MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING WED., JUNE 17 1998 (1)
MARKET OVERVIEW
Temporary relief in Asia lets Bay Street jump higher for joy
In New York, the Dow Jones Industrial Average climbed 164.17 points or 1.89 percent to 8829.46 points. The Toronto market followed New York sharply higher in early trading after overseas markets rallied. Stocks climbed strongly in Hong Kong and South Korea. On Bay Street, the stock market ended with a solid gain for a second day but finished well off its session high.
"Yesterday, the world was coming to an end. Today, everything is fixed," said Montreal-based strategist Bill Ram.
Toronto's market posted modest gains on Tuesday but a day earlier North American markets rode a steep ride downward over fears that Asian economic woes were punctuated by a serious slide in the Japanese yen.
But U.S. and Japanese central banks intervened to buy yen and sell U.S. dollars, causing investors to stop wringing their hands and start cheering instead. Fears that the Asian downturn would cause a world-wide setback seemed to vanish.
The foreign exchange intervention was the first by the U.S. Federal Reserve to buy the yen since 1992, and both countriesspent an estimated $2 billion to bolster the sickly yen.
The Toronto Stock Exchange 300 composite index rose 51.37 points, or 0.7%, to 7195.08. It was up 107 points earlier in the session. Advancing issues nearly doubled declines 653 to 343, with 306 ending flat. About 126.9 million shares traded on the TSE, up from 118.2 million on Tuesday.
"I think we've got a lot of things going on at the same time here," Ram added. "This is a step in the right direction, but the world's not fixed."
All but two of Toronto's 14 sectors gained ground, led by gold and precious minerals group which has a nearly 5 percent weighting on the index. It rose 2.62 percent, followed by oils, base metals and real estate.
The two losers were utilities and retails.
The subsequent slip in the U.S. greenback helped gave gold bullion a boost, jumping US$4.90 to US$293 an ounce on the Comex division of the New York Mercantile Exchange. Toronto's gold and precious metals subindex surged 2.6% as Barrick Gold Corp. (ABX/TSE) climbed 70c to $26.10.
Along with the golds, the energy and metals sectors pushed the market higher, each rising by about 1.6%.
Crude gained after three countries in the Gulf Co-operation Council yesterday agreed to cut production by 170,000 barrels a day. The spot price for West Texas crude oil jumped US62c a barrel to US$12.60. The TSE Oil & Gas Composite Index jumped 1.6% or 1.6% to 5862.55. Among the sub-components, the Integrated Oil's rose 0.9% or 74.96 to 8378.21. The Oil & Gas Producers Index gained 1.9% or 94.64 to 5108.48 and the Oil & Gas Services Index gained 1.9% or 44.92 to 2405.26.
Startech Energy, Canrise Resources, Renaissance Energy, Pinnacle Resources, Newport Petroleum and Poco Petroleums were among the top 50 most active issues on the TSE. Among service issues, Shaw industries A was also listed.
Talisman Energy Ltd. rose $1.55 to $37.80, Canadian Occidental Petroleum $1.20 to $30.00 and Seven Seas Petroleum $0.75 to $20.00.
Among service issues, Dreco Energy Services gained $1.90 to $41.20 and Ryan Energy $0.85 to $7.35. On the flip side, Computalog fell $0.70 to $15.50 and American ECO $0.35 to $9.75.
Among individual blue chips, Canadian Pacific Ltd. (CP/TSE) rose 75c to $40.75, Laidlaw Inc. (LDM/TSE) climbed 35c to $17.25 and Alcan Aluminium Ltd. (AL/TSE) closed up 85c at $39.90.
Bucking the upward trend, Northern Telecom Ltd. (NTL/TSE) closed down $2.30 at $76.70, losing ground for a third day in the wake of its planned US$7.7-million deal to buy Bay Networks Inc. Nortel has slumped $16.40 since the deal was announced. BCE Inc. (BCE/TSE), Nortel's parent, dropped 90c to $61.35 and helped push the utilities sector 0.4% lower.
