EYE ON THE MARKETS / Part 1
Toronto Stocks Close Mixed
Reuters
TORONTO, Nov 12 - Toronto's stock market gave up early gains to end mixed on Thursday as a rising tide of negativity swamped substantial strength in the key gold mining and oil groups.
Investors were nervous ahead of next week's meeting of U.S. central bank decision-makers, who will chose whether or not to chop short-term interest rates to shift the economy into a higher gear. Also, growing tension between the U.S. and Iraq also did not help markets.
The Toronto Stock Exchange's benchmark 300 Composite Index closed 23.42 points or 0.4 percent lower at 6255.86 points after making moderate gains earlier in the session. But advancing issues outnumbered declines 510 to 478, creating a mixed result. Another 277 closed flat.
The index also bucked Wednesday's gains to return to its downtrend set earlier this week.
By comparison the Dow Jones Industrial Average on Wall Street finished a few notches higher, rising 5.92 points to 8829.74 points.
In Canada, "we've got a real mixed bag," said Rick Hutcheon, chief investment officer at CentrePost Mutual Funds. Despite upticks in the gold and oil sectors, "the broader market is just not doing much of anything."
Investors were concerned oil prices would rise along with the friction in the Gulf, creating inflation. To hedge against potential inflation, they turned to the traditional safe haven of gold.
The U.S. has been building its military might in the Gulf to forced Iraq into moderating its stance against sanctions and international arms inspectors.
More worrisome in general was the debate on whether the U.S. Federal Open Market Committee will drop short-term interest rates at its November 17 meeting.
"They're looking at the Fed week next and looking how that's going to be," Hutcheon said. Wall Street is now split on the outcome after earlier predicting a rate cut.
"There's a lot of uncertainty," Hutcheon concluded. "We have to wait for the clouds to part a little bit."
In Toronto, nine of the 14 sub-groups weakened, led by media, conglomerates and the heavy duty banks. The financial services sector, which encompasses more than one fifth of the key index, fell more than 1 percent.
A rollicking 4.1 percent rally in gold and precious minerals. Oil companies also gained -- the oil and gas group climbed 1.04 per cent -- amid speculation that a military strike against Iraq would mop up a glut of crude currently keeping the price low on international markets.
But the fact is that oil prices are low not because of excess supply but dwindling demand, said Craig Langpap, an analyst with Peters and Co. in Calgary.
The price of West Texas Intermediate crude, which finished 30 cents higher Thursday, might have done better if not for a recent decision by the International Energy Agency to reduce its demand forecasts.
"That's weighing more heavily on the oil price than any thoughts that trouble in the Middle East may cause it to rise," Langpap said. Petro-Canada gained $1.10 to $20.60, while Suncor Energy slipped 40 cents to $48.60.
Trading totaled 107 million shares worth C$1.9 billion.
Among active issues, Quebec supermarket firm and takeover target Provigo Inc. rose C$0.15 to C$15.20 after a large shareholder, Quebec's Caisse de depot et placement, said it was in talks with buyers other than possible acquisitor grocer Loblaw Cos Ltd.
JetForm Corp. easily topped losing issues, tumbling C$3.65 or 17.4 percent to C$17.30 after warning its second-quarter earnings would be significantly below the analysts' consensus. Brokerage Goldman Sachs then cut the company to a market perform rating from market outperform.
Clearnet shares dipped C$0.45 to close at C$13.25 and declined 3/8 to 8-5/8 on Nasdaq. The company, lost C$138.1 million, or C$2.55 per share, in the third quarter of 1998 versus a loss of C$55.2 million, or C$1.33 a share in the year-ago period. Sales jumped to C$59.4 million from C$22.6 million in the third-quarter of 1997. the company is a player in the hot new personal communication services market, posted higher net losses in the third quarter but still managed to please analysts.
Strength in oil, gold stocks offset softer stock market
Canadian Press
TORONTO Speculation that Iraq may again feel the military might of the United States helped fuel a massive rally Thursday among oil and gold producers on North American stock markets.
