MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WED., MAY 6, 1998 (1)
MARKET VIEW
Bay Street lost ground as the financial services subindex weighed on the benchmark TSE 300
Toronto stocks dropped for the second time in the past three sessions on fears a robust U.S. economy could prompt higher interest rates.
"There's still some preoccupation in the U.S. with rates and what's going to happen," said Fred Ketchen, chief equities trader with ScotiaMcLeod in Toronto.
"I think this market is due for a little bit of a correction somewhere along the way, and maybe we've seen part of that take place over the last few days.
"It wouldn't surprise me if it did in fact continue for a while."
The Toronto Stock Exchange 300 composite index fell 41.43 points, or 0.5%, to 7678.69. About 106.7 million shares changed hands on the TSE, down from 115.7 million shares traded on Tuesday. Trading value was worth C$1.81 billion. Declining stocks outpaced advancers 592 to 440 with 313 issues unchanged.
The TSE 300's decline was broad-based as 10 of its 14 subindexes closed in negative territory, led by a 1.2 percent decline in the consumer products group due in large part to Seagram Inc., which slid $1.80 to $59.25. Maple Leaf Foods gained 45 cents to $22.65. Both the conglomerates and transportation sectors.fell 1.1 percent.
Only four of the 14 index groups rose. Paper and forest products led the way, gaining 0.62 per cent, as Abitibi-Consolidated gained 50 cents to $22.60 and Fletcher Challenge Canada A soared $1.75 to $24.75.
The communications index was up 0.48 per cent as Hollinger units gained $1.45 to $18.20 and CanWest Global preferred climbed 60 cents to $27.20. WIC Western International Communications gained 50 cents to $42.75.
The merchandising group rose 0.21 per cent, as Canadian Tire climbed $1.15 to $38.00. George Weston slid $1.50 to $142.50.
The transportation group slipped 1.10 per cent as Laidlaw fell 50 cents to $19.40 and Philip Services lost 40 cents to $10.80.
Conglomerates were down 1.07 per cent on profit-taking at Canadian Pacific, which lost 70 cents to $44.05.
The gold sector fell 1 percent as the June price for Comex gold dropped US$3.00 to US$301.60 in New York.
Laidlaw Inc. led the most active stocks, dipping C$0.50 to C$19.40 on volume of 2.7 million shares. Lightly traded Dalsa Corp. slipped C$2.00 to C$21.00 topping the net loss leader board.
Royal Bank of Canada and Bank of Montreal led the financial services sector lower. Bank of Nova Scotia (bns/tse) fell 70› to $38.40, Royal Bank (ry/tse) lost 85› to $83.95 and Bank of Montreal (bmo/tse) dropped 60› to $76.80.
BCE Inc. and Seagram Co. also weighed on the benchmark. Northern Telecom Ltd. (ntl/tse) fell $1.45 to $90 and Newbridge Networks Corp. (nnc/tse) dropped $1.90 to $43.90. Nortel attributed 7% of its sales to the Asia-Pacific region in 1997, while Newbridge reported 18% of its sales from the area. BCE, which owns 51.7% of Nortel, fell 85› to $62.35. Seagram (vo/tse) fell $1.80 to $59.25 after it reported a loss of US2› a share, in line with expectations.
Fonorola Inc. rose $1.20 to $65.50 after it rejected Call-Net Enterprises Inc.'s $1.79 billion takeover offer, saying the unsolicited bid was not high enough. Call-Net class B shares (cnb/tse) gained 50› to $27.50.
Oil service company Tesco Corp. (teo/tse) fell $1.85 to $21.40 after it reported fiscal fourth-quarter profit of 19› a share, 10› short of analysts' estimates.
Imax Corp. (imx/tse) gained $1.25 to $39.25 after analysts Ben Bendre and Charles Benett at New York based TD Securities Inc. rated the large screen movie-theater operator a "buy", noting the company had made progress in European sales.
Other Canadian markets fell. The Montreal Exchange portfolio slipped 26.55 points, or 0.7%, to 3847.54. The Vancouver Stock Exchange lost 0.95 of a point, or 0.2%, to 6301.6.