Inco Ltd. (N/TSE) closed unchanged at $20.20, Royal Bank of Canada (RY/TSE) edged down 20c to $86.80 and Seagram Co. (VO/TSE) closed up $1.35 at $61.55 after reports the company has begun taking bids from private buyers for its Tropicana Products Inc. subsidiary.
Takeover target Fonorola Inc. soared 3.80 or 5.85 percent to 68.80 in healthy trading after Call-Net Enterprises Inc. upped its C$60 per share hostile offer to C$67 a share.
In other Canadian markets, the Montreal Exchange portfolio index rose 17.24 points, or 0.5%, to 3684.84 and the Vancouver Stock Exchange added 4.8 points, or 0.9%, to 535.7.
The Alberta Stock Exchange combined value index rose 7.42 to 2100.54. Declining issues edged out gainers 146 to 144, with 114 issues unchanged.
Wolverine Energy, First Star Energy, Anvil Resources, Commonwealth Energy, Dalton Resources, AltaPacific Capital, HEGCO Canada, Corker Resources, Wenzel Downhole and Raptor capital were among the top 25 most active issues on the ASE.
Canadian bonds ended flat to weaker on Wednesday in line with U.S. treasuries, which were correcting after a surge that ended Monday.
The U.S. dollar's plunge against major currencies, particularly the yen, on Wednesday, combined with some fund flows back to equities, prompted selling in North American bonds.
Bonds here have attracted safe-haven capital flows from Asia and other economically troubled regions.
At the short end of the Canadian yield curve, prices firmed as they benefited from a slight recovery in the Canadian dollar against the U.S. dollar.
Joint U.S.-Japan currency market intervention to prop up the yen on Wednesday pushed the U.S. dollar sharply down to 136 yen from 144 yen in late North American trade on Tuesday.
A weak yen might give Japanese exporters a relief, but at the same time it makes exports from other Asian countries less attractive.
U.S. President Bill Clinton, concerned that Asia's economic woes are a drag on global growth, offered support to Japan in exchange for a pledge by Japanese Prime Minister Ryutaro Hashimoto over the phone to conduct "aggressive""banking sector reform and to take "bold""economic steps.
U.S. Deputy Treasury Secretary Lawrence Summers, mastermind of the U.S.-Japan coordination, left for Tokyo on Wednesday with New York Federal Reserve President William McDonough and other U.S. officials.
They will meet Japanese policymakers to discuss Japanese and Asian economic problems.
Summers will join his colleagues, deputies to Group of Seven finance ministers on Saturday in Japan to compare notes on Asia and Japan.
Canada's benchmark 30-year bond, which started making a correction to earlier gains on Tuesday, fell C$0.75 to C$135.53 to yield 5.526 percent.
Its U.S. 30-year counterpart fell 39/32 to yield 5.74 percent. The U.S.-Canada spread was 21 basis points against 16 points at the previous close here.
The U.S. Federal Reserve's Beige Book economic report had little impact on the market. It said the U.S. economic performance was "excellent""in May, and that while labor markets remained tight, there were no reports of widespread increases in wages.
"We are seeing a fresh buying of Canada's short end, a lot of that has to do with a rebound in the Canadian dollar. There was an exaggerated short base in two-year bonds, and there was a lot of short-covering there," said Jeoff Hall, managing Canadian market analyst at Technical Data in Boston.
Most of the improvement in the Canadian dollar today was a result of the U.S. dollar's fall against the yen. The Canadian dollar ended firmer around C$1.4612 (US$0.6844) on Wednesday from C$1.4697 (US$0.6804) on Tuesday.
Canadian bonds are likely to follow the lead of U.S. treasuries for now. Movement in treasuries will depend on the U.S. dollar's strength and the performance of the North American equities market, Hall said.
"All that money that was funneled into bonds is now being brought back into equities," he said. "But I think it's just a small correction inside a large range."
The U.S. Dow Jones industrial average ended up 164.17 points or 1.89 percent at 8829.46 on Wednesday as the joint currency intervention eased some jitters over Asia's economic slowdown.