But the gains in both solid and black gold weren't enough to prevent the TSE 300 composite index from slipping into the red, where it ended the day at 6,255.86, down 23.42.
It was a similar story in New York, where the Dow Jones industrial average, buoyed by surging oil producers, closed just 5.92 points higher at 8,829.74 as profit-takers continued to feed off the market's recent muscle.
In Toronto, gold stocks led the rally as the TSE's gold and silver sub-group surged 4.06 per cent atop the spot price of gold, which soared $3.80 US to $296.90 on the New York Mercantile Exchange.
Barrick Gold Corp. gained $1.35 to $33.75; Placer Dome Inc. was $1.30 higher at $25.80. Franco-Nevada Mining gained $1.15 to $31.40.
Analysts were a little perplexed by the strength of oil stocks, however, considering the price of crude was only up about 30 cents US by day's end.
"It really hasn't gone up much, to be perfectly honest," said Craig Langpap, an energy analyst with Peters and Co. in Calgary.
"I suppose you could say it's Iraq-related, but it's hardly what most of us would consider robust. Where the concerns are is on the demand side."
The price of crude itself is climbing despite the weight of a recent decision by the International Energy Agency to reduce its demand forecasts for 1998 and 1999, said Langpap.
"That's weighing more heavily on the oil price than any thoughts that trouble in the Middle East may cause it to rise."
Investors, however, are increasingly confident that another Gulf conflict -- the result of Iraq's consistent refusal to co-operate with U.N. weapons inspectors -- is going to mop up surplus demand.
Petro-Canada gained $1.10 to $20.60, while Suncor Energy slipped 40 cents to $48.60. Gulf Canada Resources Ltd. was 145 cents higher at $5.95.
Of the TSE's 14 index groups, five were higher.
Suffering most was the communications and media group, where Thomson Corp. plunged $3.15 to $31.00 after reporting earnings Tuesday that didn't measure up to expectations.
The conglomerates group was 1.69 per cent lower as Canadian Pacific slipped 90 cents to $32.70. Power Corp. gained 15 cents to $32.70.
Meanwhile, the Canadian dollar closed at 64.67 cents US, down 0.11 cent on North American currency markets.
Elsewhere in the Canadian market, Newcourt Credit surged on rumours the company could be up for sale, while Northern Telecom Ltd. posted early gains after announcing a new contract.
Newcourt surged more than $3 before settling back to close at $55.25, up $1.55 on trading of more than one million shares, after reports the company may look for a buyer after being hit hard by rising borrowing costs in financial markets.
Northern Telecom Ltd., which won a $170 million US order for phone equipment and services from Net2000 Communications, rose 55 cents, but later settled back to close at $68.15, up just 15 cents.
A report Thursday about Canada's economy said growth will slow to two per cent in 1999, down from about three per cent this year, but a recession is unlikely.
The Canadian Imperial Bank of Commerce report said growth in the U.S. will be cut in half in 1999 to just 1.8 per cent, from 3.5 per cent this year.
"In the short term, the Canadian economy looks reasonably healthy," CIBC chief economist Josh Mendelsohn said in the report. "However, the effects of recent developments outside Canada have cast some shadows over 1999."
The bank says mounting trade deficits due to slow growth of U.S. exports, lingering effects of a credit squeeze on investment and an expected softening in consumer spending are slowing the U.S. economy.
The easing of interest rates by the U.S. Federal Reserve Board, the Bank of Canada and other central banks, as well as the determination of G-7 countries to improve financial stability have boosted markets and confidence, Mendelsohn said.
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C$ rallies on Japan economic package
TORONTO - The Canadian dollar closed firmer at C$1.5462 ($0.6467) on Thursday, spurred by news that Japan will announce its largest ever economic stimulus package, worth over 20 trillion yen.
The surprise announcement -- currency traders expected a much smaller rescue plan -- drove the yen higher against the U.S. dollar, pulling Canada along with it.
The Canadian dollar touched key levels in the afternoon as dealers moved to the safe-haven U.S. dollar on fears of conflict in Iraq, but the currency recoiled and then firmed on the news from Japan.