Toronto's loss paled in comparison to that on New York's Dow Jones Industrial Average. The Dow dropped 92.92 points or 1 percent to 9054.65.
Wall Street felt a cold chill as a senior Fed official said market valuations are 'hard to justify.'
Pulling the markets down today was the U.S. Federal Reserve's Beige Book -- a report on regional economic conditions -- that showed U.S. economic growth was ''moderate to strong'' in March and April and labor markets remained tight.
The key report said manufacturing activity was rising and that consumer spending remained robust across the nation.
The report was viewed by investors as one more incentive for the U.S. Federal Reserve Board to raise interest rates when it meets later this month.
''There is a lot of concern about a potential increase in interest rates due to the fact that employment numbers are looking pretty high,'' said Todd Kapala, an investment specialist at Priority Brokerage in Toronto.
''There is concern right now that if a few more numbers come out like this, there could be a potential for higher interest rates.''
The next key data, non-farm payrolls, are expected out on Friday and anticipation of these numbers pushed a lot of investors to the sidelines with a ''wait-and-see attitude.''
''The market seems to be trading day-to-day based on whatever economic statistic comes out,'' said Kapala.
U.S. stocks fell as tumbling Asian markets and negative remarks by U.S. Federal Reserve vice-chairman Alice Rivlin ignited concern that profit growth may slow.
The Dow Jones industrial average fell 92.92 points, or 1%, to 9054.65.
The Standard & Poor's 500 index lost 10.58 points, or 1%, to 1104.92.
About 600.2 million shares changed hands on the Big Board, up from 577.5 million shares traded on Tuesday.
The Nasdaq composite index slipped 8.23 points, or 0.4%, to 1856.68.
American Express Co. and other companies that do business in Asia led the decline.
Chrysler Corp. gained after the third-largest U.S. automaker said it is in talks that may lead to a merger with Daimler-Benz AG. Chrysler shares (c/nyse) rallied US$7 3/8 to US$48 13/16, bringing its gain for the year to 39%. Daimler's American depositary receipts (dai/nyse), each equal to one ordinary share, climbed US$6 1/2 to US$108 9/16.
Stocks extended losses in late trading after Rivlin said stock market values are "hard to justify." His remarks "had a negative general tone and gave investors a reason to wrap up early and head home," said Doug Myers, a trader at Interstate-Johnson Lane Inc.
Amex (axp/nyse) fell US$2 15/16 to US$99 1/2. The company reported last month that its overseas banking unit set aside US$138 million to cover losses stemming from Asia.
Pfizer Inc. (pfe/nyse), which makes the impotence drug Viagra, fell US$2 11/16 to US$108 13/16. EntreMed Inc. (enmd/nasdaq), which soared Monday on news it is developing a promising treatment for cancer, tumbled US$12 to US$31 1/8.
Microsoft Corp. (msft/nasdaq) slid US$1 3/8 to US$86 3/8 after chairman Bill Gates told the U.S. Justice Department's anti-trust chief that blocking the release of Windows 98 would disrupt the computer industry. Put options to buy Microsoft at US$75 by June 20 rose 1/8 to 5/8 in trading of 7,366 contracts, well above the recent daily average of 568 contracts, a sign that investors believe it is likely that the shares could decline further.
Cisco Systems Inc. (csco/nasdaq) rallied US$2 3/8 to US$76. The No. 1 computer networking company said it earned US45› a share in the fiscal third quarter, topping analysts' forecasts by a penny.
Major international markets were broadly lower.
London: Uncertainty over the direction of British interest rates muted investor sentiment. The FT-SE 100 index lost 5.9 points to 5992.4.
Frankfurt: The German Dax index slipped 2.23 points to 5229.8.
Tokyo: Increasing worries about the Japanese economy drove shares to a three month low. The 225-share Nikkei average dropped 357.26 points, or 2.3%, to 15,243.84.
Hong Kong: The Hang Seng index fell 44.52 points, or 0.4%, to 10,109.14.