The Toronto Stock Exchange 300 index finished up 51.39 points or 0.72 percent at 7195.10.
"Canada lagged the U.S. during all these up moves, now Canada has started to perform better in a deteriorating market," Hall said. "I don't think the sentiment is deteriorating, but I think we're getting some price consolidation."
He expects the long-bond spread between the U.S. and Canada to stay around the current level and the short-bond spread to narrow.
Key economic indicators for the rest of the week:
Thursday, June 18
Canada's April merchandise trade surplus forecast at C$1.69 billion, up from C$1.56 billion in March.
Friday, June 19
Canada's May CPI forecast +0.7 percent in all items year on year after +0.8 percent in April, and +1.2 percent in core (ex-food and energy) after +1.2 percent in April.
The money market was steady to firmer against the backdrop of a slight rebound in the Canadian dollar against the U.S. currency.
"Levels have adjusted, according to the currency improvement. Now we just sit here and wait to see what happens next, "said Walter Posiewko, money market trader at Royal Bank Investment Management Inc.
"There is still some nervousness over the currency in the near future. No one appears to be buying at this point here. We need to consolidate to be able to give the market some time to decide if these developments are real."
Canada's three-month when issued T-bill traded with a yield of 4.77 percent, compared with 4.79 percent at the previous close here.
Wednesday's markets in the U.S.
U.S. stocks soared on after the central bank's intervention ignited a big recovery in the long-suffering Japanese yen, defusing the threat of a vicious circle of currency devaluations in Asia.
The Dow Jones Industrial Average ($INDUA) rose 164.17 points, or almost 1.9%, at 8,829.46, recapturing a large portion of Monday's 207-point loss.
In the broad market, advancing issues beat declines by a 3-to-1 margin on heavy volume of 724 million shares on the New York Stock Exchange.
The Nasdaq Composite Index (COMP) jumped 23.29 points, or 1.3%, to 1,776.41. The S&P 500 Index (COMP) gained 19.51 to 1,107.10, while the small-cap Russell 2000 Index ($IUX) rose 5.71 to 444.08.
The dollar/yen rate fell to a low of 136.05 in U.S. trade down from a close of 143.25/35 on Tuesday. On Tuesday, the rate had been at an eight-year high above 146. The dollar's pullback dragged lower and the long bond ended off 1 3/16 to yield 5.74%.
Meanwhile, U.S. economic performance in May was "excellent," with production at brisk levels, ample jobs and low inflation, the Federal Reserve reported Wednesday in its Beige Book economic report.
"The economy continues to grow in all Federal Reserve districts and across most sectors," the report said. It will be used by Fed policy-makers when they meet on June 30 to July 1 to consider interest rate strategy.
Global financial markets had worried that a free-falling yen would force a damaging wave of competing currency devaluations in Asia, which would have delayed the region's recovery. Asian stocks rose overnight and European markets followed suit.
South Korea enjoyed the strongest gain on the day, with the Seoul composite index rising above the 300 level to end 8.5 % higher -- its biggest-ever daily rise. Hong Kong's Hang Seng index ($HKHI) gained 6.35%, up 477.90 points to 8,004.35.
Unlike most other regional bourses, Tokyo's key Nikkei 225 average ($TOKN) ended flat. The Nikkei closed marginally down by 5 points at 14,715.38. Thai stocks surged more than 5% in late trade in line with the firmer yen and rallies elsewhere in Asia. Singapore's benchmark Straits Times Industrials index ($STRI) also gained more than 5% in late trade. It closed up 5.60%.
In London, the FTSE-100 Index ($FTSE) rose 103 points, or 1.8%, to 5,832.7. In Frankfurt, the DAX-30 index ($DAX) rose 117.79 points, or 2.1%, to 5,709.36. In later computer trade, the Xetra DAX index ended at 5,742.83, up 121.12 points, or 2.15%. In Paris, the CAC-40 Index ($PARI) closed at 4,092.92, up 79.64 points, or 2%.
