MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THUR., JUNE 18 1998 (1)
MARKET OVERVIEW
Toronto stocks close lower on Japanese Concerns
The Toronto stock market was side-swiped Thursday by slumping prices for gold and a sudden sell-off of Canadian dollars. North American stock markets turned lower yesterday after a two-day reprieve as caution returned to trading and investors looked for a longer-term solution to Japan's economic problems.
"You can't fix major surgery with a Band-Aid," said Paul Devlin, vice- president at MMA Investment Managers Ltd. Although the U.S. government has intervened to arrest the fall of the yen, that does not change the underlying problems in Japan, which is the insolvency of the banks, he said. The problems affect the resource industry in Canada and the technology and resource industries in the U.S., Devlin said.
Devlin said the market could drift sideways or lower because of the Asian economic problems but also because North American earnings could grow at a smaller than expected rate. If "you don't have the earnings and you have overseas problems, the market is more susceptible to bad news," he said.
The Toronto Stock Exchange's two-day rally came to a screeching halt on Thursday. The closely watched Dow Jones Industrial Average also slumped, but not quite as dramatically as the Toronto market. In New York, the blue chip index lost 16.45 points or 0.19 percent to 8813.01.
Uncertainty over Asia weighed heavily on the market, said Jeff Milligan, a U.S. market specialist at Priority Brokerage in Toronto. ''Everybody is of the mindset right now that we're not out of it with Asia,'' he said. ''Many questions have been raised in the past 24 hours of whether Japan will actually go along with everything (promised on economic reforms). They've proven before that they've made an agreement and never actually stuck to it.''
On Wednesday, the United States intervened jointly with Japan in the currency market to prop up the failing Japanese yen, which had sunk to an eight-year low of nearly 147 yen to the U.S. dollar. In return, Japan's prime minister pledged to clean up the country's banks and attempt to lift the country out of its recession.
The Toronto Stock Exchange's key 300 composite index fell 56.81 points or 0.79 percent to 7138.27. Trading volume on the TSE was 95.1 million shares, down from Wednesday's 126.9 million. Trading value was worth C$1.87 billion. Decliners topped advancers 564 to 400 with another 312 issues unchanged. The 57-point decline erased more than half of the 90-point rise the market had notched over the previous two sessions as it attempted to gain back ground following a five-day losing streak.
"Yesterday it was pretty much a broad decline," said Milligan.
On Bay Street, all but two of the TSE's 14 stock subindexes fell, with the transportation sector leading the decliners, down 1.5%. In the group, Canadian National Railway Co. (CNR/TSE) dropped $2.55 to $79.45.
Also draggingd the TSE 300 down was a 1.4 percent drop in the gold and precious metals sector as the August price for Comex gold slipped US$0.30 to US$294.60 an ounce. In the influential gold group, Placer Dome Inc. (PDG/TSE) fell C$0.45 to C$16.05 and Franco-Nevada Mining Corp. Ltd. (FN/TSE) dropped C$0.90 to C$26.00.
The metals and minerals group fell 1.1 percent and the oil and gas index slipped 1.0 percent.
The oil sector slipped as the price for Brent Crude oil fell US$0.28 to US$12.82 a barrel. The toronto Oil & Gas Composite Index fell 1.6% or 59.09 to 5803.46. The Integrated Oil's took a large hit, falling 2.0% or 164.25 to 8213.96. The Oil & Gas Producers fell 0.7% or 33.30 to 5075.18 and the Oil & Gas Services fell 0.4% or 10.13 to 2395.13.
Tarragon Oil & Gas, Canrise Resources, Petro-Canada, Hurricane Hydrocarbons, Renaissance Energy, Poco Petroleums, Probe Exploration and Northrock Resources were listed among the top 50 most active issues on the TSE. Service issues were not represented.
Ulster Petroleum gained $0.50 to $11.25. On the downside, Suncor Energy fell $0.90 to $48.00, Petro-Canada $0.75 to 22.80, Canadian Natural Resources $0.65 to $23.35, K2 Energy $0.63 to $1.52 and Crestar Energy $0.60 to $18.50.
Among service issues, Mullen Transportation gained $1.00 to $21.00 and Computalog $0.50 to $16.00. On the flipside, IPSCO fell $1.25 to $40.60 and Tesco $0.65 to $16.50.
"The pressure that puts on short-term interest rates is a killer for stocks, especially in financial services," said Katherine Beattie, analyst at Standard and Poor's MMS in Toronto. TD Bank, for example, lost 55 cents to $64.65. BCE Inc. (BCE/TSE), Canada's most widely held stock, fell 90› to $60.45. Royal Bank of Canada (RY/TSE) dropped 30› to $86.50.