Sydney: The all ordinaries index lost 15.5 points, or 0.6%, to 2788.
World Markets As Of This Moment cnnfn.com
OIL & GAS
Glutted U.S. Oil Market May Turn
NEW YORK, May 6 - The U.S. crude oil market is in a glut, but market participants say a number of signs suggest the oversupply could ease in the next few weeks.
The current glut is underlined by the huge ''contango'' in crude prices, where oil for delivery to the Cushing, Oklahoma hub in June is 80 cents a barrel cheaper than July-delivery crude and some analysts expect it to go to $1.00 or more. Just two weeks ago, May cash crude traded at an unheard of $2.25 discount to the June futures contract.
Apart from the wild price swings during the Gulf Crisis, the last time nearby delivery crude was at such a discount was in spring, 1990, when there was fierce market competition between Kuwait, United Arab Emirates, Iran and Iraq.
The discount from nearby delivery crude has been on a rising trend for more than 18 months but recently took a sharp turn higher. Traders say the world crude glut -- with much of the oversupply directed at the U.S. market -- has combined with brimming storage tanks in Oklahoma and elsewhere to create the unusual price relationship.
But the unusually high ''contango'' ''is a great opportunity to buy crude,'' said Sarah Emerson, an analyst at energy market consultants ESAI in Boston. ''I don't see how you can lose by buying prompt and selling forward as long as there is a positive refining margin.''
Among the signs that the current market may be a good buying opportunity:
--Foreign crude oil, especially from West Africa and the North Sea, had been plentiful in the U.S. Gulf due to relatively high U.S. prices. The trans-Atlantic ''arbitrage'' -- the WTI/Cushing/North Sea Brent spread -- has slumped from a high of around $2.00 in mid-April to around 80 cents. Though it's not a hard-and-fast rule, imports usually trail off when that arbitrage closes and vice versa.
--While crude has been slumping, especially at the front end of the market, refining margins have been rebounding and gasoline ''crack spreads'' are higher than they were this time last year, which was a bumper year for most oil refiners. After a period of refinery glitches, crude runs shot up last week above 15 million barrels per day (bpd) nationally, nearly as high as the peak last August.
--Traders say that even before the trans-Atlantic arbitrage started to close, there were signs that buyers of African crudes in Asia were re-emerging as their financial crisis eased; also, refinery crude buying in the Mediterranean was picking up seasonally.
--Traders are bidding up U.S. domestic grades, such as Light Louisiana Sweet and West Texas Sour, which have risen versus U.S. benchmark West Texas Intermediate/Cushing (WTI) recently after losing ground steadily since late last year. This is a mixed signal as traders' demand for the grades is improving, while they are also selling WTI because of lack of storage. Also, this may depress nearby futures further as traders hedge.
Oil Markets Slip Despite OPEC Cutbacks
LONDON, May 6 - Oil prices slipped on Wednesday as traders weighed speculation of fresh action by producer nations to trim surplus supplies.
Benchmark Brent for June loading last traded 16 cents down at $14.48 a barrel, only three cents up from the day's low of $14.45 and well down from the high of $14.79 a barrel.
Early downward pressure came from bearish stock data from the key U.S. market, which revealed big rises in both crude and product stocks.
But prices later recovered somewhat on a resurgence of talk that leading oil producers might meet to make further output cuts.
Oil prices have been under pressure after ministers from Saudi Arabia, Mexico and Venezuela disappointed market expectation at the weekend that they would meet to discuss further output cuts.
The rumours have not dissipated and a Gulf source said on Tuesday he expected the three ministers to meet within two weeks.
A secret Riyadh meeting between the three energy chiefs in March laid the ground for a groundbreaking pact between OPEC and non-OPEC producers that pledged to cut back some 1.5 million barrels per day (bpd) from April 1.
Traders are now poring over output figures to see if producers are living up to their promises.
A Reuters survey of April output released on Wednesday found that OPEC producers -- who committed to cut some 1.25 million bpd -- had gone some, but not all of the way to meeting their promises.
