MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., JULY 01, 1998 (2)
MARKET OVERVIEW, Con't
INTERNATIONAL
Pacific Rim Rides The Yen
Tokyo Soars 3.4 Percent; Sydney, Singapore, Seoul Follow Suit
A stronger yen and optimism about Japan's moves to help the economy fueled a 3.4 percent rise in the Nikkei and led the way for significant gains in Asia's other major markets.
The exception was Hong Kong, where the stock exchange was closed Wednesday for a holiday.
The Tokyo stock market's key index closed above the key 16,000 level for the first time in two months.
The key benchmark Nikkei 225 average surged 532.62 points, or 3.36 percent, to end at 16,362.89.
Brokers said that if trading volume remained heavy and the market maintained its energy, the stock average could head to even higher levels.
Banks and brokerages continued to dominate activity ahead of the expected release Thursday of a plan by the ruling Liberal Democratic Party (LDP) for a "bridge bank" to help work problem loans out of the financial system.
"People are hoping the LDP will announce something else in addition to its bridge bank plans, including further tax cuts," said Ken Okamura, strategist at Dresdner Kleinwort Benson.
The optimism helped fuel the yen against the dollar. The dollar fell below 138 yen in late trade in Asia trading Wednesday, down more than 2 yen from the previous day's session.
Activity in the equity market was heavy with 876 million shares changing hands on the first section of the Tokyo Stock Exchange (TSE), sharply up from 576 million shares on Tuesday.
The Long-Term Credit Bank of Japan, which has entered into merger talks Sumitomo Trust & Banking, lost five yen to close at 76. Sumitomo Trust rose 58 yen to end at 678.
Other indices also got a steep lift. The TOPIX index of all first section shares was up 40.37 points, or 3.28 percent, to 1,270.75. The capitalization-weighted Nikkei 300 was up 8.75 points, or 3.59 percent, to 252.52.
South Korea stocks soar - Share prices jumped 5.9 percent Wednesday on the Seoul stock exchange on the back of a stronger Japanese yen against the U.S. dollar.
The composite stock price index soared 17.68 points to close at 315.56.
Local dealers also attributed the increase to reports that the operations of five ailing banks, which were given shutdown orders on Monday, were normalizing.
According to the Financial Supervisory Commission (FSC), for the past two days bank employees hampered the process of merging the five banks with healthier institutions by blocking the access to computer systems and other means.
Singapore recovers to close higher - Singapore share prices bounced off early lows to end nearly 3 percent higher on Wednesday, boosted by yen strength and a surge in Japan's key Nikkei stock index.
The benchmark Straits Times Industrials Index closed up or 28.44 points, or 2.67 percent, at 1,095.10.
Dealers said the day's gains were due to a confluence of several factors -- gains in the yen, the Nikkei's strength, as well as fresh funds entering the Singapore market at the start of a new quarter.
"The yen's gain is the main reason, plus the rest of the region is also up," said an institutional dealer with a large local bank.
Market players said morning dealings were dismal and trading only revived in the afternoon when fairly aggressive buying emerged.
Volume was an estimated 159.09 million shares with gainers outnumbering losers 233 to 101 and 77 counters left unchanged.
Gains were seen largely in blue chip shares with banking and property stocks taking the lead. Dealers said the counters were seen to be fairly valued at current levels after recent falls.
Sydney ends higher on Tokyo rise - The Australian share market ended Wednesday at the day's high as a strong Tokyo rise, a firmer currency and rallying gold stocks offset Wall Street's drop and a sharp fall in News Corp. shares.
The All Ordinaries index gained 31 points to 2,699.4 on high turnover of A$1.38 billion (US$856 million).
"The dollar's quite stable. Tokyo bounced up and there's a bit of institutional buying coming in and that has kicked it up," one Sydney based dealer said about the afternoon gains.
"We're looking less at the U.S. and follow Asia more at the moment," he said, adding confidence was improving in the region.
Growing optimism over developments in the troubled Asian region had soft drink group Coca-Cola Amatil jumping 78 cents to A$11.58, with most of the rise in late trade.
