MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THURS. JUNE 10 1998 (2)
MARKET OVERVIEW
After the bell
As the overall market teeters on unsteady ground, tech stocks will remain in the hot seat Friday after a profit warning after the bell from Compaq Computer (CPQ).
During a conference call with analysts, the world's largest PC maker said it will post only break-even results in the second quarter, down from 33 cents a year ago. Expectations were only for earnings of a penny per share, so the reaction may not be so dramatic. Compaq also said the third quarter will be a "transitional" quarter and that it will begin to see the benefits of its Digital Equipment (DEC) acquisition in the fourth quarter.
MEMC Electronics Materials (WFR) joined the long list of chip and equipment makers to warn that its second-quarter earnings will not meet expectations.
CMG Information Services (CMGI) posted a third-quarter loss of 55 cents per share, but that was 6 cents better than analysts had projected.
Saf T Lok Inc. (LOCK) shook up its executive suite, firing president and CEO John Gardner and appointing Franklin Brooks as acting president.
Owens & Minor (OMI) said the loss of a contract with Columbia/HCA will cause a shortfall in its second-quarter results.
GenRad (GEN) expressed a cautious outlook for its prospects, and said it will take a $40 million charge to pay for layoffs. The company did say it will buy back up to 8% of its stock.
Rural/Metro Corp. (RURL) said its fiscal first-quarter results won't meet expectations.
Profit warnings were also posted after the bell by Advanced Deposition Technologies (ADTC), a developer of metallized films used for electronic capacitors and microwave-food packaging, and Rogers Corp. (ROG), which makes specialty polymer composite materials.
Ultralife Batteries (ULBI) also waved the red flag, saying its loss in the fiscal fourth quarter results will exceed expectations.
On the earnings front, TSI Inc. (TSII) said it earned 16 cents per share in its fourth quarter, in line with expectations.
Immune Response (IMNR) said it will collaborate with Agouron Pharmaceuticals (AGPH) on the development of Remune, an immune-based therapy for the treatment of HIV infection.
Friday's World Markets: Asia and London mixed
Asian stock markets ended the week mixed Friday, but the key index in Seoul tumbled 8.1 percent - its biggest ever one-day fall - on fears that the falling Japanese yen could wreck the South Korean economy.
The U.S. dollar was trading at 144.02 yen in late-afternoon trading, up 2.34 yen from late Thursday in Tokyo and also above its late New York rate of 143.79 yen overnight.
Earlier in the day, the dollar was quoted at144.75, its highest level against the yen since it reached that same mark on August 30, 1990.
In Seoul, the key Korea Composite Stock Price Index slumped 26.61 points to 302.09. It was the also index's lowest close since Jan. 28, 1987, when it stood at 301.56.
Thai shares prices fell for a sixth consecutive day as investors continued to dump shares on worries that the country's economic crisis is deepening.
The Stock Exchange of Thailand index fell 4.55 points, or 1.6 percent, to 279.37 points - its lowest point since Dec. 16, 1987.
Meanwhile, the dollar was trading at 43.45 Thai baht, up from 43.12 at the close of trading Thursday.
On the Kuala Stock Exchange, the main Composite Index fell 10.63 points, or 2.2 percent, to 472.37.
In currency trading, the dollar was quoted at 3.9950 Malaysian ringgit, up slightly from 3.9875 ringgit late Thursday.
In Taiwan, shares closed at another seven-and-a-half month low, with the Weighted Price Index falling 93.63 points, or 1.3 percent lower, to 7,117.11.
Japan, Asia's troubled economic powerhouse, confirmed Friday that it has sunk into recession, with two back-to-back quarters of negative growth.
Japan's real gross domestic product for the first quarter this year fell 1.3 percent from the previous quarter. Last quarter, the economy shrank 0.2 percent. Japan's gross domestic product for the entire fiscal year ended March 31, 1998, shrank 0.7 percent, the first contraction during the entire year since 1974.
The yen also tumbled as traders interpreted comments by U.S. Treasury Secretary Robert Rubin as meaning that a coordinated effort by central banks to boost the falling yen was unlikely.
