MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 28, 1998 (1)
MARKET OVERVIEW
Friday Closing Markets: TSE And Dow Up, European And Asian Markets Mixed
Bay Street closed out the week with a fourth straight day of gains and one of its better five-day performances in recent weeks as investors showed signs of interest in the equity markets once again. Stocks were led by bank shares but Northern Telecom Ltd. and BCE Inc. tempered the advance.
In New York, Wall Street stocks rose modestly in a cautious market, as the Dow Jones industrial average gained just 8.22 points to 8,943.80 after giving back most of an early 56-point gain. For the week, the Dow finished nearly 231 points higher and is about 267 points shy of its May 13 record of 9,211.84. So far this year, the Dow has posted an impressive midyear gain of more than 1,000 points, or 13.1 per cent.
Asian stock markets ended the week mixed Friday, with both share prices and the Japanese yen rising in Tokyo on news of a merger between Japan's two largest banks. In Europe, at midday on the London Stock Exchange, the Financial Times 100-share index was down 24.1 points to 5,834.8.
Toronto Stocks Close Week On Positive Note
Toronto stocks closed the week on Friday with one of their better five day performances in recent weeks as investors showed signs of interest in the equity markets once again. Canadian stocks, led by bank shares, rose for a fourth straight day, but Northern Telecom Ltd. and BCE Inc. tempered the advance.
The TSE 300 composite index, the broadest measure of activity on the Toronto market, rose 23.94 or 0.3% to 7,338.66. The It gained 185.27 points, or 2.6%, on the week. About 108.6 million shares changed hands on the TSE, down from 181.1 million shares traded on Thursday. Trading value was worth C$2.17 billion. Advancers topped decliners 507 to 454 with another 310 issues unchanged. Today's 23-point climb extended the market's winning streak to four sessions as it attempted to regain ground after suffering severe point losses in recent weeks.
On the week, the TSE 300 advanced 185.27 points or 2.6 percent.
In New York, the blue chip Dow Jones Industrial Average rose 8.96 points or 0.1 percent to 8944.54. On the week, the Dow gained 231.67 points or 2.7 percent.
''What we've been through is the typical quarterly window-dressing and volatility run-up type of thing,'' said analyst Bill Ram.
Douglas Davis, Counsel president of Davis-Rea Ltd. Investments agreed. Earlier on Friday he noted ''The U.S. window dressing or quarter end buying ended yesterday and as a result he expected a quiet summer Friday with a lot of people gone on holiday.
''The market is Jekyll and Hyde these days,'' said Jim Doak, president of Enterprise Capital Management Inc. He said equities were searching for direction amid uncertainty about Asia and the longer-term trend of the U.S. dollar. If the U.S. dollar falls, cyclical and commodity-based shares should improve. But if the Asian flu continues to dog the Japanese yen, interest-sensitives and defensive stocks should see the lion's share of investment.
"It's going to be a long summer of choppy markets with both the Canada and U.S. indexes prone to 200- to 300-point tantrums," said Conor Bill, director of private client equity trading at ScotiaMcLeod Inc. "Anything that causes the market to be nervous will cause it to sell off and next week sees some big economic data."
"It was definitely a better week," said Todd Kapala, an investment specialist at Priority Brokerage in Toronto. "It's partly a reflection that our dollar is beginning to stabilize." Despite the rise, Kapala said the day showed little direction as investors adopted a "wait and see attitude""in anticipation of the second-quarter earnings period and to digest the latest developments in South East Asia.
"There were no dramatic movements in the individual indices and that seems to be pretty characteristic of the markets right now. Most people are taking a wait and see approach," he said.
Overall in Toronto, 11 of the TSE 300's 14 subindexes ended in positive led by strong performances in the banking and transportation sectors. The transportation group led the way, gaining 1.3%, followed by real estate, up 0.9%, golds and precious metals up 0.8%, Financial Services 0.8%, Conglomorates 0.7%, oil & gas 0.7% and consumer products 0.7%.
