisco- based 280 Inc. for about $800,000 in cash.
Inktomi Corp. (INKT) rose for a second day after its IPO, up 4 1/2 to 40 1/2.
Among other Internet names, Excite (XCIT) rose 1 5/16 to 64 5/16, and Yahoo! (YHOO) closed up 13/16 to 115 1/4.
Ascend Communications (ASND) rose 3/8 to 48 7/16 in heavy trading, but other networking stocks faltered, sending the AMEX Networking Index (NWX) down 6.33 to 359.01. Notable declines in the sector were posted by 3Com (COMS), Bay Networks (BAY), Newbridge Networks (NN), and Northern Telcom (NT).
MicroStrategy Inc. (MSTR) rose 5 1/8 from the initial public offering price of $16 for the developer of business software.
THQ (THQI) rose 2 1/2 to 25 3/4 after the entertainment-software company said it reached a 10-year agreement with Titan Sports Inc. to publish World Wrestling Federation electronic games.
Aztec Technology Partners Inc. (AZTC) fell 7/8 to 10 1/8 after canceling its initial public offering. The firm did complete its spinoff from former parent U.S. Office Products Co. (OFIS), which ended unchanged at 55 3/4.
Active issues
Nearly all the Dow components were lower Thursday.
DuPont Co. (DD) was the leading negative influence on the Dow, falling 2 to 75. Analysts at Salomon Smith Barney Inc. reduced earnings estimate for the chemical company.
Other names weighing on the Dow included Alcoa (AA), off 1 5/8 to 65 5/16; Caterpillar (CAT), lower by 1 9/16 to 52 5/16; and Procter & Gamble (PG), down 2 5/16 to 84 1/2.
A strike at its Dayton, Ohio, plant and threats of more walkouts to come continued to pressure shares of General Motors (GM), which fell 2 1/4 to 70 7/16.
Despite renewed gains by the bond market, financial stocks proved a big drag, with American Express (AXP) off 3 1/2 to 104 3/16, Travelers Group (TRV) off 1 11/16 to 61 1/16, and J.P. Morgan (JPM) down 1 1/16 to 122 3/8. The Philadelphia KBW Banking Index (BKX) slid 10.44 to 844.56.
Additional declines were posted by BankersTrust NY (BT), off 4 3/8 to 115 5/16; Citicorp (CCI), off 4 1/4 to 151 1/4: and PNC Bank (PNC), lower by 2 1/16 to 55 15/16.
Oil names continued to weigh on the index as well. The crude oil price dropped 73 cents to $12.75 driving down the oil sector -- a substantial component of the Dow Jones index, traders said. Exxon (XON) was down 3/4 to 68 1/16 and Chevron (CHV) off 1 1/2 to 77 15/16. The AMEX Oil Index (XOI) lost 11.35 to 455.10 and the Philadelphia Oil Service Index (OSX) fell 3.81 to 90.77.
Among other oil producers, Atlantic Richfield Co. (ARC/NYSE) fell US$21 5/16 to US$77 1/4, British Petroleum PLC (BP/NYSE) lost US$2 7/8 to US$85 1/16 and TOTAL SA (TOT) lost 2 3/4 to 61 1/4.
Companies that provide drilling services and equipment tumbled, too. Among oil drilling and services firms that were hit particularly hard were Halliburton (HAL) tumbling 2 1/2 to 42 1/8 after Robinson Humphrey lowered its earning estimates on the firm. Additionally, Schlumberger (SLB) dipped 2 7/8 to 70 13/16; Camco International (CAM) lost 4 7/8 to 56 15/16; Smith International (SII) declined 2 to 39; and Diamond Offshore (DO) was down 1 7/16 to 41 9/16.and Dresser Industries Inc. (DI/NYSE) dropped US$2 5/8 to US$40 7/8.
Tobacco stocks were down for a second day after a Florida jury found cigarette-maker Britain's Brown & Williamson liable for conspiracy and other charges in the death of a longtime smoker. Dow member Philip Morris (MO) slid 1 to 36 7/8.
Most drug makers were fractionally weak as the AMEX Pharmaceutical Index (DRG) dipped 7.36 to 644.76. Leading the decline were Schering-Plough (SGP), down 3 1/16 to 88, and American Home Products (AHP), off 1 5/16 to 51 5/16.
Gold prices and stocks were weak as well, as the AMEX Gold Bugs Index (HUI) dipped 4.71 to 91.52. Barrick Gold (ABX) fell 13/16 to 17 3/8, Newmont Mining (NEM) lost 1 15/16 to 22 7/8, and Getchell Gold (GGO) closed off 1 3/8 to 16 1/8.
Crystallex International (KRY) fell 1 3/4 to 1 7/8 as investors await a ruling from the Venezuelan Supreme Court on whether it will hear a case brought by the company, which is seeking to prove that it owns the country's biggest gold mine.
United Video Satellite Group (UVSGA) fell 1 3/8 to 38 1/2 on word that it has agreed to buy TV Guide magazine and other publications from News Corp. (NWS) for $2 billion in cash and stock. News Corp. ADRs rose 1 1/16 to 24 1/2. United Video is a unit of TCIGrele-Communications Inc. (TCOMA), which closed off 1 3/4 to 32 9/16.
Allmerica Financial Corp. (AFC) fell 4 7/16 to 67 after the insurer said second quarter profits will not meet expectations.
Enamelon Inc. (ENML) fell as much as 2 7/16 to 6 1/2 after the maker of products to rebuild tooth enamel said second-quarter sales won't meet its goals.
Excel Industries Inc. (EXC) slid 1 7/8 to 16 7/8 after the car-window manufacturer warned that second-quarter earnings will be as much as 7 cents a share short of analyst estimates.
OmniQuip International Inc. (OMQP) fell 2 3/16 to 19 13/16 after the maker of telescopic-material handlers said earnings will be lower in its fiscal third quarter ending June 30 because union-organizing attempts hurt production at two plants.
Weakness in the oil sector failed to ignite the transportation sector, as the Dow Transportation Index ($TRAN) fell 40.24 to 3,400.10 and the AMEX Airline Index (XAL) slid 1.60 to 372.32.
Despite the overall decline, there were some selected winners Thursday.
Gucci Group NV (GUC) rose 1 to 52 after the maker of apparel and luxury accessories said first-quarter profit fell 10%, a decline that was narrower than expected.
Gerber Childrenswear (GCW) rose 1 1/2 from its initial public offering price of $13.
Gilman & Ciocia Inc. (GTAX) gained 2 to 17 1/8 after the income tax preparation and financial-planning company was reiterated as a "buy'' by Janney Montgomery Scott.
Inhale Therapeutic Systems (INHL) climbed 1 3/16 to 28 5/8 after the medical-devices company was reiterated a "strong buy'' by Piper Jaffray.
Pall Corp. (PLL) rose 1 9/16 to 21 5/8 thanks to an upgrade from Cowen & Co. to "strong buy'' from "buy."
Wellington Properties Trust (WLPT) rose 3 1/8 to 12 after the real-estate investment trust agreed to acquire American Real Estate Equities LLC. It didn't provide terms of the transaction.
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