MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JUNE 30, 1998 (3)
MARKET OVERVIEW, Con't
Pac Rim Rides The Yen - Tokyo Soars 3.4 Percent; Sydney, Singapore, Seoul Follow Suit
July 1, 1998: 6:19 a.m. ET
A stronger yen and optimism about Japan's moves to help the economy fueled a 3.4 percent rise in the Nikkei and led the way for significant gains in Asia's other major markets.
The exception was Hong Kong, where the stock exchange was closed Wednesday for a holiday.
The Tokyo stock market's key index closed above the key 16,000 level for the first time in two months.
The key benchmark Nikkei 225 average surged 532.62 points, or 3.36 percent, to end at 16,362.89.
Brokers said that if trading volume remained heavy and the market maintained its energy, the stock average could head to even higher levels.
Banks and brokerages continued to dominate activity ahead of the expected release Thursday of a plan by the ruling Liberal Democratic Party (LDP) for a "bridge bank" to help work problem loans out of the financial system.
"People are hoping the LDP will announce something else in addition to its bridge bank plans, including further tax cuts," said Ken Okamura, strategist at Dresdner Kleinwort Benson.
The optimism helped fuel the yen against the dollar. The dollar fell below 138 yen in late trade in Asia trading Wednesday, down more than 2 yen from the previous day's session.
Activity in the equity market was heavy with 876 million shares changing hands on the first section of the Tokyo Stock Exchange (TSE), sharply up from 576 million shares on Tuesday.
The Long-Term Credit Bank of Japan, which has entered into merger talks Sumitomo Trust & Banking, lost five yen to close at 76. Sumitomo Trust rose 58 yen to end at 678.
Other indices also got a steep lift. The TOPIX index of all first section shares was up 40.37 points, or 3.28 percent, to 1,270.75. The capitalization-weighted Nikkei 300 was up 8.75 points, or 3.59 percent, to 252.52.
South Korea stocks soar - Share prices jumped 5.9 percent Wednesday on the Seoul stock exchange on the back of a stronger Japanese yen against the U.S. dollar.
The composite stock price index soared 17.68 points to close at 315.56.
Local dealers also attributed the increase to reports that the operations of five ailing banks, which were given shutdown orders on Monday, were normalizing.
According to the Financial Supervisory Commission (FSC), for the past two days bank employees hampered the process of merging the five banks with healthier institutions by blocking the
Singapore recovers to close higher - Singapore share prices bounced off early lows to end nearly 3 percent higher on Wednesday, boosted by yen strength and a surge in Japan's key Nikkei stock index.
The benchmark Straits Times Industrials Index closed up or 28.44 points, or 2.67 percent, at 1,095.10.
Dealers said the day's gains were due to a confluence of several factors -- gains in the yen, the Nikkei's strength, as well as fresh funds entering the Singapore market at the start of a new quarter.
"The yen's gain is the main reason, plus the rest of the region is also up," said an institutional dealer with a large local bank.
Market players said morning dealings were dismal and trading only revived in the afternoon when fairly aggressive buying emerged.
Volume was an estimated 159.09 million shares with gainers outnumbering losers 233 to 101 and 77 counters left unchanged.
Gains were seen largely in blue chip shares with banking and property stocks taking the lead. Dealers said the counters were seen to be fairly valued at current levels after recent falls.
Sydney ends higher on Tokyo rise - The Australian share market ended Wednesday at the day's high as a strong Tokyo rise, a firmer currency and rallying gold stocks offset Wall Street's drop and a sharp fall in News Corp. shares.
The All Ordinaries index gained 31 points to 2,699.4 on high turnover of A$1.38 billion (US$856 million).
"The dollar's quite stable. Tokyo bounced up and there's a bit of institutional buying coming in and that has kicked it up," one Sydney based dealer said about the afternoon gains.
"We're looking less at the U.S. and follow Asia more at the moment," he said, adding confidence was improving in the region.
Growing optimism over developments in the troubled Asian region had soft-drink group Coca-Cola Amatil jumping 78 cents to A$11.58, with most of the rise in late trade.