Financial services stocks once again recorded strong gains as investors remain upbeat about the rapidly consolidating banking sector. The heavily weighted financial services sector, which makes up almost 25 percent of the total market, gained 0.83 percent as investors showed confidence that an interest rate hike to support the slumping Canadian dollar was not needed at the present time. The financial services subindex has climbed 18.8% this year, compared with 9.5% for the TSE 300. While ranked second in terms of performance this year behind the utilities group, the country's largest financial institutions helped make the group the best performer in 1996 and 1997. Banking stocks benefited from the news. Bank of Nova Scotia (BNS/TSE) rose 70› to $36.10, Canadian Imperial Bank of Commerce (CM/TSE) climbed 70› to $46.70 and Royal Bank of Canada (RY/TSE) jumped 35› to $87.75. Midland Walwyn lost $0.25 to $32.00.
Resource-based stocks also checked in with gains. Gold miner's Franco-Nevada Mining Corp. Ltd. gained C$1.05 to C$28.25 and Barrick $0.25 to $27.35. Among mines, Itec DB rose $10.00 to $60.00 and Crystallex fell $0.13 to $1.12.
The TSE Oil & Gas Composite Index gained 0.7% or 44.60 to 6062.17. The Integrated Oil's led the advance, gaining 1.6% or 130.90 to 8463.36. The heavyweight Oil & Gas Producers Index held back a larger advance by the composite index, gaining just 0.3% or 17.15 to 5347.61. The Oil & Gas Services Group gained 1.2% or 30.11 to 2450.15
Renaissance Energy, Pinnacle Ressources, Westfort Energy, Canadian Natural Resources and Ranger Oil were among the top 50 most active issues on the TSE. Also listed were service issues Bonus Resource Services and Plains Energy Services.
Among the top 50 net gainers, Suncor Energy Inc. gained $1.75 to $50, Baytex Energy $0.85 to $8.40, Shell Canada A $0.80 to $25.40 and Anderson Exploration $0.60 to $16.75, as West Texas crude rose US10› to US$14.13 a barrel in New York. Poco Petroleums Ltd. rose 45› to $14.35 after the price of natural gas jumped to a two-month high. Hot weather lifted demand for the commodity, which is used to generate electricity for air conditioners. Other producers with good gains included Paramount Resources $0.50 to $12.50, Canadian Occidental Petroleum $0.45 to $32.15, Remington Energy $0.40 to $15.00 and Talisman Energy $0.40 to $41.50. Service issues making the list included Enertec Resource Services $0.90 to $8.50, Prudential Steel $0.80 to $11.25 and Precision Drilling $0.55 to $29.75.
On the flipside, Pacalta Resources fell $0.80 to $9.10, PanCanadian Petroleum $0.60 to $22.40 and Alberta Energy $0.55 to $34.50. Among service issues, Dreco Energy Services fell $1.75 to $38.00 and American ECO $0.45 to $9.15.
Among industrials traded on the TSE, Call-Net Enterprises Inc. class B shares (CNB/TSE) rose $2.30 to $25.30 and Fonorola Inc. (FON/TSE) rose $1.20 to $67.20 after Call-Net announced it would buy Fonorola for an agreed $1.97 billion, or $67 a share, in cash or shares, and assumed debt. The combined entity will create the second-biggest long-distance phone company in Canada. Call-Net was the third most active issue in Toronto, with 6.7 million shares changing hands. Fonorola was fourth most active, with 3.9 million shares changing hands.
Bucking the positive trend was the utilities group that lost 0.5%, the industrial products sector that fell 0.4% percent and pipelines that slipped 0.2%.
For the week, 11 of 14 stock groups gained ground, led by communications and media, up 6.2%, oil and gas 4.5%, utilities, up 3.4%, and conglomerates, up 3.3%.
Among the sub-components comprising the oil and gas composite index, the Integrated Oil's gained 4.4% or 353.74 points for the week. The Oil & Gas Producers Index gained 4.9% or 247.60 points, while the Oil & Gas Services managed to gain 2.7% or 65.52 points.
The losing groups were paper and forest products, down .89%, transportation, down .21%, and consumer products, down .15%.
