MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING MONDAY JUNE 15 1998 (1)
MARKET OVERVIEW
Toronto stocks close with one of worst losses in recent history. Bay Street is unable to resist an Asia-driven downturn in world equity markets. Also weighing on the market were a new low for the C$ and tumbling commodity prices.
The Toronto stock market suffered one of its worst point losses in recent history on Monday as buyers retreated in record numbers, spooked by Asia's deepening economic crisis.
The Toronto Stock Exchange's key 300 composite index plunged 206.40 points or 2.82 percent to 7104.52. Volume was 108.7 million shares, up from 102.1 million on Friday. Trading value was worth C$2.29 billion. Decliners topped advancers 837 to 230 with another 255 issues unchanged.
The Toronto market has lost 430.91 points or 5.7 percent in the past five sessions.
The 206-point drop was the sixth worst day in recent history for the Toronto exchange. The worst was October 27, 1997, when the local market plunged 434.25 points.
The TSE 300 has now erased all gains since Feb. 27, and has fallen 9.1% from its record close of 7822.25 on April 22.
In comparison, New York's closely watched Dow Jones Industrial Average suffered its fifth worst point loss, falling 207.01 points or 2.34 percent to 8627.93. The worst day was October 27, 1997, when the blue chip index slipped 554 points.
"It was one ugly day. There's not one good thing to say except that the market's closed," said David Jarvis, a liability trader at Levesque Beaubien Geoffrion in Toronto. "It's just terrible. There's liquidation. People just didn't want equities. There's really no story besides that."
Buyers retreated in record numbers, scared off by the deepening Asian financial crisis. Hong Kong's Hang Seng index fell 452.94 points or 5.7 percent, while Japan's key 225-stock Nikkei average, coming to grips with last week's news that the country is officially in a recession, fell 197.16 points or 1.3 percent.
A slumping Canadian dollar, which ended at a record closing low of C$1.4739 ($0.6785), also kept buyers out of the market. Adding to the currency's woes is the sheer strength of the U.S. currency, which has become a kind of safe haven for international investors. "It's not the Canadian dollar that's so much of a problem. It's that the U.S. dollar is as strong as it is," said Fred Ketchen, senior vice-president of ScotiaMcLeod in Toronto. "That so-called flight to quality is putting a lot of strength behind that (U.S. dollar)."
All 14 of the TSE 300's subindexes closed lower, led by a massive 5.8 percent drop in the heavily weighted industrial products sector. This sector makes up more than 18 percent of the overall TSE 300.
Weighing heavily on this sector was a steep drop in the shares of Northern Telecom Ltd. , which said today it would buy Bay Networks Inc. for US $9.1 billion in stock to increase its capacity to manufacture Internet-linked equipment. Investors reacted unfavorably to this transaction, claiming Nortel paid too much for the computer network equipment company. "There are two stories today: The general Asian malaise and Northern Telecom getting creamed," said Andrew Martyn, portfolio manager with Davis-Rea Ltd. Investment Counsel. "Northern Telecom is diverting resources from the telecommunications area, where it competes effectively, to computer networking where it has less expertise and the market doesn't like it. Bay is also considered a marginal player," Martyn said. Bay is the third-largest U.S. maker of computer networking equipment. Nortel (ntl/tse) fell $13.60 to $79.50, accounting for 42 points of the TSE 300's loss. BCE Inc. (bce/tse), which owns 51.1% of Northern Telecom, fell $2.95 to $63, which represented 25 points of the TSE's fall. "There is a huge dilution to buy Bay that takes Bell Canada's interest well below 50% in Northern, causing concern among investors because BCE will no longer be in control," said Norman Duncan, a broker with C.M. Oliver & Co.
Resource-based stocks continued to suffer as well. The gold and precious minerals sector fell 2.6 percent and metals and minerals dropped 2.9 percent.
Base metals miner Cominco Ltd. lost C$1.10 to close at C$19.15.
Metals and mining lost 2.87 per cent over concerns that demand for commodities will fall even further because of the continuing economic woes in Asia. Shares in Alcan Aluminium Ltd. slid $1.25 to $38.35 and Inco Ltd. lost 30 cents to close at $19.75. Among mines, Teck Cl B rose $0.50 to $17.00; Dia Met A fell $1.05 to $19.80.