Rubin reiterated in Washington that Japan must revive its ailing economy, warning that its "economic difficulties and weak currency are having substantial adverse impact on the East Asian countries."
But some Asian markets managed to rebound from earlier losses despite the economic news from Japan, and overnight falls on Wall Street.
The main stock markets in Tokyo, Hong Kong and Australia finished the day with slight advances.
On the Tokyo Stock Exchange, the 225-issue Nikkei Stock Average gained 8.29 points, or 0.06 percent, to close at 15,022.33. On Thursday, the average closed down 325.22 points, or 2.12 percent.
Australian share prices closed higher after the benchmark index rose than 30 points in the last two and a half hours of trading, ending an eight-session losing streak.
The Sydney's All Ordinaries Index rose 13.00 points, or 0.5 percent, to 2,571.7. The Australian currency was quoted U.S. dlr 0.5895 at the close of stock trading, stronger than its 0.5913 level at the same time on Thursday.
Hong Kong share closed higher after three straight sessions of sharp losess. The Hang Seng Index rose 29.37 points, or 0.37 percent, to 7,915.44.
Singapore shares rebounded to close higher, with the Straits Times Industrial Index rising 4.66 points, or 0.4 percent, to 1,091.49.
The Singapore currency hit its lowest level since late January at 1.756 against the U.S. dollar. But the Singapore currency recovered slightly to 1.746 by late afternoon.
Shares in New Zealand fell for the 12th consecutive session, falling 11.5 points to 1,997.63.
Indonesian share prices closed mixed. The Jakarta Stock Exchange's Index fell 3.172 points, or 0.7 percent, to 408.372.
Share prices on the London Stock Exchange were sharply lower at midday
Friday.
In London at noon, the Financial Times-Stock Exchange 100-share index was down 84.4 points at 5,768.1.
In London, the Canadian dollar is trading at 68.09 cents U-S -- up 0.05 cent from Thursday's close.
London dealers fixed a recommended gold price of $288.10 US bid per troy ounce at midmorning, down from the closing price of $289.60 US bid Thursday.
In Zurich gold traded at $288.00 US, down from $289.90 US. Gold fell $6.00 US in Hong Kong to $287.95 US.
OIL & GAS
POLL-Analysts say oil cuts need to be 1.25 mln bpd
NEW YORK, June 11 - Battling against a glutted world market, oil producers will have to agree soon to much higher output cuts to have any hope of rescuing slumping oil prices, according to a survey of oil economists and analysts.
In a poll conducted by Reuters, six leading industry analysts voiced their opinions on how big a production cut is required in the latest round to stabilize and improve oil prices, which have declined almost $3 a barrel -- nearly 20 percent -- since last week's initiative by Saudi Arabia, Venezuela and Mexico to secure a second round of cuts from OPEC and non-OPEC countries.
The three countries said they will cut 450,000 barrels per day bpd) from their production and are looking for at least 250,000 bpd from others. But analysts, on average, said the total cut needs to be at least 1.25 million bpd to have an effect.
**Alan Struth, chief economist, Phillips Petroleum Co: OPEC ALONE NEEDS TO CUT A MILLION BARRELS PER DAY (BPD) IN LATEST ROUND.
''The (world) supply overhang right now is around 150 to 170 million barrels. To work that off, you would have to have fairly aggressive cuts. Maybe if you could get OPEC production down by one million bpd, you could start working some of the overhang off.''
**Ken Haley, chief economist, Chevron Corp: CUTS NEED TO BE DOUBLE THOSE PROPOSED.
''Inventories are the real key. Stocks have been rising by about one million bpd this year. They are more than uncomfortably high, and it would take at least a month worth of declines to turn the market around.''
**Lawrence Goldstein, president, Petroleum Industry Research Foundation: CUT NEEDS TO BE ONE MLN TO 1.5 MLN BPD.
Goldstein says that the 450,000 bpd cut promised in Amsterdam only brings worldwide production back in line with the cuts originally promised in Riyadh last March. ''The problem with OPEC right now is that it over-promises and under-delivers,'' he says.
