MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY JULY 13, 1998 (1)
MARKET OVERVIEW
Toronto's key equities index dropped on Monday in relatively illiquid trading, pressured by weaker natural resources and a Canadian dollar at historic lows. Montreal, Alberta and Vancouver Exchanges were also lower.
U.S. stocks were mixed as a decline in oil shares tempered a rally in Microsoft Corp. that propelled the Nasdaq composite index to its fourth straight record. The lengthy strike at General Motors and nervousness about Japanese instability also cooled gains for U.S. investors.
Neither Toronto or New York had much momentum since there was little to give investors any incentive, said Fred Ketchen, a senior vice-president with ScotiaMcLeod in Toronto. "They didn't go a long way in a hurry," Ketchen said. "There seemed to be some confusion as to which way they wanted to go."
Most Asian markets fell yesterday after a stunning election setback for Japan's ruling party, although Tokyo recovered in late trading as hope grew that the voters' decision would spur faster reform. Regional markets fell on worries the election drubbing for Japan's ruling Liberal Democratic Party, which prompted the resignation of Ryutaro Hashimoto as prime minister, will derail Japan's economic reform plans and prolong the regional crisis. Hong Kong's Hang Seng index fell below 8000 for the first time since mid-June, while shares in Australia, Korea, Malaysia and Thailand all suffered sharp losses and Singapore stocks crumbled by more than 3%.
Leading European stock indexes took the opposite view, rising on hopes that Hashimoto's resignation would accelerate efforts to kickstart the world's second largest economy. Optimism on the global economy was further boosted by International Monetary Fund agreement on an aid package for Russia. After the IMF announcement, Russia's benchmark shares index, the RTS, rose nearly 10% on higher than usual volume.
CANADA
Producers Lead TSE 300 Downward As Stocks Fall For Fourth Straight Day
Banks and other lenders also weighed the benchmark Toronto Stock Exchange 300 composite index, on concerns that the Bank of Canada may have little choice than to raise interest rates to bolster an ailing C$.
"Weakness in commodity prices is driving down demand for stocks like oil producers and the currency used to buy the shares," said Philip Strathy, a portfolio manager with Strathy Investment Management Ltd.
"The perception of some investors is that rising interest rates are on the horizon, which will negatively affect bank earnings."
''The Canadian market still suffers from a very weak Canadian dollar and that was exemplified today,'' said Craig Strachan, manager of research services at Toronto-Dominion Evergreen.
Canada's currency is hovering near the record low of C$1.4815 (US$0.6750) it hit in Asian trading overnight after months of losing ground. Its slide has raised concerns that Canada's central bank might raise interest rates, hurting interest-sensitive issues.
The Toronto stock market, which is heavily weighted in natural resource issues, was pulled down on fears that Japan and Asia's recovery from the recent economic downturn would take even longer after the resignation of Japanese Prime Minister Ryutaro Hashimoto, Strachan said. A longer downturn would lower demand for commodities.
''Commodities were down, interest-sensitives were down,'' he said.
The TSE 300 fell 40.78 points, or 0.6%, to 7348.94. The oil group contributed 11 points to the decline. About 81 million shares changed hands on the TSE, down from 94.2 million shares traded on Friday. Monday's trading was worth C$1.43 billion. Declining issues handily beat out advances 592 to 394 and 295 closed flat.
''It's extremely quiet. It's a market of individual stocks,'' said ABC Funds portfolio manager Irwin Michael.
All but two of Toronto's 14 sub-indexes fell. The only gainers were transportation and consumer products. Their meager increases barely offset the move downward by oils, conglomerates, base metals and media. Laidlaw Inc., after a debilitating U.S. tax ruling the company has pledged to fight, gained 55 cents to $16.05, while Canadian National Railway was up $0.90 to $80.15.
The price of West Texas Intermediate crude oil fell 20 cents to $13.83 US a barrel. The oil & gas composite index fell 1.5% or 90.17 to 5969.17. Among sub-components, the integrated oils fell 1.6% or 134.56 to 8310.04. The oil & gas producers lost 1.4% or 74.08 to 5321.32 and the oil and gas services fell 2.1% or 47.93 to 2229.93.