The Toronto Stock Exchange Oil & Gas Composite Index fell 2.6% or 151.57 to 5764.13. Among sub-components, the Integrated Oil's fell 2.2% or 187.49 to 8168.71. The Oil & Gas Producers Index fell 2.7% or 140.26 to 5036.61 and the Oil & Gas Services Index dropped 2.5% or 61.65 points to 2383.75.
Renaissance Energy, Pinnacle Resources, Berkley Petroleum, Petro-Canada, Tarragon Oil & Gas, Probe Exploration, Canadian Natural Resources and Poco Petroleums were among the top fifty most active traded issues on the TSE. No service related issues were found in this category.
Seven Seas Petroleum fell $2.45 to $18.05, Talisman Energy $1.45 to $36.35 and Canadian Natural Resources $1.40 to $23.60. reversing the trend, Remington Energy gained $0.50 to $14.60 and Hurricane Hydrocarbons gained $0.20 to $7.45.
Among oil service related issues, Computalog fell $1.75 to $16.75 and Enerflex Systems $1.25 to $37.75. On the flipside, Enertec Resource Services gained $0.20 to $9.70.
Banks fell as investors reduced equity holdings in favor of cash while awaiting market volatility to subside. "It's a question of liquidity," said Bob Gibson, president at AMI Partners Inc. "People are asking, what can I get out of quickly to get a little cash?" Royal Bank of Canada (ry/tse) slipped $1.55 to $86.20, Bank of Nova Scotia (bns/tse) slid $1.05 to $34.75 and Newcourt Credit Group Inc. (ncT/tse) fell $3.10 to $66.35.
"We're probably in for a bit of a rough ride here," said Ketchen, who predicts as much as a 10 per cent correction in the Toronto market from the record highs set earlier this spring.
"We shall see."
With the loss for the last five sessions totalling 5.7 percent, many believe the free-fall could be abating. "I would think we're getting down towards the bottom," said Fred Ketchen, director of equity trading at ScotiaMcLeod in Toronto. Ketchen says investors will soon begin looking for buying opportunities.
In other Canadian markets, the Montreal Exchange portfolio index tumbled 125.43 points, or 3.3%, to 3640.12 and the Vancouver Stock Exchange fell 14.26 points, or 2.6%, to 534.6.
The Combined Value Index for the Alberta stock Exchange fell 39.90 to 2106.05. Only 92 issues advanced with 217 issues declining and 116 issues remained unchanged.
AltaPacific Capital, First star Energy, Dalton Resources, Anvil Resources, Green River Petroleum, Raptor Capital, Meota Resources, Bearcat Exploration, Wenzel Downhole, Talon Petroleum, HEGCO Canada and Cubacan Exploration were among the top 25 most actives on the ASE.
First Star Energy fell $0.35 to $0.65, Mera Petroleum $0.20 to $0.55, Niko Resources $0.20 to $4.30, Wenzel Downhole $0.17 to $1.45, Corker Resources $0.15 to $0.50, Request Seismic $0.15 to $2.00, Stellarton Energy $0.15 to $2.85, Meota Resources $0.14 to $1.20, Willow Creek $0.13 to $0.89, HEGCO Canada $0.12 to $2.40 and Redeco Energy $0.12 to $0.25.
Issues managing gains included Kennsington Energy $0.20 to $0.70, Fairline Energy $0.15 to $0.45, Venator Petroleum $0.15 to $1.80, Golden Trend Petroleum $0.14 to $0.60, Pacific Ranger Petroleum $0.08 to $0.30, Cascade Oil & Gas $0.07 to $0.37, Loon Energy $0.06 to $0.48, Kintail Energy $0.05 to $0.80 and Wolverine Energy $0.05 to $0.80.
Prices were mostly higher in active trading on the Canadian bond market Monday. The two-year bonds were unchanged at $99.73. Ten-year bonds were $0.35 higher at $114.00. Long-term bonds were $1.05 higher at $134.25.
The Government of Canada bond carrying an eight per cent coupon and maturing in 2023 a barometer of long-term borrowing costs, was yielding 5.47 per cent.
The Canadian dollar ended at a record closing low of C$1.4739 (US$0.6785) on Monday after hitting a new intra-day low of C$1.4740 (US$0.6784) in the morning.
The currency continued to weaken after the official closing at 1600 EDT/2000 GMT in Canada, hitting a record low of C$1.4747 (US$0.6781) in late North American spot trading.
"The Bank of Canada has taken out at C$1.4745 (US$0.6782) again, doing it at every five points, which is the way they always do, generally," one trader said.
