MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 28, 1998 (2)
MARKET OVERVIEW, Con't
International
Banks Boost Asia Stocks
Japanese Finance Merger Buzz Lifts Markets
Pressure on Pacific Rim stocks eased somewhat on Friday as activity in the Japanese banking sector sparked a late afternoon rally in most major regional markets, although traders still cautiously scrutinized the health of the yen.
Tokyo shares erased losses to close higher on Friday after local media reported that troubled Long-Term Credit Bank of Japan (LTCB) would merge, helping remove at least one problem from Japan's rickety banking system.
Trading in both LTCB and Sumitomo Trust & Banking was suspended on the Tokyo Stock Exchange after it was reported the two banks would merge.
The benchmark Nikkei-225 average finished 77.82 points, or 0.51 percent higher, at 15,210.04. September futures wiped out a 160-point loss to finish up 140 at 15,230.
Volume was lackluster with 424 million shares changing hands.
Traders said the merger, if it comes to term, displayed a new resolve in the country's attempts to deal with its problems.
"This is an example of things to come," said a trader at an overseas brokerage. "Things are progressing and that is good news."
Even with the trading suspension, LTCB was the most active issue on the TSE for a third day, rising 15 yen to 73 on volume of 18.64 million shares. Sumitomo Trust fell 20 yen to 648 on volume of 1.59 million shares.
Earlier in the day, the Nikkei average fell below the psychologically significant 15,000-yen level as a weakening yen underscored Japan's economic malaise. The yen weakened to around 142.50 in Tokyo.
In general, banking shares continued to dominate trading as the market awaited details for a "bridge bank" that would extend credit to sound borrowers of failed banks.
Hang Seng Watches Yen
Hong Kong stocks recovered most of the morning's losses to close slightly lower on Friday, and brokers said next week's trend would again be dictated by factors affecting the Japanese yen.
The Hang Seng Index closed 57.97 points, or 0.67 percent, lower at 8,607.86, after tumbling more than 250 points in mid-morning to a low of 8,410.60.
"The market's trend really depends on the yen," Steve Cheng, associate director at Lippo Securities, said. "That's because the stability of the currencies of Hong Kong and China is linked to the yen."
Currency jitters also fueled trading activity in Hang Seng Index futures which exacerbated the market's choppy trend, brokers said.
Futures were being used not only as a hedge against equity portfolios but increasingly as a hedge against a depreciation in the Hong Kong and Chinese currencies, brokers said.
Singapore Gains Ground
Singapore stocks sprinted up in Friday afternoon trade as the dollar pared gains against the yen.
The 30-share Straits Times Industrials Index (STII) closed up 15.76 points, or 1.47 percent, at 1,085.59. Total market volume was fairly active at 163.7 million shares.
But dealers said they were not hopeful that gains would be sustained through next week.
"I don't think this is going to be lasting. Buying in blue chips is very light," a local brokerage dealer said.
"It takes a lot to get the market moving. It's painfully obvious the economy is going into a recession," said Jeffrey Teo, institutional dealer at Santander Investment Securities.
Sydney Sees Calmer Sailing
Strength in key blue chip stocks lifted the Australian share market to a firmer finish on Friday as investors surveyed calmer regional markets.
The benchmark All Ordinaries index climbed 17.9 points or about 0.7 percent to 2,609.9.
Overall market volumes were inflated by the exercise of June series options after Thursday's expiry, with about 60 million shares worth A$612 million put through prior to market opening.
Elsewhere:
Seoul: The Seoul bourse, wary of the imminent announcement of the official list of non-viable banks, fell 0.67 per cent to below the 300-point mark for the first time in nine days.
Jarkarta: Selective buying boosted trading on the floor of the Jakarta Stock Exchange, following reports that the Asian Development Bank would release a $US1 billion aid disbursement to the Indonesian government. The composite price index closed up 2.060 points, or 0.48 per cent at 430.870
Kuala Lumpur: Share prices closed 0.61 per cent lower in Kuala Lumpur, with investors sidelined by regional currency concerns and uncertainty surrounding the cabinet role of newly appointed Special Functions Minister, Daim Zainuddin. Dealers said many investors believe there would be an overlap of roles between Daim's ministry and that of the Finance Minister, Anwar Ibrahim. The composite index closed down 2.75 points at 445.67.