Tarragon Oil & Gas, Petro-Canada, Beau Canada Exploration, Renaissance Energy, Baytex Energy and Canadian Occidental Petroleum were among the top fifty most active issues on the TSE. Service issues were not represented.
Oil producers were not among the top net gainers. Among service issues, American ECO gained $1.55 to $7.80.
Suncor Energy Ltd. tumbled $2.05 to $48.75, Canadian Natural Resources $0.90 to $25.10, Paramount Resources $0.75 to $13.00, PanCanadian Petroleum $0.70 to $21.75 and Talisman Energy $0.70 to $40.15. Among oil service issues, Dreco Energy Services fell $1.60 to $36.45, Ensign Resource Services $1.05 to $22.95, Shaw Industries $1.05 to $16.70 and Enertec Resource Services $0.65 to $7.75.
The conglomerates group was next, off 1.46 per cent. Canadian Pacific Ltd. (CP/TSE), which owns an 87% stake in PanCanadian Petroleum, fell 65› to $37.40.
Mining and metals dropped 1.41 per cent. Inco lost $0.65 to $20.35 and Noranda fell $0.75 to $23.55. Alcan was up $0.50 to $40.70.
Among golds, Barrick Gold slipped 20 cents to $26.60 while Placer Dome lost a nickel to $16.20.
Bank of Nova Scotia (BNS/TSE) fell 35› to $38, Canadian Imperial Bank of Commerce (CM/TSE) slipped 30› to $48.30 and Royal Bank of Canada (RY/TSE) slid 55› to $89.90 after the C$ fell to another record low.
Shares of Air Canada (AC/TSE) slipped 60› to $12.10 amid investor jitters as the carrier's pilots prepared to begin information sessions on a strike vote.
CAE Inc. (CAE/TSE) rose C$0.40 to C$12.60 in brisk dealings. Shares in the flight simulator maker gained altitude on hopes of good earnings and growing opportunities.
Other Canadian markets ended lower. The Montreal Exchange portfolio fell 22.29 points, or 0.6%, to 3722.43. The Vancouver Stock Exchange fell 5.77 points, or 1.1%, to close at 522.24.
The Alberta Stock Exchange combined value index fell 13.28 to 2100.19. Declining issues outpaced advancing issues 168 to 102 with another 109 issues unchanged.
Green River Petroleum, Kensington Energy, Colt Energy, Canop Worldwide and Raptor Capital were among the top 25 most active issues on the ASE.
Granger Energy B gained $0.80 to $4.80, Nycan Energy $0.12 to $0.75, Ionic Energy $0.10 to $1.60, Prarie Pacific Energy $0.10 to $0.40, HEGCO Canada $0.08 to $0.69, Esker Resoures 0.06 to $0.50 and Corridor Energy $0.05 to $1.25.
On the downside, BW Technologies fell 0.35 to $3.85, Stellarton Energy $0.16 to $2.25, Niko Resources $0.15 to $4.35, Cirque Energy $0.10 to $2.40, Corker Resources $0.10 to $0.50, Kensington Energy $0.10 to $0.45, Parkcrest Exploration $0.10 to $0.65, Request Seismic $0.10 to $1.80 and Oil Springs Energy $0.10 to $0.20.
The Canadian dollar recovered a bit from record lows late on Monday, but remained depressed as investors continued to flee the currency for safer havens.
It had plunged to a record trading low of C$1.4814 to the U.S. dollar (US$0.6750) in Asian trading on Monday, a result of another bout of the Asian flu.
This time the cause was in Japan, where the ruling party failed to win public support in Sunday's election for the Upper House of parliament. Currency traders saw this as a sign of continued instability in Asia and a reason to buy U.S. dollars with other currencies.
The Canadian dollar closed North American trade at C$1.4785 to the U.S. dollar (US$0.6764) on Monday as traders took profits on previous buying of U.S. dollars, giving the Canadian unit some breathing space.