Among individual blue chips, Northern Telecom Ltd. (NTL/TSE) closed up $1 at $77.70, snapping its three-day losing streak after announcing a plan to take over Bay Networks Inc.
Canadian Pacific Ltd. (CP/TSE) fell 60› to $40.15, Laidlaw Inc. (LDM/TSE) edged up 10› to $17.35 and Alcan Aluminium Ltd. (al/tse) dropped 70› to $39.20.
Inco Ltd. (N/TSE) rose 35› to $19.85, Seagram Co. Ltd. (VO/TSE) closed down 45› at $61.10 and Newbridge Networks Corp. (NNC/TSE) slipped 35› to $32.
Bucking the negative trend was the lightly weighted real estate sector, which rose 0.9 percent, and the industrial products sector, which gained 0.15 percent.
In other Canadian markets, the Montreal Exchange portfolio dropped 36.57 points, or 1%, to 3648.27 and the Vancouver Stock Exchange eased 1.36 points, or 0.3%, to close at 534.34
The Alberta Stock exchange's combined value index fell 0.38 to 2100.16. Declining issues outnumbered advancing issues, 146 to 132 with another 122 issues unchanged.
.
Wolverine Energy, First Star Energy, Anvil Resources, Bolt Energy, Dalton Resources, Green River Petroleum, Fox Energy, Raptor Capital, BXL Energy and Commonwealth Energy were listed among the top 25 most active issues on the ASE.
Encounter Energy gained $0.35 to $1.40, Niko Resources $0.35 to $4.60, Bolt Energy $0.15 to $0.50, Edge Energy $0.15 to $3.60 and Cirque Energy $0.14 to $2.55. On the downside, Corridor Resources fell $0.20 to $1.40, Kensington Energy $0.20 to $0.55, Venator Petroleum $0.15 to $1.60 and HEGCO Canada $0.14 to $2.60.
The Canadian dollar ended weaker around C$1.4702 (US$0.6802) on Thursday, despite talk of Bank of Canada intervention, reflecting the U.S. dollar's rebound against the yen.
Canada's central bank appeared to have stepped into the market to buy Canadian dollars from C$1.4685 (US$0.6810) to C$1.4705 (US$0.6800), but it met constant U.S. dollar buying.
''Yesterday there were (U.S.) dollar buyers, today there are dollar buyers and cross Canada selling. The market is just steadily bid and it still needs dollars,'' said one trader. ''It's been a pretty tough trend because you just haven't had any time to buy dollars on dips.''
''The market has been disappointed that the bank hasn't had anything (to say) to express concern over the currency,'' he said. ''Probably it could have come in with a strong statement.''
The U.S. dollar rebounded to a day's high of 138.22 yen on Thursday after plunging to 136 yen from 143 yen on Wednesday in the wake of a rare U.S.-Japan joint intervention in the currency market.
''As long as the yen continues to move back towards 140 (yen to the U.S. dollar), Canada will move towards C$1.4800,'' said Reid Farrill, executive director, foreign exchange, at CIBC Wood Gundy Securities. ''The weakness in the yen will be translated in the weakness in the Canadian dollar.''
Figures showing a smaller-than-forecast surplus in Canada's international trade for April, released on Thursday, also weighed on the local dollar.
Canada's April trade surplus fell to C$1.20 billion from a revised C$1.81 billion in March, below an average forecast by economists of C$1.69 billion.
A smaller surplus could suggest slower economic growth, but it is a little too early to revise down the estimate for Canada's gross domestic product (GDP) in the second quarter based on this figure, said Randall Powley, senior economist at Scotia Capital Markets.
''It's only one month of a quarter. Also I'd like to see some revisions, as we've seen in the recent past, these revisions could be quite large and could change the direction of the impact on the GDP,'' he said.
The U.S. April trade deficit rose 9.5 percent to $14.46 billion, the highest level since the current series began in January 1992. The U.S.-Japan trade gap fell 6.0 percent to $5.41 billion, while the U.S. deficit with Canada rose 44.2 percent to $1.25 billion.
In cross trading, the Canadian unit, after plunging on Wednesday, rose to 93.65 yen from 93.23 yen at the previous close here, but fell to 1.2188 marks from 1.2217 marks.
The market is awaiting news from Tokyo, where Deputy U.S. Treasury Secretary Lawrence Summers is discussing Japan's banking sector reform and plans to haul the flagging Japanese economy out of recession, a key to stabilizing Asian economies and financial markets.
The market wants to see how Summers and his team emerge from a series of meetings in Japan early next week.
