MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, FEBRUARY 6, 1998 (1)
Saturday, February 7, 1998
U.S. stocks rose after a report showing more jobs were created in January than expected. Bank issues led Canadian stocks higher, on expectations of unchanged interest rates
The Dow Jones industrial average climbed 72.24 points, or 0.9%, to 8189.49, the close since Aug. 6. On the week the Dow climbed 3.6%.
ÿ
The Standard & Poor's 500 composite index rose 8.92 points, or 0.9%, to 1012.46, its fourth record this week. On the week it rose 3.3%.
The Nasdaq composite index rose 17.45 points, or 1%, to 1694.35, an increase of 4.6% on the week.
ÿ
About 574.4 million shares changed hands on the New York Stock Exchange, down from 706.1 million shares traded on Thursday.
ÿ
"The economy is growing fast enough" to keep corporate profits rising this year, said James Penner, chief investment officer of the Montana Board of Investments in Helena, Mont. "It's a reasonably good scenario for the stock market."
ÿ
J.P. Morgan & Co. (JPM/NYSE) rose US$4 5/8 to US$112, accounting for a quarter of the Dow's gain, amid speculation that Deutsche Bank AG may be talking to the bank about an acquisition. Analysts discounted the speculation and the company declined to comment.
ÿ
After J.P. Morgan, the Dow's biggest gainers were Procter & Gamble Co. (PG/NYSE), up US$2 5/8 to US$82 3/16, Caterpillar Inc. (CAT/NYSE), up US$2 to US$50 3/4 and Sears, Roebuck & Co. (S/NYSE), up US$1 7/8 to US$52 1/8.
All gained on optimism that sales will improve in coming months.
ÿ
The Toronto Stock Exchange 300 composite index gained 32.17 points, or 0.5%, to 6847.13. The benchmark index gained 2.2% this week.
ÿ
Almost 103.5 million shares changed hands on the TSE, down from 123.4 million shares traded on Thursday.
ÿ
Canadian Imperial Bank of Commerce (CM/TSE) rose 65› to $41.75, Toronto-Dominion Bank (TD/TSE) gained 80› to $56.15, Bank of Nova Scotia (BNS/TSE) climbed 70› to $65.80 to aid the market's advance as the C$ strengthened against the US$.
ÿ
"The continuing rally of the C$ will be bullish for the heavily weighted financial services sector," said Katherine Beattie, a technical analyst with MMS International.
ÿ
Bellwether issues like Canadian National Railway Co. and Seagram Co. paced the market's advance. Canadian National (CNR/TSE) rose $3.10 to $80.40 after it said Thursday it is in talks to buy Chicago-based Illinois Central Corp. to create North America's fifth largest railroad. Seagram (VO/TSE) gained $2 to $53.40 as investors reacted favorably to Thursday's reports that it sold more than half its stake in Time Warner Inc. for US$956.6 million.
ÿ
Hudson's Bay Co. (HBC/TSE) rose $1.15 to $28.65 to help send the merchandising subgroup higher after it agreed to buy discount retailer Kmart Canada Co. for $240 million, including debt, and fire 4,000 to 6,000 employees when it combines the newly acquired business with its Zellers chain.
ÿ
Toronto-based Hudson's Bay, Canada's largest retailer, said it will merge its 298 Zellers discount department stores with Kmart Canada's 112 locations and close about 10% of the Kmart's stores. "Hudson's Bay is the only retail success story in this country at this moment," said Norman Duncan, a broker with C.M. Oliver & Co.
ÿ
The merchandising subgroup accounted for almost four points of the TSE 300's advance.
ÿ
Other Canadian markets rose.
The Montreal Exchange portfolio rose 27.25 points, or 0.8%, to a three-month high of 3519.8. For the week, it gained 2.2%.
The Vancouver Stock Exchange index climbed 2.84 points, or 0.5%, to 628.35. For the week it rose 3.3%.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
Canadian Market Summary
canoe2.canoe.ca
The major overseas markets closed mixed.
ÿ
London: Britain's leading share index ended at a record closing high after a rally by the Dow helped stocks shrug off an early bout of profit-taking. The FT-SE 100 index closed at 5629.7, up 23.3 points or 0.4%, for an increase of 3.1% on the week.