Dealers said the 1998/99 financial year had started with reasonably healthy buying from fund managers.
"July tends to be quite a strong month as the institutions put in their new strategies for the year," one Queensland-based dealer said.
Gold stocks jumped 3.9 percent in line with the bullion price. Sector leader Normandy Minin climbed eight cents to A$1.40 and Lihir Gold five to A$2.04.
Rupert Murdoch's News Corp. slumped 37 cents to A$12.81 after soaring to A$1.08 on Tuesday.
Dealers said News Corp.'s plan to form Fox Group out of its US$20 billion U.S. entertainment assets and offer some of it publicly was a shareholder-friendly move.
"There's just a bit of reality coming back into the stock today, that's all," the Sydney dealer said.
Europe Reaches For Highs
Bourses Climb On Good News From Asia And Wall Street's Encouraging Start
European stock markets ended at fresh highs on Wednesday as they cheered a firm opening on Wall Street and signs of new-found economic optimism in the Pacific Rim.
Blue chip stocks in London closed 1.5 percent higher as the Dow opened stronger and hovered around the key 9,000 level.
The FTSE 100 ended up 87.4 points at 5,919.9, but off an intraday high of 5,947. Some 780 million shares changed hands by the close.
"What we had today was slightly better news from Japan -- with a bit more confidence about a banking settlement -- and the market reacted swiftly," said Paul O'Connor, UK equity strategist at Credit Suisse First Boston.
"The key thing in the UK is that the market was set for a rally because it has done a lot of worrying recently," he added.
Germans, French push past barriers - Germany's DAX index closed Wednesday's trade firm and above the technically and psychologically significant 5,900-point level.
"It looks really bullish, but it looks too strong. I think we may have to go back to 5,600 and then see," a dealer said.
The floor DAX ended 9.41 points, 0.16 percent higher at 5,906.85, while the Xetra DAX computer-traded index closed 68.68 points firmer, up 1.18 percent at 5,910.51.
"Wall Street was weak but this was just an overreaction to the Iraqi story. Now the markets don't see it as a serious worry," a dealer said.
The Frankfurt bourse has new dealing hours with the floor open from 8:30 a.m. to 5 p.m. local time, matching Xetra DAX computer trading hours.
On the corporate side, shares in car maker Volkswagen AG hit a record high in the wake of reports that it was in talks with Sweden's Volvo on a business cooperation deal.
Volkswagen closed 73.50 marks firmer at 1,816.50 marks after hitting a record high of 1,821 marks, while Volvo shares stormed over 8 percent higher to end at 257 crowns.
In France, the benchmark CAC-40 index ended up 57.23 points, 1.36 percent, at the record high of 4,260.68.
Traders said market enthusiasm was supported by news that Dutch firm Equant NV -- operator of the world's largest data network -- would list its initial $3.7 billion offering on the Paris bourse.
THIS MORNINGS MARKET ACTIVITY
Toronto stocks open higher
Toronto stocks opened the post-Canada Day holiday session higher on Thursday as the market caught up with some of New York's Wednesday gains.
"We're just playing catch-up with New York here. It's going to be quiet," said David Jarvis, liability trader with Levesque Beaubien Geoffrion. U.S. markets are closed on Friday for the United States national celebration, Independence Day, which falls on Saturday.
The Toronto Stock Exchange 300 Composite Index was up 13.75 points to 7382.64 in turnover of 11.1 million shares worth C$230.7 million. Advances led declines 243 to 203, with 157 issues holding their ground.
Upward movement was restrained by a lower Japanese yen, which sank amid disappointment about Japan's rescue plan for its ailing banks. Traders said they were looking for stronger measures.
"It seems better to travel than arrive," said one London trader. "There was a lack of drastic reforms. The measures were basically as expected, and were already built into the market."
According to the plan, a draft of which was released overnight, failed banks would be put under temporary public administration before dissolution while their healthy loan business is taken over by public bridge banks established under the Heisei Financial Restoration Corp.
Traders said the plan was missing a framework for facilitating mergers of troubled, but still solvent, banks.
"It wasn't big enough," Jarvis said.