The 10 member nations who pledged cutbacks together shed some 900,000 bpd of output, or 70 percent of their pledges.
Saudi Arabia and Venezuela, at loggerheads before Riyadh, both moved quickly to meet their lower allocations.
Libya, the United Arab Emirates and Algeria were all notable in lagging declared cutback targets, while there were question marks against Iran, Qatar and Indonesia.
OPEC also got an unwelcome boost to its April production figures from a 300,000 bpd output rise by Iraq, which was not party to the cutback agreement.
The market's bearish mood was intensified by figures from the U.S. Department of Energy (DOE) which showed a massive 2.2 million barrel rise in crude stocks.
The U.S. gasoline market -- which guzzles some 10 percent of all world oil supply -- saw a 100,000 barrel rise in stocks, according to the DOE.
A strong U.S. gasoline season is seen as crucial to reviving world oil prices which are still hovering near nine year lows below $12 hit before the Riyadh agreement.
NYMEX Crude Ends Lower On Stocks Data, Output Woes
NEW YORK, May 6 - Renewed market speculation on producers' moves to curb oil oversupply lifted NYMEX crude from the day's lows Wednesday, but not enough to finish above Tuesday's close.
''The market was bearish on API's gasoline data and then eased some more on DOE's builds,'' said a NYMEX trader.
In the absence of any new developments from OPEC, NYMEX traders, following reports of a rise in U.S. stock inventories, again raised worries on the global oversupply situation.
June crude, on a slide since Monday, ended at $15.37 a barrel, down 10 cents, clawing its way back from $15.16, the day's low. The contract raced to a high $15.54 in the afternoon, a few notches above Tuesday's close of $15.47, but did not gather enough support and fell back.
Refined products ended with losses, but up from the day's lows.
June heating oil gave up 0.48 cent to settle at 43.82 cents a gallon, climbing from the day's low of 43.65 cents. It traded as high as 44.35 cents, higher than the previous day's close of 44.30 cents, but then dropped quickly.
June gasoline finished down 0.80 cent at 52.53 cents a gallon, rising from 52.00 cents, the day's low. It went as high as 52.90 cents, down from Tuesday's close of 53.33 cents.
The American Petroleum Institute reported a 43,000 barrel increase in gasoline stocks for the week ending May 1 while the Department of Energy, whose weekly data are oftentimes deemed ''confirmatory'' by the market, showed a bigger rise of 100,000 barrels. The market had expected a draw of 900,000 barrels.
On crude stocks, the API report showed a 700,000 barrel draw, differing with the DOE's data showing a rise of 2.2 million barrels, closer to the market expectation of a build of 1.4 million barrels.
''The market is focusing again on the production-cut issue,'' said another NYMEX trader after the bearish effects of the latest U.S. inventory data faded somewhat after midday.
Traders treaded carefully on a report on Tuesday from a Gulf source that he expected the oil ministers of Saudi Arabia, Venezuela and Mexico to meet within two weeks on the issue of further production cuts.
The three ministers negotiated the Riyadh agreement in March, which called for OPEC and non-OPEC producers cutting their production by 1.5 million barrels per day (bpd) effective April 1.
The presence of Saudi Oil Minister Ali al-Naimi in the U.S. since late last week fueled speculation about a meeting last weekend among the three, sending NYMEX front month crude to more than $16 on Friday.
When that did not happen the market retreated. But a trader said, ''The market is not collapsing, we are still in trading range.'' He was referring to the $15-$16 range that crude has been trading in the past few weeks.
According to a Reuter survey of April output released on Wednesday, OPEC producers had shed some 900,000 bpd of output or about 70 percent of their pledge totaling 1.245 million bpd.
The survey covers the 10 OPEC members that signed up under the Riyadh agreement. It does not include Iraq, an OPEC member whose oil exports are monitored by the United Nations.
The Reuter survey showed that Saudi Arabia and Venezuela have moved quickly to meet their pledges.
Libya, the United Arab Emirates and Algeria were lagging in their cutbacks, while there were still questions on output figures of Iran, Qatar and Indonesia.