ÿ
Frankfurt: German stocks closed lower. The Dax index slipped to 4496.33, down 52.13 points or 1.2%, but up 1.3% on the week.
ÿ
Tokyo: Japanese stocks closed slightly higher as the yen's upward trend against the US$ prompted investors to hunt for bargains. The 225-stock Nikkei average closed at 17,040.06, up 36.76 points or 0.2%, and up 2.5% on the week.
ÿ
Hong Kong: Stocks closed firmer but gains were trimmed in late trade by profit-taking. The Hang Seng index closed at 10,485.86, up 43.73 points or 0.4%, a jump of 13.3% on the week.
ÿ
Sydney: Australian stocks finished a quiet session slightly weaker. The all ordinaries index closed at 2656.1, down 1.8 points. The index was flat on the week, with a loss of just 0.6 of a point.
*************************************************************************************
Canadian dollar closes stronger
TORONTO, Feb 6 (Reuters) - The Canadian dollar rallied to close at C$1.4314 (US$0.6986) in moderate trading on Friday despite the release of strong U.S. employment data which economists said could have hurt the currency.
ÿ
The U.S. Labor Department reported that U.S. non-farm payrolls rose by 358,000 in January from a gain of 355,000 in December. The data surprised markets which had expected a rise of about 200,000 jobs for the month.
ÿ
But the Canadian dollar managed to avoid any selling pressure and consolidated strong gains as investors moved to erase U.S. dollar positions.
ÿ
"Ordinarily, that would be a negative for the Canadian dollar. But markets know that the Fed is on hold and the Bank (of Canada) had just raised rates, so that basically mitigated any risk there was for the Canadian dollar," said Michael Gregory, economist and strategist with Lehman Brothers.
ÿ
Earlier, Statistics Canada released Canadian employment data, which showed the unemployment rate rising to 8.9 percent in January from 8.6 percent in December.
ÿ
Rob Palombi, senior fixed-income analyst with MMS International, said the Canadian data failed to have an impact on the Canadian dollar.
ÿ
On the crosses, the Canadian dollar rose to 1.2627 marks from 1.2423 marks on Thursday and jumped to 86.52 yen from Thursday's 85.94 yen.
***********************************************************************************
Higher interest rates knock business confidence -- By DAVID THOMAS
A weaker C$, higher interest rates and Asia's financial crisis combined in the fourth quarter to knock consumer and business confidence down from recent highs, according to the Conference Board of Canada.
ÿ
The trend reflects increased concern over financial security at the family level and an expected slowdown in economic growth.
ÿ
"There is renewed uncertainty about job markets and an increased reluctance to make a major purchase over the next six months," said Paul Darby, the board's director of economic services.
ÿ
Despite the added uncertainty, confidence remains high. Consumer confidence slipped 3.1 points to 116.8 on the board's index after reaching its highest level since 1988 in the third quarter.
ÿ
Business confidence dropped 5.7 points to 159.2 after sitting at a record high of nearly 165 for two quarters.
ÿ
Both surveys were conducted in December and both indexes were set at 100 in 1991.
ÿ
"With rising interest rates, only 43.6% of [business] respondents expect economic conditions to improve in Canada in the next six months, down from 55.3%," the survey found.
ÿ
Businesses are increasingly worried about wage inflation for the first time since the last recession. Nearly 16% of respondents cited rising labor costs as a disincentive to invest. "The level of concern has not been noted since 1991."
ÿ
Consumers were most upbeat in Ontario, where confidence was up. Consumer confidence "remained stable in the Prairie provinces, but fell in all other regions as a result of weaker financial positions and unfavorable jobs situations."
***********************************************************************************
Economists and C$ unfazed as the jobless rate inches back up -- By DAVID THOMAS
The Canadian unemployment rate jumped back up to 8.9% in January, after a short-term disruption in central Canada because of January's ice storm and signs of a continuing downturn in British Columbia.
ÿ
The jobless rate rose nearly a third of a percentage point on December's 8.6%, its lowest in seven years.