**Sarah Emerson, analyst, Energy Security Analysts Inc.: ANOTHER 500,000 BPD CUT NEEDED ON TOP OF THOSE ALREADY AGREED. ''The fact is not that the cuts are too small, but that they came at a time when there was incredibly bearish market psychology.''
**Roger Diwan, analyst, Petroleum Finance Co.: CUTS MUST TOTAL 1.4 MLN BPD.
Bearish reaction justified by ''the apparent lack of coordination of the Amsterdam cut with other OPEC producers, and the lack of a specific target for further cuts from OPEC members justifies the market's skepticism. Despite the participation of non-OPEC producers, only 600,000 bpd was removed from the crude markets in April, and only marginally more in May.''
Nizam Sharief, director of energy research, Hornsby & Co.: BETWEEN 750,000 BPD AND ONE MLN BPD SUFFICIENT.
''My estimate is that 750,000 to one million bpd will eventually be cut, and that would be sufficient,'' Sharief says, adding that the market's reaction to the cuts has so far been too bearish despite the worldwide overhang in stocks. ''The market perception is that stocks should not be building. But that's wrong. The fact is that inventories usually rise in the second quarter.''
Following the cuts, Sharief argues that prices should be closer to $15 than $13.00 a barrel, but concedes that prices may not return to $16.00 until the end of the fourth quarter.''
World Oil Prices Slide Again despite Saudi Efforts
LONDON, June 11 - Depressed world oil prices fell still further on Thursday, even as key producers sought to convince markets that they have the stomach for further output cuts.
International benchmark Brent sank to $12.85 in early trade, down 46 cents and on a par with the nine and a half-year low seen in March, as institutional investors carried out a wave of selling.
Oil continues to wallow some $6 a barrel lower than last year'saverage due to buoyant supplies.
Prices have fallen heavily in recent days despite energetic recent efforts from Saudi Arabia, the world's biggest oil producer, to assemble a package of cuts ahead of a full meeting on June 24 of the Organisation of Petroleum Exporting Countries (OPEC).
Returning from a whirlwind tour of fellow Gulf producers, Saudi oil minister Ali al-Naimi declared late on Wednesday that more countries would announce cutbacks in the next few days.
Naimi secured a promise from Iran to trim 100,000 bpd from next month, on top of Saudi Arabia's own joint 450,000 bpd cut agreed last week in Amsterdam with Venezuela and Mexico.
OPEC and non-OPEC producers already thrashed out some 1.5 million bpd of reduction pledges in March.
But analysts have berated producers for failing to live up to promised cuts, saying that barely a million bpd had been taken off markets since the March pact.
They have called for as much as one million bpd more to be slashed from global supply to start eating into the huge petroleum stock surplus that has built up in recent months.
Stocks have ballooned by more than a million barrels daily so far this year, said the International Energy Agency (IEA) in its latest market report.
The energy watchdog compounded its gloomy outlook by predicting that global demand growth this year would slow to 1.6 percent from 2.9 percent last year as the Asian recession bites.
And any producer hopes that wilting prices might again get a lifeline from disruptions to Iraqi oil-for-aid exports have proved forlorn.
Iraq has already resumed exports for a further six months with none of the tribulations that have dogged past negotiations over humanitarian sales.
June 11 June 10 (Close) (close) IPE July Brent $12.85 $13.33 NYMEX July crude $12.70 $13.48
NYMEX Crude Price Lowest Since Oct. 1988
Crude oil futures prices Thursday plummeted to their lowest level in nearly 10 years on the New York Mercantile Exchange amid tepid support for a second round of production cuts from world oil producers to relieve a supply glut.
Crude fell to its lowest level since it hit $12.28 a barrel in October 1988 in a decline tied to a massive buildup of supplies in the United States and reluctance among world oil producers to make the necessary cuts to relieve that glut.