Dealers said the 1998/99 financial year had started with reasonably healthy buying from fund managers.
"July tends to be quite a strong month as the institutions put in their new strategies for the year," one Queensland-based dealer said.
Gold stocks jumped 3.9 percent in line with the bullion price. Sector leader Normandy Mining climbed eight cents to A$1.40 and Lihir Gold five to A$2.04.
Rupert Murdoch's News Corp. slumped 37 cents to A$12.81 after soaring to A$1.08 on Tuesday.
Dealers said News Corp.'s plan to form Fox Group out of its US$20 billion U.S. entertainment assets and offer some of it publicly was a shareholder-friendly move.
"There's just a bit of reality coming back into the stock today, that's all," the Sydney dealer said.
Europe Surfs Tokyo Gains
Stronger Yen, Nikkei Rise And VW-Volvo Talks Push Bourses Higher
July 1, 1998: 7:11 a.m. ET
European stock markets got off to a bright start Wednesday on the back of rebounding shares in Tokyo, a yen rally and a report of talks between car giants Volkswagen and Volvo.
In early trade, the yen rallied to a one-week high against the dollar and mark amid growing expectations the Japanese government would cut taxes and take action to clear up its banking system.
The dollar/mark was firmer but still stuck in its recent ranges at around 1.8150, with the market looking for news out of Russia rather then Germany.
The Russian parliament is due to debate and vote on the government's austerity measures to tackle the domestic financial crisis.
London celebrates Tokyo gains - The FTSE 100 started higher on Wednesday after a strong run for Tokyo stocks and a rally for the yen, dealers said.
By late morning the FTSE index was up 45.8 points, or 0.79 percent, to 5878.3.
The rise, said one dealer is "just showing there's a little bit more life out there."
"Also there should be a bit of fresh money coming in the market now with the new quarter starting, and the other news hasn't been too bad this morning," he said.
The markets rise was held in check, however, as fears of a U.K. interest rate rise continued to hit market confidence.
Economists are expecting the Bank of England to raise interest rates by at least a quarter point in July or, if not then, in August.
German DAX firm but far from 6,000 - Germany's DAX index nosed briefly above the technically and psychologically significant 5,900 point level on Wednesday morning, but dealers said it was an open game as to whether the index would make it as far as the coveted 6,000 goal.
"It looks really bullish, but it looks too strong. I think we may have to go back to 5,600 and then see," a dealer said.
By mid-morning, the Xetra DAX computer-traded index was 0.86 percent stronger at 5,892.30 points. Later in the morning, the floor-trading DAX was up 5.2 points, or 0.09 percent, at 5902.46.
The firmer dollar, around 1.8150 marks, and gains on Asian markets were seen buoying the German equity market and a convincing hold above 5,900 points was needed, dealers said.
A stronger dollar benefits German shares because it makes their companies' exports less expensive.
"There were a few positive comments from the Far East but investors are still afraid of it," a dealer said.
Shares in German car maker Volkswagen AG hit a record high in the wake reports it was in talks with Sweden's Volvo on a business cooperation agreement. Volvo stock jumped over 5 percent on the report. By mid-morning, Volkswagen was 51 marks firmer at 1,794 marks.
Like London, the French bourse also rose on the good news coming out of Tokyo. By late morning, the CAC40 index was up 43.07 points, or 1.02 percent, to 4246.52.
OIL & GAS
FEATURE ARTICLE
With 40-Year Supply, What Price Petroleum?
LONDON, June 30 - Falling energy prices have economists talking about deflation. Lower fuel costs drive down consumer prices for manufactured goods, heating and transportation.
But why, with world oil demand at an unprecedented 75 million barrels per day, and just 40 years' worth of presently known, extractable reserves in the ground, are prices so low to begin with?
In the short term, a sickly Asian economy, a warmer winter last year, and the return of Iraq to world markets have conspired to push prices lower.
