MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JUNE 22, 1998 (1)
MARKET OVERVIEW
Toronto Stocks Close Lower In Lacklustre Day
TORONTO, June 22 - Toronto stocks closed lower in a lackluster day of trading on Monday despite a brief late day bounce into positive territory. ''It was a strange day,'' said Rick Hutcheon, president at CentrePost Mutual Funds in Toronto. ''A lot of tooing and froing. It was a skitish market.''
Investor interest in a $1.26-billion deal in the financial services world Monday was not enough to offset their jitters over the continuing Asian economic crisis. North American markets treaded cautiously throughout the day as they reacted to the weak overnight performances by the Asian markets, which included a 387.70 point or 4.5 percent drop in Hong Kong's Hang Seng Index and just a 41.11 or 0.27 percent rise in Japan's Nikkei 225 Index. ''Maybe we're just going to try to wait and see what happens oveseas tonight and see whether the Hong Kong and Tokyo markets can hold themselves together,'' Hutcheon said.
"There's still a fair amount of jitters in the market based upon what is going on in Asia," said Fred Ketchen, chief equities trader at ScotiaMcLeod in Toronto. Japan, the world's second-largest economy, is in a recession that is contributing to a fall in currency values and markets around the globe.
The Toronto Stock Exchange's key 300 Composite Index fell 15.87 points or 0.22 points to 7137.52. Volume was 101.8 million shares, down from 142.3 million shares traded on Friday. Trading value was worth C$2.15 billion. Advancers lagged decliners 398 to 562 with another 286 issues unchanged. Today's loss gave back all of the 15.12 points the TSE accumulated on Friday.
By comparison the closely watched Dow Jones Industrial Average closed flat dropping just 1.74 points or 0.02 percent to 8711.13.
Overall in Toronto, 12 of the TSE 300's 14 subindexes closed in negative territory led by a 1.2 percent decline in the influential gold and precious minerals index, as the August price for Comex gold dropped US$3.70 to US$297.10. ''Gold's going down because people believe Japan's going to get through this. The markets haven't tanked so there still is some hope,'' said Synergy Mutual Funds president Joe Canavan. Barrick Gold Corp. (ABX/TSE) slipped 20› to $26.40, Teck Corp. class B shares (TEKB/TSE) fell 55› to $16.20 and Placer Dome Inc. (PDG/TSE) slid 15› to $16.35.
Among mines, Southernera Res rose $0.60 to $5.60.
The financial services and utilities subindexes contributed a combined 14 points to the decline. The utilities subindex, the best performer on the TSE so far this year, has returned 24%, while the banking group has returned 14.7%. The TSE 300 has returned just 6.5%.
Financial services lost ground despite the fact it received a bit of a boost from a mega-merger Monday. The heavily weighted financial services sector, which occupies almost 25 percent of the overall index, fell 0.62 percent. U.S. brokerage giant Merrill Lynch announced a $1.26-billion stock deal that will see it acquire Midland Walwyn, Canada's largest independent brokerage. Investors welcomed the agreement, pushing Midland Walwyn's stock up $2.80 to close at $30.05 on trading of 10.5 million shares.
That wasn't enough, however, to lift the financial services index out of its Asian doldrums and it ended the day down 0.62 per cent. Shares in Mackenzie Financial Corp., which holds about 19 per cent of Midland Walwyn stock, slid even though Mackenzie will be a beneficiary of the deal. It lost 50 cents per share to close at $20.30. In New York, shares of Merrill Lynch fell $2.75 to close at $87.56 US. Bank of Nova Scotia (BNS/TSE) fell 55› to $34.75, Canadian Imperial Bank of Commerce (cm/tse) slipped 70› to $45.45 and BCE Inc. (BCE/TSE) lost 35› to $59.65.
Newbridge Networks Corp. (NNC/TSE), which attributed 18% of 1997 sales to the Asia Pacific region, tumbled 45› to $32.70. BCE lost $0.35 to $59.65
Oil prices should be low enough to encourage the transportation index. Instead, it lost the most on the session, falling 1.41 per cent largely due to continued profit-taking in Canadian National Railway. It dropped $1.90 to $77.50.
Consumer products slipped 1.31 per cent.
The TSE Oil & Gas Composite got a big boost as crude oil enjoyed its largest one day price surge in 12 years, after tough talk on production cuts by the Kuwaiti oil minister before tomorrow's meeting of the Organization of Petroleum Exporting Countries in Vienna. Shares in oil and gas companies have been severely hit recently by plummeting oil prices. Yesterday, West Texas intermediate crude gained US$1.59 a barrel to US$13.43 on the New York Mercantile Exchange. At more than 13%, that one-day gain was the largest since 1986. "This shows a bit of a turnaround in that sector," said Ketchen.
The TSE Oil & Gas Composite Index climbed 1.9% or 112.73 to 5911.26. Among the sub-components, the heavy-weight Oil & Gas Producers Index led the way, gaining 2.4% or 124.59 to 5224.60. The Integrated Oil's Index rose 1.2% or 99.38 to 8209.00. The Oil & Gas Services Group Index gained 0.5% or 11,64 to 2396.27.
