MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY JULY 14, 1998 (1)
MARKET OVERVIEW
Fuelled by strong earnings and renewed faith in Japan, New York's headline stock index rocketed to a new high Tuesday and left Toronto in the dust. "They're calling it a Triple Crown day in New York," said John Ing, president of Maison Placements Canada. "Record for the Dow, record for the Nasdaq and a record for the Standard and Poor's 500."
A record close for New York helped buoy Toronto's key stock index by Tuesday's finish, but historic lows for the Canadian dollar and weak commodities prices forced the overall market to close mixed. ''We had a nice bounce in the U.S. market that helped us,'' said Katherine Beattie, analyst at Standard & Poor's MMS International. ''But we're still badly underperforming the U.S.''
She blamed the weakness partly on the Canadian dollar, which has plagued Toronto's market for weeks. The dollar closed the North American session weaker at C$1.4810 (US$0.6752), and earlier repeated a record low of C$1.4815 (US$0.6750) set during Asian trading hours.
Most Asian stock markets rebounded Tuesday as fears faded of political turmoil in Japan following the resignation of Prime Minister Ryutaro Hashimoto.
CANADA
Canadian stocks rose for the first time in five days. However, the TSE's performance was a failing grade considering the size of the rally in New York, said John Ing, president of Maison Placements Canada.
"Our market is resource-based with commodities, and it's been a split-personality market," he said. "In New York, it's the tech stocks, the big caps, while in Canada the strength has been confined to the interest-sensitive stocks.
"If you look at the broader market, the resources, the commodity stocks and the real estate stocks have been a disaster, and we have more of the same."
A softer outlook for commodities, due to slowing Asian demand, has also hurt Toronto's heavily resource-based market, said Katherine Beattie, analyst at Standard & Poor's MMS International. . Only base metals seemed to buck the trend. ''We did enjoy a nice gain today but basically we retraced what we lost yesterday,'' Beattie noted. The index slumped by 40.78 points or 0.55 percent to 7348.94 points on Monday.
The Toronto Stock Exchange 300 composite index rose 38.12 points, or 0.5%, to 7387.06. About 98.8 million shares were traded on the TSE, up from 81 million shares traded Monday. Declining issues outnumbered advances 560 to 461 with 289 unchanged in trading of 99 million shares worth $2 billion.
Nine of Toronto's 14 subindexes inched upward, led by a 1.5% rise in the base metals and minerals group followed by a 1.1% increase in utilities, a 1.0% hike in the financial services index and 0.9% raise in gold and precious minerals.
The performance of the TSE metals and minerals group was due in large part to bargain-hunting and the low Canadian dollar, which helps exporters stay competitive. Bullion and metal producers gained in expectations that any recovery in Japan will increase profits. Alcan Aluminium Ltd. (AL/TSE) gained $1.30 to $39.60 and Inco Ltd. (N/TSE) rose $0.45 to $18.85. Cominco Ltd. (CLT/TSE) fell $0.20 to $21.20 despite the fact that zinc climbed more than 2% to a six-week high on optimism of increased Japanese demand. Rio Algom gained $0.35 to $20.75 and Noranda dropped 20 cents to $23.35.
Junior mining company Meridian Gold Inc. (MNG/TSE) rode the most actives list after the U.S.-based firm said it had discovered significantly higher grades of gold and silver at a mine in northern Chile. The stock jumped $1.70 or nearly 37 percent to $6.30 in nearly four million shares, and has doubled in value in just two weeks. the miner's second quarter loss narrowed to US7› a share from US11› a year ago.
U.S. regulators cleared Teleglobe Inc.'s purchase of U.S. based long distance telephone company Excel Communications Inc., raising expectations for more international mergers. Teleglobe (TGO/TSE) rose 65› to $41.75. BCE Inc. (BCE/TSE) jumped 80› to $64.35, Telus Corp. (T/TSE) climbed 65› to $36.85, Bell Canada International Inc. (BI/TSE) jumped 85› to $35.55 and Telesystem International Wireless Inc. (TIW/TSE) advanced $1.85 to $31.75. Northern Telecom Ltd. (NTL/TSE) rose 30› to $85.60 on expectations that sales to the Asia Pacific region will improve. BC Telecom gained 15 cents to $49.65.