ÿ
Although most economists had forecast stronger jobs growth, they said the national outlook still looks bright and the rate should edge back down in February.
ÿ
"This was a very strong job number, given the impact of the ice storm," said Randall Powley, senior economist at Scotia Capital Markets.
ÿ
The currency market shared the view of economists by continuing to bid the C$ higher. The C$ broke above the US70› level at one point Friday for the first time in a month, gaining US0.38› to close at US69.86›.
ÿ
Net employment was flat but the jobless rate increased on a surge in temporary layoffs and an increase in the size of the labor force.
ÿ
Quebec was the hardest hit province in January, with unemployment rising to 11.3% from December's 10.4%.
ÿ
Most job losses were in the Montreal area where the storm was most severe, Statistics Canada said. Work hours dropped 20% in Montreal, five times the usual post-Christmas decline.
ÿ
"The impact of the storm was a little bit more severe than we'd initially expected but, having said that, it would appear that the numbers are quite good," said John Clinkard, senior economist at Canadian Imperial Bank of Commerce.
ÿ
In B.C., the decline was nearly as bad and there were no ice storms to blame. The employment level has dropped four of the last five months and is taking a hit because of its exposure to Asian trade.
ÿ
The province lost 19,000 jobs in January, sending unemployment to 9.3% from 8.6% in December. It sends about 35% of its exports to Asia, more than four times the national exposure of 8%.
ÿ
Last fall, Bank of Montreal forecast 3.4% growth in gross domestic product for B.C. in 1998. Because of the economic crisis in Asia and its associated downturn in commodity prices, the bank later cut its estimate by almost half.
ÿ
The labor market continues to be tighter on the Prairies than elsewhere in Canada. The jobless rate in all three provinces is firmly below 6%, with Alberta leading the way at 5.4%.
ÿ
Although its unemployment rate rose to 8% from 7.8%, Ontario created the most jobs in January, adding 39,000.
ÿ
In the U.S., jobs growth showed no sign of letting up last month and there was little evidence of wage inflation pressure.
ÿ
The U.S. economy added 358,000 jobs, more than the 238,000 increase analysts had expected.
ÿ
Average hourly earnings rose 0.3% and the unemployment rate was unchanged at 4.7%. The rate hit a 24-year low of 4.6% in November.
************************************************************************************
Canada does mergers better than U.S. -- By DAVID OLIVE -- The Financial Post
ÿ
Canadian firms do a better job of executing takeovers than their U.S. counterparts, according to a recent study.
ÿ
About 62% of Canadian takeovers are successful, compared with 46% of U.S. mergers and acquisitions, says a report released this week by management consulting firm Mitchell Madison Group.
ÿ
The study, limited to publicly traded buyers, looked at 184 Canadian deals each worth more than US$100 million, and 250 U.S. deals each worth more than US$1 billion. Total return to shareholders was tracked for two to three years after the deal and purchasers that outperformed their industry were judged a success.
ÿ
The Canadian success rate arises from lessons learned in earlier failures with U.S. acquisitions, says Kenneth Smith, a partner in Mitchell Madison's Toronto office, which was in charge of the study.
ÿ
"We're seeing a little less ego among Canadian acquirers than U.S. deal makers," Smith says. "They're more conservative, more careful - and worried. They go into a deal saying, 'We know this is going to be tough,' and they plan more thoroughly."
ÿ
Smith warns the report "isn't cause for Canadians to skip home singing. If Americans get a D-, we only get a C-. Given the increasingly important role of takeovers as a growth strategy, the Canadian success rate still isn't nearly good enough."
ÿ
The momentum of last year's merger activity - a record US$1 trillion in U.S. mergers and $100.9 billion in Canadian deals - has spilled over into 1998. In January, a record $60.8-billion worth of Canadian mergers was announced.
ÿ
Smith worries about the wisdom of acquisitions in certain sectors. Canadian banks, for instance, probably aren't ready for the looming merger frenzy in financial services.
ÿ
"The banks have experience only in buying trusts, brokerages and other firms smaller than themselves. Those are deals where the culture of the bigger firm overwhelms the smaller one. But when 'big buys big' you can't allow that to happen or you risk losing valued employees."