Members of the Organization of Petroleum Exporting Countries and other major producers, including Russia and Norway, in March agreed to trim 1.72 million barrels of crude daily from the market. An additional 500,000 barrels in daily cutbacks has been pledged by OPEC nations ahead of a meeting later this month. But analysts said about 1 million more barrels must be taken off the market to compensate for reduced demand from Asia and greater output from Iraq.
Industry watchers also have been skeptical that oil producers achieved targets from the first round of cuts, and finger-pointing by some oil-rich countries has led to increased fears the unprecedented cooperation agreement soon will fall apart.
Crude for July delivery fell 73 cents to $12.75 a barrel; July heating oil fell .78 cent to 38.05 cents a gallon; July unleaded gasoline fell .13 cent to 46.03 cents a gallon; July natural gas rose 4 cents to $1.970 for each 1,000 cubic feet.
NYMEX crude on ACCESS erratic in light trading
NEW YORK, June 11 - Crude oil futures on the New York Mercantile Exchange (NYMEX) rose in early trading on the afterhours ACCESS system, though traders said it appeared to be just a single buyer doing fairly light volume.
July crude, which settled down 73 cents at $12.75 a barrel in regular Thursday trading, headed down to $12.61 but then shot up to $12.88. The contract stood at $12.81 at 1850 EDT having swung back and forth several times.
''The way it was trading it looked like it was just one guy coming in, placing a 'buy' order. There was no followthrough,'' said a trader at a major Wall Stree brokerage.
The buy order which moved the market up was for about 600 lots, traders said. The market traded little apart from that order early on.
There was no news to change the bearish sentiment, the traders said. Indeed, news late in the day added to general flow of information pointing to a flooded world oil market.
Preliminary estimates from the Department of Energy showed that imports of crude to the U.S. in May rose sharply again from its three main suppliers -- Saudi Arabia, Venezuela and Mexico, the so-called ''Riyadh Pact'' three which spearheaded the March agreement by OPEC and non-OPEC producers to cut 1.5 million barrels per day from production starting April 1, and are leading another move to cut 700,000 bpd or more starting in July.
There was much skepticism about the original agreement as oil market participants awaited evidence that the producers would honor their pledges to cut. Evidence from the Department of Energy in the U.S., similar European agencies and the International Energy Administration in Paris show rising world inventories, suggesting the oil exporters didn't cut as much as they said they would or they miscalculated the amount they needed to cut.
Earlier Thursday, July crude posted its lowest closing price since late 1988, bringing to nearly $3 a barrel the loss since last week's announcement in Amsterdam of the latest output-cutting initiative.
In refined products, gasoline and heating oil futures were little changed. They've also been under pressure in recent days but have firmed relative to crude, with the heating oil ''crack'' shooting upfrom a recent low of $1.22 to over $3 on a per-barrel basis.
July gasoline was at 46.05 cents a gallon, up 0.02 from the settle, while heatoil was down 0.05 at 38.00 cents.
NYMEX Hub natural gas ends up on short covering
NEW YORK, June 11 - NYMEX natural gas futures ended higher across the board Thursday in a sluggish session, boosted by a slightly firmer physical market and more short covering after Wednesday's mildly supportive weekly inventory report.
July climbed four cents to close at $1.97 per million British thermal units after trading today between $1.921 and $1.99. August settled 3.8 cents higher at $2.002. Other deferreds ended up by 1.2 to 3.3 cents.
"This was a technically-led short covering rally, helped by last night's AGAs, but the (hot) weather is still not here yet," said one Midwest trader, adding he expected more selling pressure near-term.
While firmer cash prices and a constructive AGA storage report helped trigger some short covering today, traders said mild weather over much of the nation should temper the buying.
AGA data released Wednesday showed U.S. gas stocks rose last week by 86 bcf, below Reuter poll estimates in the 90-100 bcf range. Overall stocks are still 461 bcf, or 36 percent, above year-ago.
Normal to above-normal temperatures are forecast for the Midwest and Northeast into early next week. Above normal readings are expected from Texas to Florida through Monday though levels will not reach the record highs seen last week. The Southwest should remain below to much-below normal through Monday. Next week, warm weather should dominate southern tier states, while the northern half of the nation should continue to see mostly seasonal temperatures.