Disappointing news from U.S. industry leaders Intel Corp. and Microsoft Corp., the world's largest chip and software makers, weighed on Nortel and other telecommunication and computer-related issues. BCE (BCE/TSE) slipped 85› to $63.35, Nortel (NTL/TSE) fell 90› to $81.60, Newbridge Networks Corp. (NNC/TSE) slipped $1 to $35.25, JDS Fitel Inc. (JDS/TSE) lost 20› to $24 and Mitel Corp. (MLT/TSE) slid 15› to $21.55.
Most other ther Canadian markets ended the week higher. The Montreal Exchange portfolio rose 9.85 points, or 0.3%, to 3711.74. For the week, it was up 63.85 points, or 1.8%. The Vancouver Stock Exchange, laden with junior resource companies, gained 2.04 points, or 0.4%, to close at 531.89. Since last Friday, it has fallen 6.49 points or 1.2%.
The Alberta Stock Exchange combined value index gained 2.50 to 2093.54. Advancing issues outnumbered declining issues 140 to 127 with another 120 issues unchanged. The ASE was the only exchange to experience a loss for the week, with the combined value index losing 0.7% or 16.07 points.
Wolverine Energy, Parkcrest Exploration, First Star Energy, Oilexco, Veteran Resources, Raptor Capital, Hampton Court and Wenzel Downhole were among the top 25 most active traded issues on the ASE.
Belfast Petroleum gained $0.25 to $2.40, Total Energy Services $0.20 to $1.90, Solid Resources $0.15 to $7.15, Global Link International $0.14 to $0.85, Corlac Oilfield $0.11 to $0.88, Destiny Resource Services $0.10 to $3.20, Edge Energy $0.10 to $3.90, Moiibus Resources $0.10 to $0.40, Red Sea Oil $0.10 to $1.75, Stellarton Energy $0.10 to $2.55 and Syner-Seis Tech $0.10 to $0.65.
On the flipside, HEGCO Canada fell $0.18 to $2.35, Encounter Energy $0.17 to $1.33, Northline Energy $0.15 to $1.25, Alliance Energy $0.10 to $0.40 and Invader Exploration $0.10 to $0.65.
Canadian bonds closed little changed in very quiet trade on Friday, underperforming their U.S. counterparts amid a late wave of safe-haven buying of U.S. Treasuries, analysts said.
"What you're basically seeing is the U.S. market, which was a little bit weaker in the morning, catching a bit of a bid here on all of these concerns about Russia. This is another flight-to-quality bid. And when you get the flight-to-quality bid you do not see Canada tending to benefit from that," said Jim Webber, director of fixed income research with TD Securities Inc.
Canada's benchmark 30-year bond rose C$0.05 to C$135.56 to yield 5.523 percent.
Its U.S. 30-year counterpart rose 10/32 to yield 5.63 percent. The spread between the two narrowed to 11 basis points from 13 points at the close of trading on Thursday.
Buyers flocked to U.S. treasuries after Russian markets took a battering on Friday, prompting the central bank to announce a rise in interest rates to forestall any exodus of investors.
The central bank said on Friday evening its key rates would rise 20 percentage points to 80 percent from Monday. The bank had brought the rates down on June 4 from an emergency level of 150 percent in the hope that the worst of the crisis had passed.
Canadian bonds and T-bills were largely bypassed by the action. Trading was light, and investors were said to be looking ahead to next week, when the U.S. Federal Reserve's rate-setting Open Market Committee will meet on June 30 and July 1.
Canadian economic data out this morning had little impact on bonds. Statistics Canada reported its industrial products prices index was unchanged in May from April but was down 0.8 percent on the year. The government agency also said its raw materials price index fell 0.7 percent on the month and 15.1 percent on the year.
At the short end of the curve, Canada's three-month when issued T-bill traded with a yield of 4.85 percent, unchanged from Thursday's close.
Canada's dollar closed slightly weaker at C$1.4693 (US$0.6805) in moderate trading on Friday as skittish investors put an end to the currency's modest rally this week.
The Canadian dollar had rallied this week from a low of C$1.4713 (US$0.6796).
Analysts said the currency should enjoy a quiet week of trading next week with little economic data due to be released and market holidays in both Canada and the United States.
"If you were to just consider the data coming out of the U.S. and Canada next week, you would think that the currency's chances next week are not too bad," said Marcel Kasumovich, economist with Goldman Sachs.