Banks managed to recoup some of their recent losses. Banks and lenders rose after the unexpectedly strong earnings for J.P. Morgan boosted optimism for robust earnings growth throughout the industry. Leading the banks was Bank of Montreal, up $1.20 to $84.10, followed by merger partner Royal Bank, up $1.10 to $91.00. Canadian Imperial Bank of Commerce gained $0.95 to $49.25 and TD Bank closed up 75 cents at $66.10. Bank of Nova Scotia lost a dime to $37.90. Newcourt Credit Group Inc. (NCT/TSE) rose $2.40 to $75.60.
Other sub-indexes reflecting lesser gains included conglomerates 0.5%, consumer products 0.3%, merchandising 0.2% and industrial products 0.1%.
The TSE oil & gas composite index also eeked out a small gain, up 0.1% or 3.20 to 5972.37. Among sub-components, the integrated oils gained 0.8% or 62.38 to 8372.42. The heavyweight oil & gas producers fell 0.2% or 9.39 to 5311.93 and the oil & gas services also fell, losing 0.6% or 12.43 to 2217.50.
Beau Canada Resources, Northstar Energy, Renaissance Energy, Carmanah Resources, Tarragon Oil & Gas and Gulf Canada Resources were among the top 50 most active issues on the TSE. Among service issues, Bonus Resource Services was also listed among the most active's.
Paramount Resources gained $1.00 to $14.00 and New Cache Petroleum $0.75 to $8.00. Service issues were not represented among the top net gainers.
On the flip side, Chieftain International fell $1.25 to $33.50 and Denbury Resources $0.60 to $18.90. Among service issues, Enerflex Systems fell $0.50 to $35.50.
High-technology issues bobbed up among the top gainers, boosted by their counterparts in the United States. Open Text Corp. (OTC/TSE) rose C$3.00 or 13.64 percent to C$25. ATI Technologies, the second most active issue on the TSE, gained $0.35 to $19.25 and Softkey Software had one of the better net gain's on the exchange, advancing $2.85 to $47.35.
Five of the 14 TSE index groups were lower, with paper and forest products falling 0.3%. Pipelines were next at 0.2%, followed by real estate 0.2%, transportation and environmental 0.1% and communications and media 0.1%.
Paper giant Abitibi-Consolidated gained 35 cents to $19.85, while Donohue A gained $0.20 to $33.70. MacMillan Bloedel lost 40 cents to $14.95.
Pipeline powerhouse IPL Energy gained 65 cents to $69.65; TransCanada PipeLines ended the day at $25.80, down $0.10.
Other Canadian markets ended mixed. The Montreal Exchange portfolio rose 28.01 points, or 0.8%, to 3750.44. The Vancouver Stock Exchange fell 2.2 points, or 0.4%, to 520.04.
The Alberta Stock Exchange's combined value index fell 4.95 to 2095.24. Declining issues outnumbered advancing issues 153 to 122 with another 119 issues unchanged.
Parkcrest Exploration, Green River Petroleum, Alta Pacific Capital, Edge Energy, Storm Energy, Anvil Resources, First Star Energy and Raptor Capital were among the top 25 most active issues on the ASE.
Draig Energy gained $0.25 to $1.70, Stellarton Energy $0.25 to $2.50, Underbalanced Drilling $0.25 to $1.50, Nevarro Energy $0.14 to $0.49, Granger Energy A $0.10 to $0.10 and Sterling Resources $0.10 to $0.75.
On the downside, Avid Oil & Gas A fell $0.55 to $1.55, Solid Resources $0.25 to $6.85, AltaQuest Energy $0.20 to $2.30, Proprietory Energy $0.20 to $3.60, Avid Oil & Gas B $0.19 to $1.01, HEGCO Canada $0.19 to $2.50, Encounter Energy $0.15 to $1.30 and Total Energy Services $0.15 to $1.85.
Canadian Dollar Sinks To Historic Low Of 67.60
The Canadian dollar closed at a new low Monday of 67.60 cents US, as money traders abandoned the loonie for the stability of the greenback.
