MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JULY 06, 1998 (1)
MARKET OVERVIEW
Monday's Closing World Markets: Asia Mixed, Others Up
Signs of revival in Canada's embattled resource sector and stronger bank stocks helped the Toronto Stock Exchange post a modest gain Monday while U.S. indexes were at or near record levels.
In London, The Financial Times Index of 100 industrials closed Monday at 5,990.3, up 1.9.
Asian stock markets closed mixed Monday, with share prices falling both in Tokyo and Hong Kong because of uncertainty over Japan's economic reforms.
CANADA
Toronto Stock Index Ends With Gain
Toronto's key equities index closed on a much stronger note on Monday, helped by gains in the banking and resource sectors, but the overall market ended mixed as declining issues outpaced advances.
The Toronto Stock Exchange 300 Composite Index chugged 50.76 points or 0.69 percent higher to 7434.47 points. TSE declines outnumbered advances 534 to 460 with 270 unchanged in trading of 64.5 million shares worth $1.2 billion.
The TSE 100 rose 3.08 to 455.59.
"The financials were the leaders," said Josef Schachter, head of Schachter Asset Management in Calgary. The financial services subindex contributed 17 points to the benchmark's advance.
The heavyweight banking services sector, which makes up nearly a quarter of the index, ticked 0.95 percent higher after the U.S. bond market strengthened and speculation increased that the U.S. central bank would be forced to cut short-term interest rates to help spur a slowing economy, Schachter said.
Continued strikes at General Motors Corp. which could hurt economic growth, could also be a factor, he added. A cut would force Canada's central bank to consider chopping rates.
Schachter said he was confident that strong corporate earnings from Canadian companies, which will start reporting this week, could help create an upward spurt in the index. "Everybody's waiting to see how earnings come about," he said. "I think we're going to have a nice summer rally."
"It was a better market for the resources - golds, oils, papers, metals," said John Ing, president of Maison Placements Canada.
With an economy as focused on commodities as Canada's, even a modest improvement in companies that produce and export base metals, forest products and oil and gas can have a marked impact on the market as a whole, Ing said.
"The resources, which have been a real drag on the market of late, seem to have picked up."
All but three of Toronto's 14 subindexes moved higher. The biggest resource performer of the day was the paper and forest products group, with a gain of 1.35 per cent, second only to the communications and media index, which gained 2.71 per cent. Real estate and banks also gained.
In communications, Thomson Corp. was up 65 cents to $45.15, while Southam gained 60 cents to $28.25. Torstar closed up 15 cents at $23.40.
Canada's second-largest cable company, Groupe Videotron, rose $0.75 to $21.75 after announcing third-quarter net income rose to $0.06 a share, up from $0.01 a year ago. Shaw Commmunications B gained $3.75 to $32.75.
Pulp and paper giant Abitibi-Consolidated - which announced Friday it was among several major players actively searching for fire-sale assets amid the ruins of Asia's crumbling pulp and paper industry - climbed $0.25 to $20.05.
Alliance Forest Products gained 80 cents to $22.80. Avenor gained a dime to $34.85, while MacMillan Bloedel slipped $0.05 to $16.00.
Third in gains Monday was the real estate group, up 1.33 per cent on the strength of TrizecHahn, up 60 cents to $32.85, and Oxford Properties, up 40 cents at $17.40. Imasco Ltd. (IMS/TSE), which markets tobacco to real estate, edged up 55› to $28.
Bank of Montreal (BMO/TSE) rose 55› to $82.25, Scotiabank (bns/tse) climbed 75› to $38.15, Royal Bank of Canada (RY/TSE) gained 65› to $90.35 and Canadian Imperial Bank of Commerce (CM/TSE) jumped 55› to $48.85.
The TSE Oil & Gas Composite Index gained 0.5% or 30.90 to 6154.47. Among sub-components, the integrated oil's gained 0.4% or 32.39 to 8557.83. The oil & gas producers rose 0.6% or 33.82 to 5467.43 and the oil & gas services fell 0.0% or 0.86 to 2380.42.
