MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, FEBRUARY 19, 1998 (1)
Friday, February 20, 1998
Blue chips tumbled as Wall Street took a breather after six successive days of gains. Bay Street posted losses for a third day as investors sold companies that have outperformed so far this year
The Dow Jones industrial average fell 75.48 points, or 0.9%, to 8375.58.
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The Nasdaq composite index rose 11.28 points, or 0.7%, to 1727.01 on the back of strong gains by technology stocks.
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The Standard & Poor's 500 composite index fell 3.78 points, or 0.4%, to 1028.28.
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Trading volume was moderate, with about 587 million shares changing hands on the New York Stock Exchange, down from about 610.9 million shares traded on Wednesday.
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Traders said they were little surprised by the Dow's pullback after its string of six straight records.
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They said there could be heightened volatility today because of the "double witching" expiration of individual and index options.
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Technology stocks rallied, inspired by earnings-related gains in Dell Computer Corp.
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"There's a divergence in the market created by Dell," said Warren Epstein, director trading at Richard Rosenblatt.
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Dell shares (dell/nasdaq) climbed US$9 9/16 to US$1223 1/84 after the direct computer seller reported more than a 50% increase in fourth-quarter earnings and set a two-for-one stock split.
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Other computer-related stocks rose on the news, including semiconductor maker Intel Corp., which was upgraded to "strong buy" from "market perform" by brokerage house Bankers Trust Alex. Brown. Intel shares (intc/nasdaq) gained US$35 1/88 to US$90 9/16.
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Among shares pulling back were drug maker Merck & Co. (mrk/nyse), which fell US$2 to US$1221 1/84. The stock retreated after posting big gains this week on investor optimism that its new asthma pill would gain U.S. marketing approval soon.
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Canadian stocks fell for a third day, led by Canadian Imperial Bank of Commerce and other major banks as investors sold shares that have outperformed the broader market this year.
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The Toronto Stock Exchange 300 composite index fell 57.95 points, or 0.8%, to 6886.26 - the first time the benchmark index had slipped below the 6900 level in six trading sessions.
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About 116.7 million shares changed hands, up from 113.5 million shares traded Wednesday.
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CIBC shares (CM/Tse) slipped $1.90 to $43.55, Bank of Nova Scotia (bns/tse) slid $1.25 to $33.90.
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"Investors are reacting to analysts' comments that banks have reached reasonable prices," said Jim Muir, a senior vice-president with AGF Trust Co. "Short-term players look at any excuse to take money out."
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Alcan Aluminium Ltd., which accounts for 1.8% of the TSE 300, lost ground after it said it will construct a 375,000-tonne capacity aluminum smelter in Alma, Que., at a cost of US$1.6 billion.
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Alcan shares (al/tse) fell $1.65 to $42.50.
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Some investors questioned Alcan's decision to increase its aluminum-making production by 19% when the industry is already plagued by idle capacity, analysts said.
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Energy issues were mixed as investors found value after a 6.7% decline in the subgroup this year.
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Gulf Canada Resources Ltd. (gou/tse) gained 5› to $7.10, Tarragon Oil & Gas Ltd. (tn/tse) climbed 25› to $8.85 while Talisman Energy Inc. (tlm/tse) fell 55› to $39.70.
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Air Canada was the most active issue on the TSE. The shares (ac/tse) fell 75› to $13.60 on volume of 5.4 million shares.
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While Air Canada recorded a fourth-quarter profit of 59› a share, compared with a year-earlier loss of 14› a share, a $115-million tax gain offset unexpectedly high costs to maintain aircraft. Excluding the gain, some analysts said the results were worse than expected.
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Other Canadian markets closed lower.
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The Montreal Exchange portfolio fell 42.77 points, or 1.2%, to 3551.18.
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The Vancouver Stock Exchange fell 2.48 points, or 0.4%, to 628.14.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
REFERENCE: Canadian Market Summary
canoe2.canoe.ca
Major international markets ended mostly lower.
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London: The FT-SE 100 index edged 4.9 points lower to close at 5718.5.
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Frankfurt: Germany's blue-chip Dax index ended below the key 4600 level, after hitting another record high in early trade. The Dax closed at 4582.4, down 46.43 points or 1%.