In morning trade, there was a wave of intervention by the Bank of Canada to buy Canadian dollars for U.S. dollars, every five points from C$1.4730 (US$0.6789) up to C$1.4740 (US$0.6784), which helped slow the Canadian dollar's slide.
One trader estimated the size of each set of purchases by the central bank at US$40-US$50 million, a size that is not unusual for its interventions.
Despite a slight pullback, the overall outlook for the Canadian unit remained bleak as concern over Asia's economic problems continued to spur safe-haven capital flows into U.S. dollar assets. Soft commodities prices also overhung Canada.
"Until you start to see it (the U.S. dollar) come off below C$1.4700 (US$0.6803) to figure, I think people with long U.S. dollar (positions) will keep them," another trader said.
The battered currency, however, firmed against the Japanese yen in cross trading, rising to 99.10 yen from 98.35 yen late on Friday here. It was the highest level against the yen since early 1993.
The yen has been hit by growing concern over the stagnant Japanese economy and Asia's financial problems.
Against the German mark, the Canadian dollar shed earlier gains and was quoted around 1.2275 marks, down from 1.2311 marks in late North American trade on Friday.
"There have been some flows coming out of Europe to sell Canada," the trader said.
And the Bank of Canada's intervention has helped slow down the U.S. dollar's one-way rise, he said.
"If it weren't there, the dollar/Canada would be a bit higher, probably at C$1.4760 (US$0.6775) or so," he said, adding that corporate buying of Canada would emerge at that level.
Traders and analysts expect the Bank of Canada to hold off from raising its key lending rate to boost the local dollar by attracting investors through higher returns on Canadian assets.
"In respect to other currencies (than the U.S. dollar), we are performing as expected, we're not reaching crisis proportions," said David Ebata, senior Canadian market analyst at Technical Data in Boston. "This is an external factor. The Bank of Canada can just sit in the sidelines and watch."
"The market consensus seems to be that they (the Bank of Canada) won't do anything any time soon," said Reid Farrill, executive director, foreign exchange, at CIBC Wood Gundy Securities.
Canada's central bank last raised its bank rate by 50 basis points to 5.0 percent on January 30 after the Canadian dollar had plunged on speculative selling and spurred monetary conditions that were considered too loose.
By the bank's measure, a weaker Canadian dollar means more stimulus in the domestic economy as it lowers export prices.
Canada remained under pressure from soft commodities prices, which have also hit the Australian and New Zealand dollars. Canada's Asian exposure is more limited than Australia's or New Zealand's, but it is vulnerable to volatility in those currencies because of a perception it shares a similar dependency on commodities.
The Australian dollar was quoted around US$0.5792, down from US$0.5885 in late Friday trade here, and the New Zealand dollar around US$0.4959, down from US$0.5003.
Tuesday morning Canadian Update
Toronto stocks seen recovering, but still fragle
Toronto stocks were expected to recoup some of Monday's losses at the open on Tuesday but any recovery will be fragile and many traders may sell into any strength, dealers said.
''We could see a bit of a rebound. There was a recovery in foreign markets but a lot of damage has been done in the market,'' said David Jarvis, a liability trader at Levesque Beaubien Geoffrion.
"I would use these (upticks) as selling opportunities."
He said mutual funds may try to boost their cash positions by liquidating stocks at any sign of strength.
On Monday, the closely watched TSE 300 Composite Index suffered one of its worst point losses in recent history as fears about the Asian crisis escalated.
The Toronto Stock Exchange's key 300 Composite Index plunged 206.40 points or 2.82 points to 7104.52 on Monday. Volume was 108.7 million shares worth C$2.29 billion. Decliners topped advancers 837 to 230 with another 255 issues unchanged.
The 206-point drop suffered on Monday was the sixth worst day in recent history for the Toronto exchange. The worst day was October 27, 1997 when the local market plunged 434.25 points.
While some analysts held out hope for a recovery later this month, they said investor sentiment has been severely shaken in recent weeks. This week's performance may be affected by triple-witch options expiry on Friday, which can often lead to unpredictable trade.
''If we can get this over and done with this week, then there just might be a summer rally but it sure doesn't look like it now,'' Jarvis said.
Gold prices came back slightly after their recent dismal performance. The yellow metal fixed at US$286.40 an ounce in London, up from the previous afternoon's US$285.85.
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