Northstar Energy, Abacan Resources, Probe Exploration, Northrock Resources, Ranger Oil, Anderson Exploration and Petro-Canada were among the top 50 most active traded issues on the TSE. Service and oil related issues making the list included Shaw Industries A, Tesco and Badger Daylighting.
Berkley Petroleum gained $0.65 to $12.75 and among service issues, Computalog rose $0.95 to $16.45.
On the flipside, Seven Seas Petroleum (u) fell $1.10 to $20.00, Paramount Resources $0.95 to $13.75 and Penn West Petroleum $0.50 to 16.50. Among service issues, American ECO continued to slide, losing $1.60 to $7.65 and Precision Drilling $0.65 to $27.60.
Barrick Gold Corp. and other gold producers fell in line with a decline in the price of bullion. Barrick (ABX/TSE) dropped 15› to $27.30 and Placer Dome Inc. (PDG/TSE) slipped 25› to $16.45. Gold bullion fell US70› to US$294.40 on the Comex division of the New York Mercantile Exchange.
Shares in drug developer Hyal Pharmaceutical Corp. shot higher on Monday, extending recent gains on talk that a licensing deal or buyout is near completion. The stock rose 0.46 to 2.08 on 2.4 million shares. But Hyal President and Chief Executive Zenas Noon said the Toronto based company, which has engaged an investment banker to find a takeover deal, merger partner or licensing agreement, has not signed a deal.
Magna International Inc. (MGA/TSE) class A shares rocketed $3.30, or 3.2%, to $105.75 on anticipation the auto parts maker will not see profits fall despite a strike at GM.
Only three TSE index groups ended the day lower: transportation and environmental services, off 0.79 per cent; pipelines, down 0.29 per cent; and conglomerates, which slipped 0.01 per cent as Canadian Pacific lost 30 cents to $40.10.
Transportation and environmental services suffered as Laidlaw Inc. continued to lose ground in the wake of a U.S. tax ruling that could cost $500 million US. Laidlaw Inc. fell $0.50 to $14.75, down from a 52-week high of $23.50, on volume of nearly 2.4 million shares. Standard & Poor revised the transportation company's outlook to negative from stable. It kept all of Laidlaw's ratings the same.
Other Canadian markets were mixed. The Montreal Exchange portfolio climbed 18.48 points, or 0.5%, to 3771.2. The Vancouver Stock Exchange lost 4.12 points, or 0.8%, to 533.5.
On the Alberta Stock Exchange, the combined value index fell 4.72 to 2110.43. Declining issues outnumbered advancing issues, 155 to 94 with another 95 issues unchanged.
Wolverine Energy, Canop Worldwide, Parkcrest Exploration, Green River Petroleum, Prize Energy, Cubacan Exploration and PraireF O&G were among the top 25 most active traded issues on the ASE.
Niko Resources gained $0.30 to $4.50, Solid Resources $0.25 to $7.20, Draig Energy $0.20 to $1.60, Progress Energy A $0.15 to $2.15, Scarlet Exploration $0.13 to $0.85 and Edge Energy $0.10 to $4.00.
On the downside, Corridor Resources fell $0.40 to $0.90, Red Sea Oil $0.15 to $1.80, HEGCO Canada $0.12 to $2.68 and Request Seismic $0.10 to $1.80.
The Canadian dollar ended North American trade weaker at C$1.4727 (US$0.6790) on Monday after moving in a narrow band.
Canada has lost some of the buyers seen last week, said Reid Farrill, executive director, foreign exchange at CIBC Wood Gundy Securities.
"The question is how far Canada will give off," he said, adding that trading is likely to be stuck in tight ranges this week in the absence of major economic indicators.
Canada will release its June jobs data on Friday, but impact on the market is seen as limited.
Economists on average forecast the jobless rate at 8.4 percent, unchanged from May. Employment is expected to recover to an increase of 26,000 after falling by 7,300 in May, which was in contrast to a sharp gain in April.
Goldman Sachs sees an 8.5-percent jobless rate for June, saying the indirect effects of strikes in the construction and paper/pulp sectors, combined with General Motors' plant shutdowns, should work as a drag.
The U.S. dollar was firmer against the yen on uncertainty over tax reform in Japan.