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Tokyo: Japanese stocks ended flat after a rally on hopes for a large supplementary budget for the next fiscal year dwindled. The 225-share Nikkei average closed at 16,616.48, up 2.59 points.
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Hong Kong: A strong budget-related rally fizzled, with the Hang Seng index ending at 10,581.27, down 89.68 points or 0.8%.
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Sydney: The Australian stock market gave up earlier gains to end flat. The all ordinaries index closed at 2658.8, down 2.4 points.
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Central banks expected to control inflation
TORONTO (CP) - Stern central bankers, poised to choke off inflation at the earliest signs, are helping to keep interest rates low and promote economic growth in North America and Europe, a financial expert with Canada Trust said Thursday.
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Vigilant central bank policies and G-7 leaders are also bringing pressure on Asian countries to stabilize financial systems and restore investor confidence, said Steve Saldanha, an economist with Canada's largest trust company.
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He's optimistic Asian policymakers - especially in Japan, the world's second largest economy - will co-operate.
Although the Asian crisis has shaken economies and frightened investors, Saldanha said signs suggest the region's troubles will be contained. "The world is not falling apart, it's not becoming unhinged. The environment for investors is still relatively favorable."
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Central bankers have become so intolerant of inflation that they're launching pre-emptive strikes - boosting interest rates moderately in mere anticipation of inflation, Saldanha told a news conference. That's helping to keep any threat of inflation - which erodes earning power - at bay. ÿ"There are bumps along the way (but) the trend is unmistakable. If inflation is going to be low, we can expect a low interest rate environment ... because of tough central bank policy."
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Expect domestic growth to run as high as 3.5 per cent this year, topping the G-7, with American growth under three per cent, he predicted. Saldanha's economic predictions have been cut by half a point because of the Asian problems.
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And Canadian employment, now just under nine per cent, should fall close to eight per cent this year, while Americans are enjoying their lowest jobless rates in 25 years, he predicts.
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"We have a strong domestic economy, our major trading partner is relatively healthy, which should lead Canada to grow in a 3- to 3.5 per cent range over the next 12 months."
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Canada Trust's predictions are in line with most other economic forecasts.
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Meanwhile, revolutions in technology have been another key force in boosting corporate earnings and equity markets while improving workers' pay, said Saldanha.
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Companies willing to invest in new equipment and restructuring can maintain profitability, he said.
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That has heightened worker insecurity. Despite nearly seven years of solid growth in the U.S. economy, workers remain fearful because they know an emphasis on profitability makes them expendable.
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But that insecurity keeps a lid on wage demands, Saldanha argued. Unrest over high unemployment has created growing problems in parts of Europe, where he predicts moderate growth of between 2 and 2.5 per cent. Germany, the world's third-biggest economy, has a jobless rate of 12.6 per cent and is facing ugly clashes between thousands of unemployed and police.
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Some experts fear its troubles could have wider global implications than what has happened in Japan. ÿBut Canada Trust says European stock markets are doing well and remain good investments because companies are restructuring to boost profits.
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Trade surplus revives C$ - By DAVID THOMAS - Economics Reporter The Financial Post
Growth in Canada's exports outpaces imports in December; higher than expected trade surplus could narrow current account deficit. The C$ jumped sharply yesterday after Statistics Canada released figures showing Canada's trade surplus unexpectedly widened by one-third in
December.
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The trading surplus rose to $1.74 billion from a revised $1.3 billion in November, as exports continued to grow after spending most of 1997 in the shadow of an import boom. Exports were up 3.9%, while imports rose 2.2%.
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The wider than expected surplus led economists to conclude the current account deficit, which ballooned last year, may have bottomed out.
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That view was shared by currency traders, who bid the C$ up sharply after the figures were released in the morning. The C$ traded as high as US70.42› before closing at US70.37›, up US0.56›. It bottomed out at US68.25› Jan. 29.
"These numbers are definitely positive for the exchange rate," said Randall
"These numbers are definitely positive for the exchange rate," said Randall Powley, senior economist at Scotia Capital Markets. [Canadian dollar]
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The current account deficit hit an annualized level of $25.5 billion in the third quarter and economists had forecast it would exceed $30 billion for the full year. Fourth-quarter numbers are scheduled for release March 2.