Tarragon Oil & Gas, ranger Oil, Poco Petroleums, Newport Petroleum, Renaissance Energy, Petro-Canada, Neutrino Resources, Canrise Resources, Gulf Canada Resources and Compton Petroleum were listed among the top 50 most active issues on the TSE. Service issues were not represented.
Talisman Energy, rose $1.50 to close at $39.80, Amber Energy $1.00 to $14.00, Ranger Oil $1.00 to $10.65, Pacalta Resources $0.90 to $9.90, PanCanadian Petroleum $0.90 cents to $22.25, Canadian Natural Resources $0.70 to $24.20, Rigel Energy $0.70 to $14.00, Berkley Petroleum $0.55 to $11.45, Alberta Energy $0.50 to $30.75, Crestar Energy $0.50 to $18.70, Petro-Canada $0.50 to $23.30 and Ulster Petroleum $0.50 to $11.50.
Among service issues, Precision Drilling gained $0.90 to $27.50 and Computalog $0.50 to $16.50.
On the flipside, Seven Seas Petroleum (u) continued its slide, losing $1.30 to $17.75.
Among service issues, IPSCO fell $1.10 to $39.50, Dreco Energy Services $0.70 to $40.50 and Ensign Resource Services $0.60 to $23.80..
Industrial products was the only other index to gain on the session, driven up 0.40 per cent by Ballard Power Systems, which rose $2.90 to $49.40.
Despite the loss today and the market's almost six percent drop so far this month, Hutcheon is calling for a mild rally next week as money managers adjust their portfolios ahead of the month end and quarter end periods. ''I wouldn't be surprised if we got a bit of a lift into the end of the month,'' he said.
Other Canadian exchanges also lost ground. The Montreal Exchange portfolio fell 28.8 points, or 0.8%, to 3619.09. The Vancouver Stock Exchange shed 2.57 points, or 0.5%, to 535.81.
The Alberta Stock Exchange's combined value index fell 9.93 to 2099.68. Declining issues outnumbered advancing issues, 174 to 112 with 122 issues remaining unchanged. The common shares of Drilcorp Slimhole Technologies Ltd. (DCT/ASE) were posted for trading at the opening of business today. The company has 7,000,000 common shares issued and outstanding. Drilcorp Slimhole Technologies Ltd. is a Junior Capital Company which proposes initially to identify and evaluate opportunities for the acquisition of an interest in corporations, properties, assets or businesses, and once identified, to determine the terms upon which to acquire an interest therein.
Anvil Resources, First Star Energy, AltaPacific Capital, Green River Petroleum, Red Sea Oil, Raptor Capital, Oilexco and Wolverine Energy were among the top 25 most active issues on the ASE.
Derrick Energy gained $0.30 to $2.10, Edge Energy $0.20 to $3.80, HEGCO Canada $0.10 to $2.60 and Underbalanced Drilling $0.10 to $2.00.
On the downside, Stellarton Energy fell $0.30 to $2.55, AltaQuest Energy $0.15 to $2.60, Nevarro Energy $0.15 to $0.25, Del Mar Energy $0.11 to $0.20, Extreme Energy $0.11 to $0.21, Colt Energy $0.10 to $0.40 and Niko Resources $0.10 to $4.40.
The Canadian dollar ended a firmer around C$1.4715 (US$0.6796) on Monday, recovering from earlier losses.
The currency hit a record intra-day low of C$1.4754 (US$0.6778) against the U.S. dollar in early trade in the absence of money market operations by the Bank of Canada at the 0900 EDT/1300 GMT window of opportunity that would support the Canadian unit.
''The move up has been probably due to the fact that the bank did nothing, and I think this type of activity will continue as the weeks go on,'' one trader said.
The next target is an overseas record trading low of C$1.4767 (US$0.6772) hit in Asia on June 16.
The previous intra-day low was at C$1.4740 (US$0.6884) marked on June 15.
The U.S. dollar jumped back to 138 yen in Tokyo overnight and remained firm through most of North American trade after deputies to finance ministers from the Group of Seven (G7) major nations, meeting on the weekend in Tokyo to discuss economic problems in Japan and Asia, failed to impress the market.
Market players had been anticipating, to some extent, a G7 statement that would suggest joint action to stem the yen's fall and aggressive measures by Tokyo to spur its economy, although U.S. Treasury Secretary Robert Rubin had warned on Friday that there would no policy actions from the meeting.
In cross trading, the Canadian unit rose to 93.79 yen from 92.55 yen at the previous close here, and was up to 1.2187 marks after 1.2154 marks.
Whether Canada's dollar can recover from its current lows depends on how fast the Japanese currency regains strength against the U.S. dollar and how quickly commodities prices recover.
The Organization of Petroleum Exporting Countries is meeting in Vienna this week, seeking to cut output and shore up sagging oil prices.
The market is also looking at the strength of the Canadian economy, and will pay attention to the release of April retail sales on Thursday.
Economists on average forecast a rise of 0.6 percent in retail sales after a 1.0-percent rise in March.