Continuing economic turmoil in Asia and Russia has prompted money traders to flee to the U.S. dollar, say analysts, who also warn the volatility will likely continue.
"It's the flight to quality," said Business Council of B.C. economist Jock Finlayson.
Canada, despite a fundamentally strong economy, is viewed as a country more dependent on resource exports than is the United States, he said. And resource prices are sliding as Asian customers, whose currencies are being hammered even more than the loonie, scale back purchases.
In overseas trading early Monday, the loonie sank to 67.49 cents -- a new intraday trading low -- dragged down by the weakening yen. It later rebounded to 67.65 cents in Toronto, up .02 cents from Friday's record low close before settling at 67.60.
Finlayson said a weaker Canadian dollar over the short term is not a cause for concern because, relative to other world currencies, it is climbing.
And the lower value of the loonie is a boon to most exporters and to the tourism industry. Particularly in British Columbia, which has the lowest inflation rate in Canada -- less than one per cent -- the weak dollar is not likely to result in inflation, he said.
But the province is not reaping the benefits of a low currency, specifically lower costs for exports, because currencies for B.C.'s main competitors are falling even more, said forest industry analyst Ross Hay-Roe, of Equity Research Associates.
"Our problem is not a weak Canadian dollar. It's a strong U.S. dollar. We are losing market share because other suppliers have even weaker currencies."
He noted, for example, that Russia's share of the Japanese forest products market has increased in 1998, while British Columbia's share has fallen.
"This drop in the Canadian currency is not enough to put anyone back to work," he said.
Laurie Cater of Madison's Canadian Lumber Reporter concurred. Interior sawmill producers who ship to the U.S. market are benefitting because they sell lumber in U.S. dollars, but the increased prices they are realizing does not offset the five-per-cent drop in prices since last week alone.
"Exchange profits are not going to make anybody clap their hands with glee. But it does help cushion the fact that prices are falling."
Expect currency volatility to continue, warned Jeff Cheah, an economist with Standard and Poor's MMS in Toronto.
"I don't see any change in the immediate future, even if [the dollar] improves. I just see very modest improvement. But I don't see it breaking out of this very bearish range."
Canada Bonds End Weaker In Technical Selling
Canadian bonds ended weaker on Tuesday in technical selling, shrugging off earlier gains spurred by tame U.S. inflation data.
The focus of the market shifted to external factors -- optimism over financial reforms in Russia and Japan that have taken some shine off the safe-haven status of North American assets.
Canada was following U.S. treasuries, which were swinging in tandem with the U.S. dollar.
There have been sell signals since late last week in the Canadian market after a rally in long bonds, said Sheldon Dong, manager of fixed-income research at Midland Walwyn Capital Inc.
"We sold into the strength of this morning's data. Technical selling came in. You can use the yen as an excuse, but that's not really a good excuse," he said. "To me, it's more of a market correction than anything else."
Key U.S. data relieved bond holders earlier this morning as the data suggested the U.S. economy was not overheating.
The U.S. June consumer price index rose 0.1 percent and the core rate edged up 0.1 percent, both below forecasts.
Meanwhile, U.S. June retail sales rose 0.1 percent, sales ex-automobiles 0.1 percent and auto sales 0.1 percent.
"The overall numbers are fairly supportive (for the bond market), but I think the focus is more on external factors in the treasuries market and Canada is following as well," said Harvinder Kalirai, economist at I.D.E.A. in New York. "The overall numbers are showing slowing activity in not just the manufacturing sector, but maybe slower consumer spending into the third quarter."
Canada's benchmark 30-year bond fell C$0.39 to C$135.91, yielding 5.502 percent.
The U.S. 30-year bond fell 17/32, yielding 5.72 percent. The U.S.-Canada spread was 22 basis points after 21 points at the previous close here.
The Bank of Canada said on Tuesday it would sell a total of C$6.4 billion of Government of Canada treasury bills at its July 21 auction. It will sell a total of C$3.3 billion three-month, C$1.6 billion six-month and C$1.5 billion one-year bills.
The money market was steady in quiet trading.
Canada's three-month when issued T-bill traded with a yield of 4.84 percent after 4.82 percent from the previous close here.
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