NYMEX Hub Natural Gas Ends Down, ACCESS Slips After AGA
NEW YORK, May 6 - NYMEX natural gas futures, pressured by mild weather and concerns about storage, ended lower Wednesday in a moderate session, then slipped in after-hours trade following a bearish weekly inventory report.
In the day session, June tumbled eight cents to close at $2.135 per million British thermal units, then on ACCESS slipped to $2.116 shortly after the AGA stock report. The spot contract then recovered to about $2.15 by 1645 EDT. July settled 7.8 cents lower at $2.193. Other deferreds ended flat to down 7.6 cents.
''It's not a good (AGA) number for the bulls,'' said one Texas-based trader, noting the weekly inventory build was above expectations.
AGA said Wednesday that U.S. gas stocks rose last week by 78 bcf, well above Reuter poll estimates in the 50-60 bcf range. Overall stocks climbed to 377 bcf, or 41.9 percent, above a year ago.
Eastern stocks rose 34 bcf and were still 62 percent over year-ago. Consuming region west storage, which climbed 13 bcf last week, remained 3.2 percent below 1997 levels. Inventories in the producing region gained 31 bcf for the week and climbed to 43.8 percent over year-ago.
Eastern temperatures are expected to stay above normal through the week though cooler levels are forecast for the weekend. The mercury in the Midwest should drop to normal or below by the weekend and into next week. Texas is expected to stay humid through the week, cool to about normal by the weekend, then warm to above normal again next week.
Technical traders agreed June was still stuck in a range, with key support pegged at $2.105-2.11, a spot continuation chart low and Monday's low. Major buying was expected at the $2.05 double bottom from January and then at $2.
June resistance was pegged at $2.27 and then at last week's high of $2.355. Further resistance was seen at $2.37, which is the 50 percent retracement point of the recent selloff. Major selling was expected at the $2.63 double top.
In the cash Wednesday, Gulf Coast swing prices were talked about a nickel lower in the $2.07-2.12 area, almost 15 cents below May indices. Midwest pipes were down eight cents to $2.02-2.07, 12 cents under May 1 levels. Gas at the Chicago city gate was almost 10 cents lower in the low-$2.20s, while New York was off several cents to the mid-$2.30s.
The NYMEX 12-month Henry Hub strip fell 4.8 cents $2.351. NYMEX said an estimated 68,194 contracts traded, up sharply from Tuesday's revised tally of 39,770.
Canadian Natural Gas Prices Soften After Tuesday Rally
NEW YORK, May 6 - Canadian spot natural gas prices abandoned earlier highs on Wednesday after NOVA loaded more gas onto its western Canadian pipeline system, traders said.
NOVA Gas Transmission was able to pack about 575 million cubic feet per day (mmcfd) of gas back onto its system by last night, propping up the linepack to about 12.78 billion cubic feet by this morning, a Calgary based trader said.
As a result of yesterday's gas flow cuts on NOVA, about 680 mmcfd of gas was withdrawn from storage, he added.
''We'll probably start to see storage injections drop as field receipts come back on line.''
On Tuesday, NOVA said it was forced to cut about 700 mmcfd in gas transport on its system due to forest fires in northern Alberta.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.91-1.94 per gigajoule (GJ), off from Tuesday's high of C$2.20 and an average trading range of C$2.06-2.10.
AECO prices for June were quoted at C$1.90, while one-year business softened to about C$2.35 per GJ.
At Sumas, Wash., prices followed Alberta values lower to US$1.55-1.60 per million British thermal units (mmBtu), while Kingsgate, B.C., prices slid to about US$1.50.
Meanwhile, the 700 mmcfd McMahon gas plant in northeastern BC, owned and operated by Westcoast Energy (W/TSE), is scheduled to shut May 17 for 19 days of maintenance. Capacity will drop to 580 mmcfd on May 17 and then to as low as 260 mmcfd on May 18-May 19. By June 5 capacity is expected to rise to about 680 mmcfd.
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