Statistics Canada reported on Friday that industrial prices were unchanged in May after a 0.7 percent increase in April.
Raw material prices, however, fell 0.7 percent in May after a rise of 1.4 percent in the previous month.
On the crosses, the Canada unit dipped to 1.2255 marks from 1.2263 marks on Thursday and edged down to 96.87 yen from 96.95 yen at the previous close.
Friday's Markets In U.S.
Stocks edged higher Friday, capping a week of gains despite questions about corporate earnings and Asia. Major indices spent most of the morning in solidly positive territory and treaded gradually lower as the session's end neared.
The Dow Jones Industrial Average ($INDUA) closed up 8.96 points at 8,944.54, unable to hold the day's highs for the second straight session. But the blue-chip index gained 230.93 points, or 2.6%, for the week.
The Nasdaq Composite Index (COMP) ended up 6.28 points at 1.869.53. Fueled by a scorching rally in tech stocks, the index was up 88.24 points, or 4.9%, on the week.
The Standard & Poor's 500 Index (SPX) closed up 3.92 points at 1,133.20, its second record this week. The index gained 32.55 points, or 2.9%, for the week. The small-cap Russell 200 Index ($IUX) rose fractionally to 450.27, an 11.80-point rise for the week.
On the New York Stock Exchange, advancing issues outpaced decliners by a 15-to-13 margin on light volume of 518 million shares.
Active Issues
Drug stocks proved the most potent positive influence on the broader markets, as the AMEX Pharmaceutical Index (DRG) gained 6.83 to 680.02. Leading the way were ALZA Corp. (AZA), up 1 15/16 to 44 3/4; Warner-Lambert (WLA), rising 1 9/16 to 66 15/16; and Eli Lilly (LLY), which gained 1 1/2 to 68 1/2.
Bristol-Myers Squibb Co. (BMY) jumped 3 1/2 to 117 1/2 after Prudential Securities analysts raised the 12-month price target on the pharmaceutical company to 135 from 123 and reiterated a "buy" rating on the stock. The analysts cited prescription sales for the company's two cardiovascular drugs and good progress in clinical trials for two of the company's new drugs.
Banking stocks were mildly on the upside, with the Philadelphia KBW Banking Index (BKX) rising 1.15 to 858.20. Leading the way were Bank of New York (BK), up 1 1/16 to 64 1/16; NationsBank (NB), up 13/16 to 78 3/16; and BankAmerica (BAC), which rose 15/16 to 87 1/4. Citicorp (CCI) registered a 2 3/4 decline to 151 1/4.
Most of the negativity, though, came from Mellon Bank Corp. (MEL), which fell 4 1/4 to 70 5/8, after analysts at Salomon Smith Barney said in a report that rumors of merger talks between Chase Manhattan Corp. (CMB) and Mellon appear unfounded. The bank had gained more than 8.7% in the previous two days on speculation that Chase, the country's largest bank, might be preparing a bid. Chase Manhattan shares gained 1 to 73 3/8.
AT&T Corp. (T) fell 1 1/16 to 56 15/16 after The Wall Street Journal reported that the largest long-distance company will spend billions upgrading the network of Tele-Communications Inc. (TCOMA) to deliver the voice, video and data services it has promised. TCI shares fell 9/16 to 38 11/16.
Metro One Telecommunications Inc. (MTON) dropped 1 13/16 to 8 13/16 after reporting that revenues for its second quarter would be higher than last year's, but warning that a BellSouth (BLS) contract and parts of an Ameritech (AIT) contract would not be renewed.
General Motors Corp. (GM) fell 1 to 66 7/8 after Goldman, Sachs analysts cut second-quarter earnings forecasts as the world's largest auto maker, which is facing a series of United Auto Workers strikes at its plants. The analysts maintained a "market outperform" rating on GM shares, saying that once GM gets past current labor woes, the stock could become "interesting." Separately, The Wall Street Journal reported that GM's sales program for its profitable full-size pickup trucks this summer has been affected by the strikes.
J.B. Hunt Transportation Services Inc. (JBHT) rose 2 3/4 to 35 7/16 after the transportation company's rating was raised to near-term "accumulate" from near-term "neutral" by analysts at Merrill Lynch & Co.