Canada Bonds End Flat To Firmer
TORONTO, Nov 12 Canadian government bonds ended a post-holiday session flat to firmer on Thursday, with the short end of the yield curve depressed by the relative weakness of the Canadian dollar.
The Canadian dollar lacked support, although it made a mini rebound during the day as the U.S. dollar slipped back versus the yen on expectations that Japan will work out a bigger-than-expected stimulus package.
"The currency move is still within the ranges of the past several weeks, and nothing has really changed. Until there's a wider trading range, interest rates are going to track what's happening in the U.S.," said Frank Hracs, head of fixed-income research at TD Securities Inc.
Mild bond buying was inspired by overnight declines in stock prices overseas and heightened tension between Iraq and the United States, which usually generates a flight-to-quality move into the U.S. dollar and safe government bonds.
Canada's benchmark 30-year bond due June 1, 2027 rose C$0.59 to C$135.96, yielding 5.491 percent. The U.S. 30-year bond rose 18/32 to yield 5.250 percent. The spread between the bonds was 26 basis points after 25 points at the previous close here.
Before a crucial U.S. monetary policy event next week, the market has to digest a couple of U.S. indicators on Friday -- October retail sales and producer price index.
"Both numbers will create some opportunities, some positive or negative risks for the marketplace," Hracs said. "But these numbers are more secondary now, and the inflation number is expected to remain favorable (for bonds)."
Trading remained wary before the market hears the decision on U.S. monetary policy by the Federal Open Market Committee (FOMC) meeting next Tuesday, which the Bank of Canada follows closely. Expectations of a cut in the key short-term lending rate tend to encourage buying on the short end.
"The Fed is coming back into considerations of easing next week. You see better buying in the short end of the U.S.," said Jeoffrey Hall, managing analyst at Thomson Global Markets in Boston. "Canada would likely ease alongside the Fed, but we're not getting the strength from the short end of the Canada market simply because the impact of the currency is offsetting the positive sentiment of a rate cut."
Fixed-income markets were closed in North America on Wednesday for the Remembrance Day holiday in Canada and the Veterans' Day holiday in the United States.
The Canada Mortgage and Housing Corporation (CMHC)'s C$500 million 5.0-percent global bond maturing June 2004 was priced at 99.042, 18 basis points above the Government of Canada bond.
At the short end, Canada's three-month when-issued T-bill firmed to yield 4.85 percent from 4.87 percent at the previous close.
"Things seem to be relatively good even although the currency is weak," said one money trader. "Today is a settlement day in Canada, so there's definite interest to buy bills."
"People are speculating whether the Fed is going to go next week. It's really almost too close to call. We are sitting back and waiting until November 17 comes and goes," she said.
Sweden's central bank conducted a 50-basis point cut in key rates on Thursday, confirming a trend of credit easing among industrial nations and providing some support to the bills market, the trader said.
Financial markets have been swinging between high expectations and subsiding hopes of further easing by the Fed. The latest bet on a higher chance of a rate cut on November 17 was set after Federal Reserve Vice Chairwoman Alice Rivlin warned on Monday that global turmoil will slow the U.S. economy sharply.
A week ago bonds came under selling pressure on comments by Federal Reserve Chairman Alan Greenspan, which were taken as a signal that the Fed might not now be in such a hurry to ease credit further.
The market is also awaiting the release at 1030 EST/1530 GMT on Monday of the semi-annual monetary policy report by the Bank of Canada, in which the bank sets the tone for its policy for the coming six months. Bank of Canada Governor Gordon Thiessen holds a briefing at 1145 EST/1645 GMT.
The bank is expected to present a dimmer outlook for the Canadian economy than it did before, but analysts say it will be careful so as not to give the impression that it might ease credit more aggressively than the Fed.
The Canadian dollar and the short end of the yield curve are susceptible to any hint of a narrowing spread between the U.S. and Canadian yields. Higher Canadian yields have extended underlying support to the Canadian currency. |