''If they come back smiling and with big programs that everybody believes will save Japan, then I think that the (U.S.) dollar will continue to go down and the yen will start to rise,'' Carl Weinberg, chief economist at High Frequency Economics told Reuters Television. ''But I don't think Japan can deliver the goods and therefore I expect it (the U.S. dollar) to come backVfirming... I think the mid-140s is back in everybody's sights again.''
To regain investor confidence, Japan needs to implement long-term structural reform and deregulation, which will not take place overnight.
Canada's regaining of some ground versus the U.S. dollar is giving the Bank of Canada some breathing space, but the Canadian dollar remains vulnerable to global market uncertainties and weak commodities prices.
On Friday, Canada will release its May consumer price index. Economists on average forecast a rise of 0.7 percent in all items year on year after a rise of 0.8 percent in April, and an increase of 1.2 percent in the core rate (ex-food and energy) after a rise of 1.2 percent in April.
Canadian bonds ended mixed on Thursday, with the long end of the yield curve recovering from a drop caused by a smaller-than-expected surplus in Canada's international trade for April.
While a rebound in the U.S. dollar against yen was prompting buying of U.S. treasuries, a weakening Canadian currency overshadowed bonds here in the morning, and was still hurting the short end by the close.
''Canada's long end was benefiting from the U.S. and the rest of the market is under pressure because of the (Canadian) currency,'' said Rob Palombi, senior fixed-income analyst at Standard & Poor's MMS.
The U.S. dollar rebounded to a day's high of 138.22 yen on Thursday after plunging to 136 yen from 143 yen on Wednesday in the wake of a rare joint U.S.-Japan intervention in the currency market.
The Canadian dollar finished North American trade weaker at C$1.4707 (US$0.6799) on Thursday, shedding Wednesday's gains, which were ushered in by the joint action by the world's two biggest economies.
''Our currency has reacted the least favorably to the intervention package yesterday and this morning's trade number was extremely poor,'' said Jim Webber, director of fixed-income research at TD Securities Inc. ''So those two things together weigh on the currency,, and in turn weighs on the (bond) market.''
Canada's April trade surplus fell to C$1.20 billion from a revised C$1.81 billion in March, below an average forecast by economists of C$1.69 billion.
The U.S. April trade deficit rose 9.5 percent to $14.46 billion, the highest level since the current series began in January 1992. The U.S.-Japan trade gap fell 6.0 percent to $5.41 billion, while the U.S. deficit with Canada rose 44.2 percent to $1.25 billion.
Canada's benchmark 30-year bond rose C$0.30 to C$135.79 to yield 5.511 percent.
Its U.S. 30-year counterpart rose 13/32 to yield 5.71 percent. The U.S.-Canada spread was 20 basis points after 21 points at the previous close here.
The Canadian dollar remained under pressure from weak prices for crude oil and other commodities as the nation depends on exports of natural resources for steady economic growth.
Webber said an interest rate increase by the Bank of Canada would boost the Canadian dollar, but that he did not expect the central bank to raise rates soon. U.S. treasuries were watching movements in the U.S. dollar and the equities market.
The Dow Jones industrial average, after rallying on Wednesday, closed down 16.45 points at 8813 on Thursday.
On Friday, Canada will release its May consumer price index. Economists on average forecast a rise of 0.7 percent in all items year on year after a rise of 0.8 percent in April, and an increase of 1.2 percent in the core rate (ex-food and energy) after a rise of 1.2 percent in April.
The government of Canada said on Thursday it will hold four bond auctions, including one real return issue, in the third quarter of 1998. The first auction, of 10-year bonds, will be on August 12, with details to be released on August 6.
In regional news, the province of Ontario said there was no T-bill auction on Thursday.
The money market was weaker, reacting to a fall in the Canadian dollar on Thursday.
''With the fact that the currency has weakened off, we have weakened off as well. We've seen profit-taking in some of the WI bills and in the long end,'' one money market trader said.
''Even when we improved yesterday, our clients were sitting on the sidelines. They want to see where the dollar's going,'' the trader said, adding that money market players are comfortable with the U.S. dollar below C$1.4640 (US$0.6831).
The Canadian dollar ended weaker at C$1.4707 (US$0.6799) on Thursday, despite talk of Bank of Canada intervention, reflecting the U.S. dollar's rebound against the yen.
''Between now and Tuesday, we're expecting to be a little cheaper here,'' the trader said. The Bank of Canada holds a T-bill auction next Tuesday, which comes in every two weeks.
Canada's three-month when issued T-bill traded with a yield of 4.84 percent, compared with 4.77 percent at the previous close
here.
Thursday's markets in the U.S.