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The current account includes the trade balance in goods, which was released yesterday, plus trade in services and investment flows. A currency tends to drop in value when the current account swells, because the country is forced to borrow more abroad to finance its balance of payments.
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"The much-feared widening in the current account deficit to over $30 billion does not seem to have materialized," said Sherry Cooper, chief economist at Nesbitt Burns Inc. "It probably consolidated [at] around $25 billion."
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Bank of Montreal also revised its current account forecast to a deficit of $25 billion from $30 billion. CIBC Wood Gundy Securities Inc. economists dropped their estimate by several billion dollars to an even more bullish $23 billion.
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Other economists said the turnaround might take a bit longer and the current account deficit will still surpass $30 billion before showing some improvement later this year.
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"The bad news isn't completely over," cautioned Powley, who forecasts a deficit of "at least $29 billion."
Andrew Pyle, an economist with ABN Amro Bank Canada, said December's performance "will not be enough to prevent a widening in the current account to at least $30 billion."
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As for the trade figures, exports gained on a huge 13.9% gain in the auto sector, some of which was the result of a temporary backlog after shipping delays in November, Statistics Canada reported. "Some manufacturers delayed exports of new models in November to allow time for additional quality checks," it said.
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Forestry, the worst performing of the economy's major sectors, had a 1.5% drop in exports. On the import side, crude oil shipments boosted energy products to a 22.1% gain.
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Exports totalled $26.7 billion in December, $77.8 billion in the fourth quarter and $301.3 billion for the year. Imports hit $24.9 billion in December, $74 billion in the quarter and $278.2 billion for the year. All numbers were records.
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There was a swing toward higher export versus import growth at the end of the year.
In the fourth quarter, exports rose 2.8% while imports were up 4.2%. In all of 1997, imports were up 16.1% while exports gained 7.4%. Imports have been soaring on a strong appetite among businesses for machinery and equipment.
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A slowdown in equipment investment is expected to lend improvement to the trade and current account balances this year.
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In the U.S., trade figures released yesterday showed the trade deficit widened to US$10.8 billion in December. Goods exports rose 1.9% but were outpaced by a 4.1% gain in imports.
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Bruce Steinberg, chief economist at Merrill Lynch & Co., said a drop in exports to emerging markets in Asia has not turned up in the figures.
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The region's weakness will take a larger bite out of U.S. exports in the months ahead, causing trade to "deteriorate substantially in the upcoming quarter," he said.
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Thursday, February 19, 1998
Asia worries dominate Rubin's G7 agenda
WASHINGTON (Reuters) - Treasury Secretary Robert Rubin Thursday geared up for a meeting of the Group of Seven finance ministers this weekend by reminding both Japan and Indonesia of the urgent need for major economic reforms.
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He told reporters that the economic turmoil that has ravaged much of Asiawill dominate the talks at the gathering in London of economic leaders from the world's top industrial nations.
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Noting that the crisis in Asia cannot be resolved unless major industrial nations boost their own economies, Rubin signaled the G7 would put renewed pressure on Japan to do more to boost domestic demand and prevent its faltering economy from falling into a recession.
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"Although the key to recovery lies with the Asian nations, strong growth in the G7 is also necessary for a successful resolution," Rubin said, adding Japan had "an especially crucial role" to play.
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"If Japan were on a strong economic track led by domestic demand-led growth, it would be a larger market for Asian goods, a source of greater bank credit and other capital flows, and a wellspring of confidence for the region," Rubin said.
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The G7 is made up of Britain, Canada, France, Germany, Italy, Japan and the United States.
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Even though he reminded Europe that the Continent's own problem with high unemployment required a strong commitment to economic change, Rubin said he expected his counterparts from the region to back his message to Tokyo.
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"I suspect their analysis is not going to be very different from our own," he said.
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Rubin declined to comment directly on market speculation the Indonesian government was willing to compromise on President Suharto's wish to establish a currency board, a rigid system criticized by the U.S. government and the International Monetary Fund for the risks it poses to financial stability.