While technical traders said the trend was still lower, they agreed July was oversold and due for an upside correction.
July support was still pegged at yesterday's low of $1.915 and then at $1.77, a prominent spot continuation low from March, 1997.
Minor July resistance was seen at $2.00 and then at Tuesday's $2.03 high. Next resistance should lie in the $2.08 area, the fifty percent retracement point of the recent move down, with more selling likely at $2.15 and then at last week's high of $2.235. Further resistance should surface in the $2.255 area and at $2.33.
In the cash Thursday, Gulf Coast swing quotes firmed slightly to the mid-$1.90s. Midwest pipes also were one to two cents higher at about $1.90. Chicago city gate gas was up two cents to about $2.03, while New York was several to five cents higher in the low-to-mid teens.
The NYMEX 12-month Henry Hub strip rose 2.9 cents to $2.285. NYMEX said an estimated 48,844 Hub contracts traded today, up from Wednesday's revised tally of 46,944.
US spot natural gas edges higher with early NYMEX rise
NEW YORK, June 11 - U.S. spot natural gas prices were steady to higher Thursday amid a mild uptick on NYMEX and moderate weather patterns across much of the nation, industry sources said.
"The market's in a standstill right now. AGAs were pretty neutral, and there's not much weather. And the weather picture doesn't look much better next week either," a Texas-based trader said.
American Gas Association said U.S. gas stocks rose last week by 86 bcf, resulting in a slightly lower year-ago surplus of 461 bcf, or 36 percent. Eastern stocks last week rose 54 bcf, while consuming region west storage climbed 15 bcf for the week. Inventories in the producing region gained 17 bcf.
At the Henry Hub, gas prices were quoted at $1.96-2.03 per mmBtu, in line with July futures' rise to a session high of $1.983.
In the Midcontinent, prices also gained about one cent to $1.87-1.91, while Chicago city-gate climbed to about $2.03-2.05, market sources said.
In West Texas, Permian Basin prices rose by about five cents to $1.84-1.88, while San Juan values ticked up to $1.49-1.58 from Wednesday's quotes at $1.46-1.53.
Continued cool weather in California sent border prices lower to the low-$1.90s, traders said.
In the Northeast, where temperatures were expected to climb to near-normal Friday and then a little above-normal this weekend, New York city gate prices were quoted mostly at $2.14-2.15, up about four to five cents from Wednesday. Appalachian prices were similarly firmer at $2.06-2.09.
Forecasts for next week show a continuation of below-normal temperatures over the western U.S. and northern plains, as well as in the Northeast and Great Lakes states. Above-normal temperatures are forecast for Florida, Georgia, Alabama and stretching into south Texas. Near-normal temperatures are forecast for the remainder of the U.S.
Canada natural gas holds in Alberta
NEW YORK, June 11 - Canadian spot natural gas prices were mostly steady in Alberta on Thursday as ongoing maintenance on NOVA's system kept supply fairly tight, industry sources said.
"NOVA was about 400 million (cubic feet per day) below target linepack, but the system was generally balanced," one Calgary-based trader said.
Linepack on NOVA stood at 12.4 billion cubic feet per day (bcfd), off from the target at 12.8 bcfd.
Spot gas at the AECO storage Hub in Alberta was discussed early at C$1.67-1.675 per gigajoule (GJ) but gradually softened as trading progressed into the low-C$1.60s. July AECO was also little changed at C$1.61-1.62 per GJ.
An anticipated growth in supply by the weekend and a scheduled maintenance outage on the Viking GasTransmission Co. pipeline was expected to lead Alberta pricing lower on Friday.
The outage is expected to reduce throughput on the system by 70 percent to 130 mmcfd. The pipeline takes gas at Emerson, Manitoba, and ships it through the U.S. Upper Midwest.
At the borders, gas for export at Sumas, Wash., traded at US$1.23-1.26 per million British thermal units, off about two cents from Wednesday.
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