He said the renewed softness in the yen was pulling investors out of the resource groups and into interest-sensitive and defensive stocks.
The precious metals group sank 119 points, or 1.96 percent, to 5959.51 while the financial services group climbed 153.27, or 1.54 percent, to 10120.87.
The transportation group dropped sharply as investors rushed to sell heavyweight Laidlaw Inc. , daunted by the prospect of costly tax woes for the transportation giant.
Overall, nine of Toronto's 14 subindexes were higher.
U.S. unemployment rose to a three-month high in June due to Asian economic woes and a strike at General Motors Corp.
The rate rose to 4.5 percent, the highest since March, from 4.3 percent in May.
Laidlaw shares dropped to a 52-week low of C$15.15 early before recovering slightly to trade C$1.65, or 9.3 percent, lower at C$16.10. Volume topped one million shares.
MARKET NOTES
Japanese Banks, Jobs Data Unlikely To Spark Much Action
Japan's steps to resolve its banking crises, the June employment figures, and thoughts of the long Fourth of July weekend will battle for the hearts and minds of market players who come to work on Thursday. Attendance is expected to be light tomorrow, with those present looking to get a jump-start on the holiday weekend.
As a result, trading levels are expected to diminish from their recent resurgence, leaving major indices susceptible to either big swings or a day of little action. Whichever scenario emerges will likely be dictated by the reaction to the expected unveiling of Japan's program to revitalize its flagging banking system, and the jobs data.
Leaders of Japan's government are expected to release details tomorrow of a plan that will try to "clean up" the bad-loan mess of the nation's banks. The program is expected to create an entity analogous to the Resolution Trust Corp., which was used to resolve the Savings & Loan crises in the U.S. in the late 1980s and early 1990s.
Market players are optimistic Prime Minister Hashimoto's government will take the necessary measures to revitalize the nation's beleaguered banks. But having been disappointed by a number of Japan's fiscal stimulus packages in the past year, some say caution is warranted.
"It's tough to get a good picture if Japan's government is going to really make a concerted effort to take care of their internal problems," said Jim Herrick, managing director of trading at Robert W. Baird & Co. "Japan may be stabilizing, but I think Asia is going to creep in again periodically with some news to make the market jittery. It's not gone by any measure."
Herrick, who said Thursday is pretty much a non-event as far as trading goes, believes the market remains in a trading range, with the Dow between 8,800 and 9,200. Despite the importance of overseas activities, the trader believes developments at home will take precedence in the coming weeks, namely the quality of second-quarter earnings.
Like many of his peers, Herrick is emboldened now that the pre-announcement season is over and believes summer could bring more gains. After rising between 1% and 3% in the second quarter, major indices could rise between 5% and 6% in the third stanza, the trader said.
"Although earnings will not be as strong as anticipated at the beginning of the year, they will still be decent," he said. "Combine that with the Fed not doing anything and you get a clearer picture: Investors want to be fully invested."
Back to the immediate future, the consensus expectation is that 190,000 non-farm payrolls were added in June versus a gain of 296,000 in May, with the employment rate unchanged at 4.3%. The closely-watched hourly earnings component is projected to rise 0.3%.
For the past several months running, Ken Mayland, chief economist at Key Corp., has correctly projected employment figures that were well above the average of his peers. This month, Mayland believes 225,000 jobs were created in June.
"Employment is a lagging indicator and we're coming off a period of pretty darned strong economic growth," he said. "So I think you have to believe those numbers are [going to be] strong."
The economist said he would not be surprised if the employment rate ticks up to 4.4%, but said that would have "no economic significance." More importantly, he expects "continued pressure" on wages will drive the hourly earnings component up a higher than expected 0.4%.
As far as the other big event expected tomorrow -- Japan's bank bailout program -- Mayland said Wall Street could be in for a welcome surprise.
"This is something to be cheered if it is serious and could very well be good news, particularly if our economy is in the process of slowing down," he said. "A step toward turning Japan's economy around is a step toward turning around the whole Pacific Rim. We're only at the start of the slowdown process, so that could be well timed."
We all know timing is everything, but substance is going to count too in this case.
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