Technology stocks
Dow component Hewlett-Packard (HWP) was the only negative issue on the blue-chip index, falling 13/16 to 58 5/8 after Merrill Lynch analysts dropped its near-term rating to "neutral" from "accumulate," while the long-term rating dropped to "accumulate" from "buy."
International Business Machines Corp. (IBM), the Dow's other technology member, rose 1 to 111 after The Wall Street Journal reported that IBM hired Goldman Sachs & Co. to help it find a buyer for its printer division. The Journal report said the sale could bring at least $2 billion.
America Online Inc. (AOL) leaped 5 1/4 to 94 1/4 after London's Financial Times, citing sources close to the company, reported that the No. 1 Internet service provider rejected a takeover offer bid by AT&T Corp. (T), the largest U.S. long-distance phone company.
Other Internet issues jumped, reflecting the extent to which stocks in the sector have been accumulated by institutional investors since May 27. The AMEX Internet Index (IIX) was up 5.08 to 339.97. Amazon.com (AMZN), the group's leader, gained 5 3/8 to 79. The stock has skyrocketed nearly 80% in the past seven sessions.
Meanwhile, Excite (XCIT) gained 8 13/16 to 76 1/8, CMG Information Services (CMGI) rose 3 5/8 to 49 1/4, CNET Inc. (CNWK) climbed 10 1/2 to 56, and Yahoo! (YHOO) gained 8 11/16 to 130 5/8.
Running counter to the broad strength in tech issues was continuing negativity in the semiconductor sector, with the Philadelphia Semiconductor Index (SOX) dropping 9.01 to 234.65. Noteworthy declines, all inspired by concern over Asia-derived pricing pressures, were registered by Applied Materials (AMAT), off 1 5/8 to 27 1/2; Xilinx (XLNX) which dropped 2 5/8 to 33; Linear Technology(LLTC), down 3 5/8 to 60 3/4; Teradyne (TER), which fell 1 13/16 to 25 9/16; and Novellus(NVLS), off 1 3/4 to 34 3/16.
Networkers were weak, with the AMEX Networking Index (NWX) up only 0.96 to 357.06. 3Com after its chief executive, Eric Benhamou, denied Wall Street speculation that he would leave the company after the appointment of an operating officer.
Citrix Systems Inc. (CTXS) climbed 2 3/16 to 61 1/2, as software giant Microsoft Corp. (MSFT)announced a new version of its Windows NT Server software, developed with Citrix, that will allow companies to link older and new computer systems using Windows software.
Kulicke & Soffa Industries (KLIC) fell 15/16 to 14 11/16 after reporting weaker business in the past two weeks. The semiconductor equipment maker said it expects a June quarter loss wider than analysts' consensus estimates of 3 cents per share.
Digital Link Corp. (DLNK) declined 1 1/2 to 6 11/16 after reporting that it expects a second-quarter loss, excluding charges, of about 14 cents to 16 cents a share, compared with earnings of 18 cents a year earlier. The maker of high-speed digital-access products said there has been weaker demand from MCI Communications Corp. (MCIC) and other U.S.-carrier customers.
Digital Microwave Corp. (DMIC) fell 7/8 to 6 7/8 after reporting delays in network deployment and increased competition that will result in lower-than-expected revenue and a loss in its fiscal first quarter. Officials at the wireless-equipment maker forecast a loss of $5 million to $6 million.
Cerprobe Corp. (CRPB) dropped 2 1/8 to 11 1/2 after saying that second-quarter earnings will be below analysts' estimates because of weak demand for semiconductors. The maker of testing equipment for integrated circuits was expected to earn 13 cents a share.
Arrow Electronics Inc. (ARW) fell 5/8 to 22 11/16 after warning that it expects earnings for the second-quarter ending to fall short of estimates, because of weakness in electronics markets and the impact of the Asian economy.
InterVoice (INTV) climbed 1 to 16 after reporting first-quarter results of 21 cents a share, topping Wall Street expectations by a penny.