Tokyo has been discussing structural reforms to income, business and other taxes for years, aiming for a net tax cut, but progress has been slow. Instead, stop-gap income tax breaks have been used in a bid to kick-start the recession-hit economy.
Prime Minister Ryutaro Hashimoto has called for a tax system overhaul, which was taken as a hint the government was planning structural tax cuts, not one-off income tax rebates. Hashimoto on Monday denied that he had promised "permanent""tax reductions through changing tax brackets and rates.
In Japan, consensus must be reached on major political decisions, and even the prime minister cannot say anything definite publicly. Hashimoto also has to survive a test of his popularity with voters in the July 12 Upper House election. In cross trading, the Canadian unit fell to 1.2290 marks from 1.2384 marks at the previous close here, but rose to 95.08 yen from 94.87 yen.
Canadian bonds ended flat to firmer on Monday in quiet trading, following the tone in the U.S. market.
Trading remained in a narrow range as there was no major economic indicator in North America today and for the next few days. Trading was slow after the long holiday weekend in the United States.
The long end of the Canadian yield curve attracted some buying, as seen in U.S. long bonds, because the uncertain outlook for Japan made North American assets look safer again.
"We seem to be a little bit underperforming the U.S. That's probably because of the situation for the Canadian dollar," said Rob Palombi, senior fixed-income analyst at Standard & Poor's MMS.
The Canadian dollar ended North American trade weaker against the U.S. dollar as the U.S. unit stayed firm versus the yen on uncertainty over tax reform in Japan, a key to boosting consumer spending and business investment there.
Japan's policymakers have been mulling over structural reform on income, business and other taxes for years, aiming for a net tax cut. But progress has been slow and stop-gap income tax breaks have been the short-term answer to help prevent the economy from plunging.
Prime Minister Ryutaro Hashimoto has called for tax system overhaul, which was taken as a hint that the government was planning structural tax cuts, not one-off tax rebates as seen in the past. Hashimoto on Monday denied that he had promised "permanent""tax reductions through changing tax brackets and rates.
Canada's benchmark 30-year bond rose C$0.38 to C$136.82 to yield 5.454 percent. Its U.S. counterpart rose 16/32 to yield 5.57 percent. The spread between the two was 12 basis points after 13 points at the previous close here.
The money market was little changed.
Canada's three-month when issued T-bill traded with a yield of 4.81 percent, compared with 4.77 percent at the previous close here.
NEW YORK
Monday's Markets
The Dow rose 66.51 and the S&P 500 gained nearly 11 to its fifth record setting close in the past eight trading days. Led again by the Internet sector, the Nasdaq closed up 15.
The dollar's gains versus the Japanese yen helped send U.S. bond prices up more than 3/8 point, pushing the yield on the benchmark 30-year Treasury down to an all-time low of 5.57%.
Internet stocks resumed their meteoric performance, sparked by a 2-for-1 stock split announcement from Lycos (LCOS). Relative to the online group, broader sectors were only modestly higher. Further, the breadth of the market only modestly favored gainers.
The Dow Jones Industrial Average ($INDUA) dipped initially then rose steadily in concert with bonds, topping out at 9,078 around 11:30 a.m. EDT. The index spent the afternoon trading between 15 and 40 points above its opening level before closing with another push higher. Closing at its best level of the session, the index finished up 66.51 at 9,091.77. The close is the Dow's highest since it hit 9,114.40 on May 22.
Led by the airlines, the Dow Transportation Index ($TRAN) rose 49.37 to 3,555,88.
The Nasdaq Composite Index (COMP) followed a pattern similar to the Dow's. The tech-infused index closed just beneath its intraday high, up15.43 at 1,909.43.
The S&P 500 continued to be the strongest of the major indices. The broadest measure of stocks climbed 10.90 to a new all-time high of1,157.32. The Russell 2000 Index closed up 1.66 at 459.97.
In NYSE trading, 517 million shares were exchanged, while advancing issues bested declining stocks by a 17-to-12 spread. In Nasdaq activity, 701 million shares changed hands, while the breadth of the market was essentially even.
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