Stocks drifted lower as Wall Street waited to see if Japan would follow up the previous day's surprise yen rescue with bold steps to turn the world's second biggest economy around.
The Dow Jones Industrial Average ($INDUA) ended 16.45 points lower at 8,813.01, a day after soaring 164 points when currency intervention propelled the battered yen sharply higher.
In the broad market, declining issues led advances 18 to 10 on active volume of 586 million shares on the New York Stock Exchange.
The Nasdaq Composite Index (COMP) was off 3.70 points at 1,772.70. The S&P 500 Index (SPX) fell 0.73 to 1,106.37, and the small-cap Russell 2000 Index ($IUX) dropped 4.29 to 439.79.
Active issues
Tobacco stocks provided some upward pull on broader indices after the Republican led U.S. Senate voted to reject a landmark tobacco bill, handing a major victory to cigarette makers who waged a multimillion dollar campaign against it. Industry leader Philip Morris Cos. (MO), the maker of Marlboro cigarettes, jumped 1 1/8 to 39 9/16. Loews Corp. (LTR) rose 7/16 to 89 5/8, RJR Nabisco Holdings Corp. (RN) climbed 11/16 to 25, and UST Inc. (UST) gained 15/16 to 26 11/16.
Oil stocks returned to the downside as concern over dropping oil prices continued to weigh on the sector. The AMEX Oil Index (XOI) fell 7.57 to 465.32. Notable declines were registered by drilling specialists like Diamond Offshore Drilling (DO), off 1 7/8 to 41 11/16; Global Marine (GLM), down 5/8 to 18 13/16; and Schlumberger (SLB), off 2 3/16 to 69 7/8; as well as big oil companies like Texaco (TX), down 13/16 to 59 7/8, and Chevron (CHV), off 1 3/4 to 81 15/16.
Camco International Inc. (CAM) rose 5 3/4 to 62 1/2 on renewed speculation that a takeover bid will be made for the oilfield equipment and services company, perhaps by Schlumberger. Trading was halted on Camco shares.
Atlantic Richfield (ARC) fell 1 5/8 to 78 13/16 after The Wall Street Journal reported that the oil company plans to sell its ARCO Chemical division to Lyondell Petrochemical (LYO) for $5.6 billion. Lyondell shares gained 1 to 28 3/4.
Transportation stocks, which usually move in the opposite direction of oil shares, continued to fall as well. The Dow Transportation Index ($TRAN) dropped 32.98 to 3,340.15, with the AMEX Airline Index (XAL) off 0.89 to 371.62.
Among transports, the declines were led by Alexander & Baldwin (ALEX), down 1 1/2 to 26 1/2; Ryder System (R), off 1 1/8 to 31 3/4; Airborne Freight (ABF), down 1 5/16 to 32 11/16; and Roadway Express (ROAD), off 3/8 to 16 1/8. Airlines were chiefly held back by Alaska Air Group (ALK), down 1 3/4 to 49 15/16, and KLM Royal Dutch Airlines (KLM), off 15/16 to 37 3/4.
An analyst upgrade bolstered McDonald's (MCD), which rose 2 7/16 to 67 7/8. Goldman Sachs analysts raised their rating on the fast-food company to "market outperform" from "market performer."
Sprint (FON) gained 1 to 73 1/2 after announcing that it will buy up to $700 million of equipment from Lucent (LU) over three years. The contract is in addition to an existing $1.8 billion agreement with Lucent. Lucent shares fell 1 11/16 to 72 15/16.
Summit Bancorp (SUB) fell 1 to 46 3/4 on news that it will acquire NSS Bancorp (NSSY) in a deal valued at about $139.6 million. NSS Bancorp shares leaped 9 3/8 to 55 1/4.
AirNet Systems Inc. (ANS) dropped 4 11/16 to 16 5/16 after the small package delivery company said it broke off an agreement to buy Q International Courier Inc., citing management and cultural difference between the two companies. AirNet also reported that this year's earnings will be lower than expected, partly because of costs incurred during the negotiations to buy Q International.
Lehman Brothers Holdings Inc. (LEH) gained 1/2 to 76 after the fourth largest U.S. securities firm said net income in its fiscal second quarter rose to $2.12 a diluted share, well ahead of analyst estimates of $1.69 a share.
American Financial Group Inc. (AFG) fell 1/2 to 43 9/16 after the property and casualty insurer warned that it expects second-quarter earnings to be cut by $35 million to $40 million following what it called "a series of catastrophic storms."
Rexall Sundown Inc. (RXSD) rose 3 1/8 to 35 11/16 after the maker of vitamins and nutritional products reported a rise in its third-quarter net income to 26 cents a diluted share, beating the Street by 2 cents.
|