Manila: Share prices closed 0.83 per cent higher in Manila, after a late bout of bargain hunting on select blue chips before the close. The composite index closed up 14.34 points at 1,723.37.
European Stocks Seek Direction
Markets End The Day Mixed And Mediocre On Japan Worries, Rate Fears
European shares spent Friday trading higher and lower in a vain search for new direction but were finally dragged to a lackluster close by worries over the outlook for Asia's markets, traders said.
"It's not easy to feel confident about Japan's plans because the anxiety about Asia is so deep-rooted now," said a London share dealer.
Wall Street could offer only limited comfort, opening some 18 points higher at 8,953 after a sally above the 9,000 level Thursday was snuffed out. The U.S. market crept higher but then flagged again and was up just 5 points shortly after Europe's bourses closed.
The yen sagged to almost 143 to the dollar overnight -- its lowest level since last week's $6 billion intervention to shore it up -- as bearish sentiment toward Japan's economy resurfaced.
Trading Sluggish In London
London's FTSE 100 index ended up 18.50 points at 5,877.4, around 0.3 percent higher after a day of thin trading that saw the market start off down around 0.6 percent on niggling worries over Japan's troubled banking system and rekindled fears of a British interest rate rise in July.
"The FTSE 100 is dithering around in a narrow trading range between 5,700 and 6,000 and we are slap bang in the middle of that at the moment," said Nick Glydon, chart specialist at Robert Fleming Securities.
Worries over the possibility of a British interest rate rise next month were fueled by a report in the Guardian newspaper that the Bank of England's Monetary Policy Committee voted by a 7-2 majority for June's rate rise and that the majority included Bank of England Governor Eddie George.
Otherwise, trading was sluggish.
"There's not a lot going on. It's definitely slower even than a normal slow Friday," said one dealer.
In Germany, the DAX Ends Lower With Uptrend Still In Tact
On the other hand, Germany's Xetra DAX index ended electronic trade 16.23, or 0.3 percent, lower at 5,870.49, lacking the impetus to penetrate resistance at 5,900, but dealers said the DAX's upward trend remained intact.
"There are always setbacks, but the DAX is still heading for 6,000 points," one trader said.
Earlier, the DAX index ended bourse trade more or less unchanged, up 3.79 points or 0.06 percent, at 5,870.42 points.
French Shares Edge Higher
French shares closed 11.89, or 0.3 percent, higher at 4,215.70 on average volume after a directionless session that left the index near its record levels.
The market remained fundamentally bullish despite worries about the weak yen and general anxiety about Asia, brokers said.
Elsewhere:
Zurich: Stocks closed higher on the back of sharp gains by merger banks SBC and UBS, which were traded separately for the last time and will start next week formally united under the name UBS. The Swiss market index closed at 7,816.9, up 22.2 points, or 0.28 percent, up 298.3 since last week.
Moscow: Russian stocks and bonds tumbled again on Friday despite a fresh injection of cash from the International Monetary Fund, forcing the central bank to jack up key interest rates by 20 percentage points after markets closed. The Russian Trading System's benchmark RTS shares index closed down 4.97 percent at 163.99 on thin market turnover of $31.93 million.
Johannesburg: Stocks ended down as the rand slid sharply, but bounced off earlier lows on the back of bargain hunting, dealers said. The All-stock index closed at 6,874.3, down 61.7 points, or 0.89 percent, down 45.6 from a week ago. The All Gold index closed at 804.8, down 3.9 points, or 0.48 percent, down 14.6 from last Friday. The Industrial index closed at 8,261.8, down 66.8 points, or 0.80 percent. This was a fall of 32.8 from a week ago.
MISC.
Business Week Ahead
The Canadian Press
- On Monday, Quebec finance minister Bernard Landry addresses the 82nd annual meeting and conference of the Investment Dealers Association of Canada at Mont-Tremblant, Que.