A look at how cheap oil has been for much of this decade, relative to the preceding 20 years, shows just how far technology, competition, new discoveries and a post-Cold War peace dividend have gone to make a finite resource seem like, and sell like, a renewable commodity.
THE MOTHER OF INVENTION "Technology is keeping things well-supplied, and we are seeing so much new oil from so many new provinces, that we are likely to see robust supply for quite some time," said Leonard Coburn, Director of International Energy Policy for the U.S. Department of Energy.
Compare that sentiment to prevailing moods in 1980. Back-to-back oil shocks in the 1970s had rocked the global economy, with $35 a barrel oil prices fuelling sky-high inflation in developed countries.
In addition to major conservation efforts, oil importers, locked out of the politically volatile Middle East by nationalisation policies there, scrambled for new oil, and new ways to bring it to market.
Following dynamic, company-making breakthroughs in the North Sea, Alaska, and the Gulf of Mexico, the ending of the Cold War opened up vast areas of formerly inaccessible acreage to a growing oil machine which now had both the money and the technology to explore them.
Horizontal drilling, which can circumvent complex geology and approach oil deposits from differing angles, cleared the way to huge new reservoirs. And the development of 3D computer imaging of deposits as they move geologically over time now allows companies to extract as much as a third more of the oil they do find.
While two-thirds of the one trillion barrels of global reserves still lie in the Middle East, oil from other sources has increased by around 75 billion barrels since 1977 and is growing daily. "There are so many more producers now, there has been such a mission of proliferation, that oil is really much more of a true commodity than it was 10 years ago," said U.S. oil economist Phil Verleger.
Central Asia's Caspian region may steal the headlines, but in Latin America, parts of North Africa, and especially offshore West Africa, oil activity is proceeding at a pace not seen in decades.
And many of the same Middle Eastern governments who once rebuffed private oil companies are now re-opening their oil fields to private finance and innovation.
"All in all," said Ron Hagen, energy analyst with the Honolulu-based East-West Center, "The 1990's have been a time of real opportunity."
1998 -- OPEC, IRAQ AND THE NEW ASIA Last November, members of the
Organisation of Petroleum Exporting Countries met in Jakarta to raise group production levels in a bid for more market share.
But the plan backfired, having under-estimated early signals of the coming economic slump in Asia, which, as a region, accounts for around half of world demand growth.
On Tuesday, Brent crude, the world oil benchmark, opened at just $13.28 per barrel, around six dollars below last year's price, and in real terms, no higher than it was 25 years ago.
More impressive, it has now been a full week since OPEC-members, facing potential revenue losses of some $45 billion from this year's price collapse, announced an about-face on the Jakarta accord.
As of Wednesday, the group will have withdrawn a total of 2.6 million barrels per day from world markets.
While most analysts agree current oil prices are unnaturally low, many point to the severity of Asia's economic demise, as well Iraq's return to world markets as good reasons why OPEC's latest shock therapy may not revive prices in the short term.
"OPEC has failed to realise that Iraq, for all practical purposes, is fully back to the market, and it has returned at a very bad time, considering the magnitude of the crisis in Asia and other drains on demand," said Mohammed Abduljabbar, senior economist at the Washington based Petroleum Finance Company.
"In the past decade, Asia was the engine for world oil demand, but since last year, demand has shrunk to almost zero, a situation will last at least two or three years in my view, and even after that, the growth trend should be downgraded," said Ken Koyama of Japan's Institute of Energy Economics.
HOW LONG CAN LOW PRICES LAST? According to the U.S. government, oil prices, which have hovered in an $18-$21 range for much of this decade, are not expected to rise significantly for the next 20 years, even with a 50 percent jump in global energy use by 2015 from 1995 levels.
And while the view has its opponents, the diversity of supply developed over the past 20 years makes many analysts at least partial believers.
"In the long term, oil will eventually be a rare commodity, but in the short term, I see a much bigger downside potential than I do an upside potential," said PFC's Abduljabbar.
"Price spikes are always a possibility in the oil market," said Coburn, "but looking at the longer term price trend, I see oil in the $16 to $18 dollar range for the foreseeable future.
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