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"There is a path to recovery and that path lies in the implementation of an effective reform program," he said.
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A senior Treasury official told reporters separately that establishing a currency board would provide "no silver bullets" for Jakarta's woes, which he said the U.S. administration was monitoring closely.
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Rubin said a solid commitment to follow through on reforms in distressed Asian countries was vital. "Only when sound policies are pursued will confidence, capital and growth return to these nations," he said.
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He added there would be discussion about proposed short-term trade credits to struggling Asian countries that he said could speed a return of growth in the region.
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He also renewed a call for Congress to approve funding for the IMF and for a special supplementary borrowing arrangement, saying the IMF was vital in leading multilateral efforts to prevent the current Asian economic crisis from spreading and to deal with future such global threats.
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He said the administration had "made a lot of progress" on its bid to win congressional backing but said there was still "a very large challenge ahead of us."
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The IMF has put together international rescue packages totaling more than $100 billion for the three hardest-hit countries in Asia -- Indonesia, Thailand and South Korea.
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Part of the G7 meeting will focus on a broader effort to revamp "international financial architecture" -- making the private sector, including banks, share the burden when crises arise, strengthening financial systems and imposing tougher rules for disclosure of financial information, Rubin said.
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The G7 ministers will be joined by representatives from Russia on Sunday for a separate discussion of employment issues in the global economy.
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Japan posts first deficit with Asia in eight years
TOKYO, Feb 19 (Reuters) - Japan posted its first monthly trade deficit with Asia in eight years on Thursday, as economic turmoil and depreciated currencies sapped demand for Japanese exports in countries like South Korea, Thailand and Indonesia.
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While Japan's customs-cleared trade surplus with the world showed a conspicuous rise in January to 381.50 billion yen ($3.02 billion), the Finance Ministry said the country recorded a 34.26 billion yen ($271 million) deficit with Asia.
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It was the first deficit with the region since January 1990, as exports to the region slid nine percent from a year earlier.
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Final trade balance figures for last year, which are being revised, will not be published until later this month, the ministry said.
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Economists said that while New Year's holidays always mean an export slowdown in January and helped pushed the Asia trade balance into deficit, exports to the region were clearly on a downward trend and would continue to slide.
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"From here on, we will see marked drops in Japan's trade surplus with Asia, not only because exports will keep falling, but also because we will have growth in imports from the region," said Teruyuki Morinaga, an economist at the Industrial Bank of Japan.
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Asian economies were still too traumatised to embark on a full-fledged export drive, but would eventually get there, he added.
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The Finance Ministry said, however, that it was difficult to predict the direction of Japan's trade with Asia.
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"As Asian nations recover their price competitiveness in global markets with the depreciation of their currencies, Japanese exports to them of materials needed to make finished goods may increase," a ministry official said. Bleak prospects for Japanese exports to Asia mean Japanese manufacturers will concentrate on exports to the United States and Europe, economists said.
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Japan's trade surplus with the United States rose 66 percent in January from a year earlier to 493.85 billion yen ($3.91 billion) and the surplus with Europe doubled to 186.42 billion yen ($1.47 billion).
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Within Asia, exports to South Korea suffered most, plunging 42 percent from a year earlier against a two percent increase in imports, sending Japan's trade balance with South Korea into a 3.39 billion yen ($26.9 million) deficit.
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Exports to Thailand also dived, falling 35 percent and halving Japan's trade surplus with the country to 1.69 billion yen ($13.4 million). Imports from Thailand fell 4.3 percent.
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For Indonesia and Malaysia, Japanese exports fell 18 percent and 16 percent respectively.
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And while economists said imports from countries that had devalued their currencies would look weaker in yen terms, key imports from these countries -- oil for Indonesia and lumber for Malaysia -- took a beating. Imports from Indonesia dropped 16 percent while those from Malaysia fell 18 percent.
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Japan recorded a 91.75 billion yen ($728 million) trade deficit with Indonesia and a 18.27 billion yen ($145 million) deficit with Malaysia.
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Within the region, the Taiwanese economy appeared comparatively healthy. Japan's trade surplus with Taiwan jumped 54 percent from a year earlier as exports rose 16 percent against an eight percent fall in imports.
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