Also Monday, shareholders at TransCanada PipeLines' annual meeting in Calgary will vote on the company's proposed merger with Nova Corp.
- On Tuesday, Statistics Canada releases department store sales figures for May and gross domestic product figures for April.
Meanwhile, Tuesday is the deadline for receiver Price Waterhouse to assess whether Bresea Resources Ltd., sister company to Bre-X Minerals, is insolvent because of financial claims against it.
Also Tuesday in Washington D.C., the U.S. Federal Reserve Board opens a two-day meeting of its Federal Open Market Committee, the central bank's interest rate setting body.
- On Wednesday, Canadian markets, banks, government offices and most businesses are closed for the Canada Day holiday.
- On Friday, Irving Pulp and Paper is in a New Brunswick court in Saint John on on federal pollution charges.
Also Friday, U.S. financial markets, government offices, banks and businesses are closed for the U.S. Independence Day holiday.
Warming Trend Points To Summer Rally For Stocks
With the Dow Jones Industrial Average up more than 300 points over the past two weeks and the tech-studded Nasdaq about 9% higher, the first phase of a summer rally appears to be officially in progress, and could gather steam in the next few weeks.
Investors seem to be taking a more sanguine view of second-quarter corporate earnings now that most of the profit warnings are out of the way. For the week ahead, a barrage of economic data and a meeting of Federal Reserve policy-makers will keep investors from pulling the trigger too fast.
Japan remains a major preoccupation, and hopes are high for some action to spur the Asian power's domestic economy -- particularly to address the problem of bad bank loans.
"The summer rally has begun and I expect that things may really heat up on Wall Street over the coming weeks," Bill Meehan, chief market analyst at Cantor Fitzgerald, wrote in his market commentary on Friday. "... Earnings estimates have again been lowered to the point that most companies should meet expectations," he added.
Meehan said the market was skeptical of Japan's commitment to repair its banking system, so any positive surprises could pour fuel on the rally's fire.
The Fed's policy-setting Federal Open Market Committee meets Tuesday and Wednesday, but no change in interest rates is expected with turmoil in Asia keeping central bankers' hands tied. Also, there are few signs of inflation.
"I can't see the Fed doing anything. They are not going to tighten at a time when the dollar is too strong and they want to encourage firmness in the yen and the euro," said Michael Metz, managing director at CIBC Oppenheimer & Corp.
On the flip side, Metz said there is a strong case for a slowdown based on the high level of inventories and the drag effect from lower exports to Asia. A collapse in oil prices is also disinflationary, but the Fed would be loath to ease because of fears about a speculative asset bubble developing.
U.S. economist Henry Kaufman on Friday urged the central bank to raise rates at some point to cool off the economy and asset price inflation. Kaufman, head of his own investment and consulting firm, was speaking at a Federal Reserve Bank of Boston conference.
Revised gross domestic product figures released this week showed the economy grew at a blistering pace of 5.4% in the first quarter. But the rate is expected to slow significantly in the second quarter.
Paul Samuelson, a Nobel Prize winner in economics, said at the same Boston Fed conference Thursday that the Fed has been reluctant to raise rates for fear it will send the stock market down 30%. Samuelson is an adviser to Boston Fed President Cathy Minehan.
Among the economic indicators that will be closely watched next week, the June National Association of Purchasing Management report is due out Wednesday followed by the June employment report Thursday. Non-farm payrolls are forecast to rise 202,000, with the unemployment rate seen up to 4.4% from 4.3% in May.
Stocks could also get a boost from quarter-end "window dressing" by portfolio managers. Hugh Johnson, chief investment officer at First Albany Corp., said he expects stocks to end the week little changed because investors remain tentative about the longer-term earnings outlook.
"The big question is what will Japan do. That determines what will happen to earnings for the rest of 1998 and 1999," he said. "We could have a summer rally if Japan does something substantive."
The trading week will be shortened by a holiday on Friday. The market is closed ahead of Independence Day on July 4.
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