ÿ
Joe Martin, who teaches strategic management at the University of Toronto, agrees that "failure to show sensitivity to people is the chief stumbling block" in troubled acquisitions. And the toughest mergers "are the deals where you're trying to bring together two dominant cultures. No one knows who's in charge and what set of values is supposed to prevail."
ÿ
Takeovers also fail when newly merged companies use the occasion to reinvent every aspect of their business, says Smith. "Merging companies often try to do too much, too soon. The smart thing is to keep uppermost in mind the deal logic that you started out with.
ÿ
"Figure out the five things you need to do to extract value from the deal. If those things don't include merging the head offices right away, then don't do it - and avoid the distraction."
ÿ
he Mitchell Madison study also found that takeovers of privately held firms go more smoothly than acquisitions of publicly traded companies.
ÿ
"Because the private takeover candidate is almost always a willing seller, there's much more time before the marriage for each party to engage in collaborative planning," says Smith. "In too many takeovers of publicly traded companies, it's only after you get past the 'sizzle point' of frenzied media and stock market reaction to the transaction price and who's going to be the new CEO that the merger partners begin to think seriously about what they've gotten themselves into."
***********************************************************************************
NYSE approves plan to loosen circuit-breakers
NEW YORK (AP) - New circuit breakers adopted by the New York Stock Exchange could provide some comfort to critics who oppose intervention in the market to halt trading when prices go into a tailspin.
ÿ
The NYSE voted Thursday to raise the threshold for trading curbs to market drops of 10 per cent, 20 per cent and 30 per cent. The market has fallen 20 per cent in one day just once and 10 per cent twice - but not recently.
ÿ
The changes are being made to because of concerns the current triggers are too low and can aggravate market instability. They now stand at market drops of 350 points, which is currently equal to about four per cent, and 550 points, or about seven per cent.
ÿ
Even at those levels, the triggers have only been activated once: last Oct. 27. But that sparked howls of protest and a push to raise the limits intensified. The discussion even reached the floor of Congress.
ÿ
The circuit breakers, installed after the October 1987 stock market crash, are designed to give investors time to calm down during severe price declines and prevent another market meltdown.
ÿ
But critics said that during the October selloff - especially with the limits so low - the curbs worsened the panic because investors were rushing to sell their stocks before the markets shut down and locked them out.
If the new limits were in place then, trading wouldn't have been interrupted because it would have taken drops of about 800 points 1,600 points and 2,400 points for them to kick in. October's drop was 554 points.ÿThe latest changes proposed by the NYSE didn't come easily. The exchange had to modify an earlier plan to appease federal regulators, who felt it wasn't loose enough.
ÿ
The NYSE had to back away from a provision to shut down for the day anytime there was a 20 per cent drop to avoid a showdown with the Securities and Exchange Commission, whose approval it needed.
ÿ
SEC chairman Arthur Levitt had opposed closing the markets prematurely, and indicated such a move should happen only in rare and extreme circumstances because of the potential to cause a bigger panic.ÿIn testimony to the Senate Banking subcommittee on securities last week, Levitt said he favored a market shutdown for the day at the 20 per cent threshold only if it occurred late in the session.
ÿ
In an attempt to make the plan more pleasing to regulators, the NYSE decided that trading would halt for the day only if the Dow Jones industrial average drops 20 per cent after 2 p.m. and by 30 per cent at any time.
"We think we came up with something that the exchanges can work with and that regulators can endorse," said Edward Kwalwasser, an NYSE executive vice-president. "We think we came up with something that is right."ÿTrading halts were enacted after the Oct. 19, 1987 Black Monday crash, when the Dow Jones industrial average fell 508 points, or 22 per cent - the only time it has declined more than 20 per cent. The two 10 per cent declines came during the 1929 crash.
ÿ
When the restrictions were first implemented, the Dow had to fall 12 per cent to trigger the first halt and 19 per cent to trigger the next. Criticism of the thresholds as outdated has grown with the nearly quadrupling of the Dow Jones industrial average since then.
************************************************************************************
************************************************************************************ |