Stronger-than-forecast sales numbers, combined with a recent rise in the inflation rate, could prompt speculation that Canada's central bank would have a freer hand in raising interest rates to defend the currency if faced with massive speculative selling.
Asian economies are banking on Japan for reviving growth in the region, but slashing non-performing loans at Japan's commercial banks, key to jump-starting Japan's economy and restoring investor confidence, is a time-consuming process.
Tokyo said on Monday it would work out by July 8 details of a ''bridge bank'' scheme to sustain bank lending in the wake of bank failures, copying the one set up by the United States aimed at cleaning up its own bad loans in the 1980s.
Later a senior policymaker at Japan's ruling party said he hoped that his party could work out a plan before July 8.
Canadian bonds ended flat on Monday in slow trade with the short end of the yield curve continuing to be under pressure from the weak Canadian dollar.
The long end shed earlier gains that were made on safe-haven capital flows to North America.
''I would say although there is some negativity creeping into the market, there will be some profit-taking coming into the market, I don't think it's a bear market at all,'' said Jeoff Hall, managing Canadian market analyst at Technical Data in Boston.
The negative tone in U.S. treasuries stemmed from the buying of put (sell) options in slow trading.
The Canadian dollar ended a bit firmer at C$1.4712 (US$0.6797) on Monday, recovering from a new intra-day low of C$1.4754 (US$0.6778), hit in morning trade.
The U.S. dollar has surged against key currencies again as market players were disappointed with the outcome of crisis meetings of the Group of Seven (G7) democracies and Asian nations in Tokyo at the weekend.
Renewed uncertainty over the course of an economic recovery in Japan and the rest of Asia has prompted buying of U.S. treasuries, which has propped Canada's long-term bonds.
''Developments in Asia are still dominating the activity, and the disappointment with the weekend meeting of the G7 countries hit the (Canadian) currency and that has spilled over into the bond market with the front end under pressure,'' said Rob Palombi, senior fixed-income analyst at Standard & Poor's MMS.
Canada's benchmark 30-year bond rose C$0.03 to C$135.85 to yield 5.508 percent.
Its U.S. 30-year counterpart rose 7/32 to yield 5.66 percent. The U.S.-Canada spread was 15 basis points after 17 points at the previous close here.
The market is looking at the strength in the Canadian economy, including the release of April retail sales on Thursday and the impact of strikes at General Motors plants in North America.
Economists on average forecast a rise of 0.6 percent in retail sales after a 1.0-percent rise in March.
Stronger-than-forecast sales numbers, combined with a recent rise in the inflation rate, could prompt speculation that Canada's central bank would have a freer hand in raising interest rates to defend the currency if faced with massive speculative selling.
Canada's Department of Finance said on Monday it plans to issue a 4 billion mark 10-year global bond for simultaneous distribution in Asia, Europe and North America. The proceeds of the issue will go to the nation's foreign exchange reserves.
Canada last issued a mark-denominated bond in 1986, a department official said.
''We were intrigued by the sheer size. It's very large,'' Technical Data's Hall said. ''The implications are on the Canadian dollar in that the government of Canada is obviously trying to build foreign currency reserves.''
''They are raising reserves instead of raising interest rates to fend off any insurrection of the Canadian dollar,'' he said. ''It's another way of doing it and I think more desirable for them in the long term than to stifle the economy with a rate hike.''
Canada's dollar has been under pressure from weak prices of commodities, a pillar of the nation's exports, and as capital flows into safer and more attractive U.S. assets, which provide higher returns than Canadian bonds.
The Organization of Petroleum Exporting Countries are meeting in Vienna this week, seeking to cut output and shore up sagging oil prices.
Canada's economic fundamentals, including the current account deficit level, are still better than those in Australia and New Zealand, which are also under pressure from weak commodities prices, MMS's Palombi said.
The U.S. dollar jumped back to 138 yen in Tokyo overnight after deputies to the G7 finance ministers, discussing economic problems in Japan and Asia, failed to impress the market.
Market players had been anticipating, to some extent, a G7 statement that would suggest joint action to stem the yen's fall and aggressive measures by Tokyo to spur its economy, although Treasury Secretary Robert Rubin had warned on Friday that there would no policy actions from the meeting.
Asian economies are banking on Japan to revive growth in the region, but slashing non-performing loans at Japan's commercial banks, key to jump starting Japan's economy and restoring investor confidence, is a time consuming process.
Tokyo said on Monday it would work out by July 8 details of a ''bridge bank'' scheme to sustain bank lending in the wake of bank failures, copying the one set up by the United States aimed at cleaning up its own bad loans in the 1980s.
This is a only first step, and it is feared that the July 12 Upper House election in Japan would create a political vacuum.
The money market was a bit weaker in quiet trading as the Canadian dollar remained under downward pressure.
''(There's) a lot of speculation over whether the Bank of Canada is going to hike rates to defend the currency here. Some people say it could come as early as this week, other people are thinking the currency needs to be weaker than C$1.4800 (US$0.6757),'' one trader said.
Canada's three-month when issued T-bill traded with a yield of 4.88 percent, compared with 4.85 percent at the previous close here. |