Active issues
The Dow was led upward by industrial stocks that had been hit in recent weeks by concern over their exposure to Asia, particularly Caterpillar (CAT), which relies on overseas sales for much of its revenue. The heavy-equipment maker was up 1 13/16 to 54 5/16.
Other key Dow gainers included Union Carbide (UK), up 1 3/16 to 48 3/16; Minnesota Mining & Manufacturing (MMM), which rose 1 3/16 to 82 7/16; Boeing (BA), up 5/16 to 43 3/4; DuPont (DD), up 2 1/2 to 74 13/16; and Allied Signal (ALD), which climbed 1 1/8 to 41 5/8.
Bank and financial-services shares rose sharply after Federal Reserve Chairman Alan Greenspan called for swift action on a House-passed bill that would rewrite antiquated laws governing U.S. banks and protect the Federal Reserve's oversight of banks' expansion. The Philadelphia KBW Banking Index (BKX) rose 18.11 to 842.26/
Leading the way was Citicorp (CCI), up 5 3/4 to 152. Also, Bank of New York Co. (BK) rose 1 5/8 to 59 15/16, BankAmerica Corp. (BAC) climbed 1 5/16 to 84 15/16, Bankers Trust Corp. (BT)gained 4 1/8 to 114 1/8, J.P. Morgan & Co. (JPM) rose 2 1/16 to 119 15/16, and Travelers Group Inc. (TRV)added 2 to 62.
American Express Co. (AXP) gained 3 9/16 to 104 15/16. The company agreed to buy Paris-based Havas SA's (HAVSY) travel agency, Havas Voyages, for about $167 million, reinforcing its position as Europe's largest business-travel operator.
Chase Manhattan Bank (CMB) climbed 1 11/16 to 69 7/16 amid rumors that it is interested in taking over Dutch (AAN), though analysts said such a move was unlikely. ABN AMRO officials declined to comment, while shares in the bank rose 7/16 to 23 15/16.
Medimmune Inc. (MEDI) rose 5 1/2 to 56 1/4 as the biotech company was upgraded to "strong buy" from "buy" by analysts at BancAmerica Robertson Stephens.
Merck & Co. (MRK) rose 1 1/8 to 127 3/4. The New York Times reported that the drug maker is expected to announce that Astra AB (ASTRA) will buy Merck's half of Astra-Merck Inc. for $1.5 billion up front and $12 billion more over 10 years. According to the report, the sale will positively position Merck to merge with another drug company or buy pharmaceuticals in development.
Oxigene Inc. (OXGN) rose 2 11/16 to 13 3/16 after the biotech firm said pre-clinical data shows that its Combretstatin A4 phosphate, when combined with standard radiation or chemotherapy treatment, significantly enhanced tumor response in mice.
Walt Disney Co. (DIS) jumped 1 7/16 to 114 5/16 after The Washington Post reported that it is in talks about buying eight U.S. TV stations from Allbritton Communications Co., owned by Riggs National Corp. (RIGS) President Joe Allbritton. The sale could net Allbritton $750 million to $900 million.
Procter & Gamble Co. (PG) gained 1 13/16 to 89 3/16 as an FDA advisory panel said the consumer-products company's fat substitute, Olestra, is safe when used in salty snacks such as Frito-Lay's hot-selling WOW chips.
Weyerhaeuser Co. (WY) gained 1 1/8 to 47 despite announcing that it expects second-quarter earnings to fall "significantly'' short of analysts' estimates because of weaker Asian demand and increased imports. The No. 3 second-quarter earnings of 47 cents a share, beating analyst estimates of 41 cents a share in the second quarter.
Thorn Plc (THRNY) rose 1 3/8 to 15 after Renters Choice Inc.(RCII), a Dallas-operator of 500 rent-to-own stores, said it would acquire the U.K.-based rental company for $900 million. Renters Choice shares jumped 5 7/16 to 31 1/2.
Seagram Co. (VO) gained 1 1/4 to 42 1/8. The Wall Street Journal reported that the beverage and entertainment giant has begun taking bids from private buyers for its Tropicana Products Inc. division because it is fearful of a souring of the initial public offering market.
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