Barrett Resources Corp. (BRR) rose 1 13/16 to 38 after the oil and gas exploration company's rating was raised to "buy" from "outperform" by analysts at Lehman Brothers Inc., who expect the stock to reach 45 in 12 months.
Shares of UK office supplies group Danka Business Systems (DANKY) fell 3 13/16 to 13 3/16 after the company said it expects earnings in the first quarter and in the full year to be hit by an unexpected revenue shortfall.
Technology Stocks
The Nasdaq was boosted by a 2 7/8-point rise in Microsoft's (MSFT) shares to 104 7/16 in active trading. Microsoft chairman and chief executive Bill Gates made upbeat remarks Thursday about his expectations for personal-computer use in the next three years. The company said it sold more than 120,000 copies of its new Windows 98 operating system even before stores opened. [Microsoft is the publisher of Investor.]
Further boosting the software giant's stock was a report from Salomon Smith Barney analysts that Microsoft's new Windows NT server, SQL Server 7.0, is outperforming Oracle's (ORCL) 8.0 product. Oracle shares were off 1/16 to 24 5/8.
Action in the tech sector, though, was broadly mixed. The Morgan Stanley High Tech Index (MSH) dropped 1.10 to 592.33, hampered by negativity in the chip sector, where the Philadelphia Semiconductor Index (SOX) was down 2.11 to 251.04. However, networking stocks provided a strong upward pull, with the AMEX Networking Index (NWX) up 2.27 to 285.67, while Internet stocks also rose as the AMEX Internet Index (IIX) gained 1.98 to 375.64.
Sector bellwether Cisco Systems (CSCO) led the networkers, rising 2 13/16 to 89 7/8, amid optimism that the proliferation of networks will boost demand for gear that links computers, telephones and TVs. Morgan Stanley analysts raised their price target on Cisco shares to105 from 90 and maintained a "strong buy" rating on the company.
Lam Research (LRCX) led the negativity in chips, falling 1 5/8 to 20 1/16, while Linear Technology (LLTC) dropped 2 3/8 to 50 5/8 and Lattice Semiconductor dropped 1 1/16 to 29 9/16.
Combating the trend was sector leader Intel Corp. (INTC), which rose 3/4 to 76 3/8 after saying it has identified a bug, or "errata," in its upcoming Pentium II Xeon processor targeted to the server and workstation market.
Chip maker Altera Corp. (ALTR) rose 1/2 to 30 3/16 after saying it increased its share-buyback program to 6 million shares from 2 million.
Qualcomm Inc. (QCOM) fell 2 1/4 to 54 1/8 amid concern over a problem with one of the company's most popular phone models. Sprint PCS, one of Qualcomm's biggest customers, has stopped selling its "Q" flip-up phone because of a defect in the joint that connects the mouthpiece to the earpiece, said Tim Luke, an analyst at Lehman Brothers Inc.
Among other active stocks, shares of software company Parametric Technology Corp. (PMTC) fell 4 11/16 to 29 1/16 on the Nasdaq.
Adobe Systems (ADBE) fell 1 15/16 to 42 7/16 despite reporting second quarter earnings that topped Wall Street estimates. Adobe's profits of 41 cents per diluted share were 2 cents ahead of consensus estimates, but nonetheless were 30% below the year-ago period.
After The Bell
Quantum Corp. (QNTM) said it adopted a new stockholder-rights plan. The new plan becomes effective on Aug. 4, when the current plan expires.
Chip maker Alliance Semiconductor Corp. (ALSC) said it will buy back as many as 2 million shares of common stock on the open market.
Global Industries Ltd. (GLBL) said it's not aware of any reason for the recent decline in the company's stock price and expects to meet analysts estimates for the first quarter ending June 30. The oilfield services company's shares fell 20% earlier this week.
Sempra Energy (SRE), a California utility, was named to replace Pacific Enterprises (PET) in the Standard & Poor's 500 Index after the close of trading June 29. Sempra was formed by Enova Corp.'s $4.5 million purchase, completed Friday, of Pacific Enterprises, the parent of Southern California Gas Co.
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