The currency, dubbed the "Loonie""at home for its depiction of the Loon on the $1 coin, has also been under pressure from figures released on Friday that showed employment in Canada had weakened in June. The economy lost 35,900 jobs in the month, leaving the unemployment rate unchanged at 8.4 percent. "Friday's figures were not looking too good and overall if you look at the Canadian economy you've got problems with the weak commodity prices and shockwaves from the Asian situation," noted Derek Shewring, a senior dealer at Royal Bank of Canada in London.
Analysts predicted the Loonie could fly further south in the days ahead.
"We have lots of economic indicators coming out this week that could potentially set a new directional trend for the Canadian dollar, but in the near term, the focus is on the (U.S.) dollar/yen rate," said Jeffrey Cheah, a financial market analyst at Standard & Poor's MMS.
"If we don't see a smooth transition (of power in Japan), it might be bad news for the yen and indirectly it will have a ripple-wave effect on the Canadian dollar."
Canadian bonds ended weaker on Monday as the notion of safe-haven buying of North American assets subsided in light of a deal to help Russia with international loans to overcome its financial problems.
Canada was following the lead of U.S. treasuries, which remained depressed on the accord struck between the International Monetary Fund and Moscow on an aid package in exchange for Russia's reforms that should raise tax revenues.
The selling pressure also came from an optimistic view in the market over Japan's handling of the financial crisis after Prime Minister Ryutaro Hashimoto, under fire from the public of his economic policy, resigned after his ruling party suffered a setback in the Upper House election on Sunday.
Flight to quality to North America in the long term, however, appears still intact as Moscow has to prove that its financial reform is taking place and Japan may not get strong and stable leadership to cure its economic ills.
"Today the market believed that Russia was fixed. There are no other reasons to think otherwise, so they sold the treasuries that they'd bought as safe-haven," said Carl Weinberg, chief economist at High Frequency Economics.
"But Russia is far from fixed. There'll be more ways to go. If I were trading in this market, I would use this as an opportunity to get ready to go the other way," he told Reuters Television.
"The Japanese thing is obviously just being extended by all of this and on Russia we may be over-interpreting the good news in," said Jim Webber, director of fixed-income research at TD Securities Inc.
"It's an announcement effect right now," he said, adding that Moscow still has to get parliament to approve the reform plan.
Canada's benchmark 30-year bond stayed depressed, falling C$0.58 to C$136.30, yielding 5.481 percent.
The U.S. 30-year bond recovered some earlier losses, but was still down by 28/32, yielding 5.68 percent. The U.S.-Canada spread was 21 basis points after 18 points at the previous close here.
The front end of the Canadian yield curve is still vulnerable to the Canadian dollar's performance.
"If the Canadian dollar continues to hit new lows, the upper potential will be limited for the front end," said Jeffrey Cheah, a financial market analyst at Standard & Poor's MMS.
The Canadian currency ended flat at C$1.4785 (US$0.6764) on Monday, recovering from a record trading low of C$1.4814 (US$0.6750) hit in Asia overnight after Japan's ruling party failed to win public support in Sunday's election.
Profit-taking on U.S. dollars propped up Canada, but it scratched the lowest intra-day point of C$1.4802 (US$0.67576) today, just below the level it reached on Friday on news that Canada's employment fell for the second consecutive month in June.
The U.S. dollar has been swinging back and forth as market sentiment moves between optimistic and pessimistic on Russia's bid to iron out its financial problems with the help of an international aid package, and as hopes for effective tax cuts in Japan emerge and subside.
A political vacuum created by the resignation of Japanese Prime Minister Ryutaro Hashimoto after Sunday's Upper House election is delaying the process of decision-making on key anti-recession measures. The measures are expected to include an overhaul of the tax system, with cuts in income and business tax rates, and plans to curb non-performing commercial loans.
The ruling Liberal Democratic Party, which still maintains a majority in the more powerful Lower House, plans to pick a successor to Hashimoto on July 21 and is hoping to get parliamentary approval the choice at the end of July. Hashimoto is still leading a care-taker government until he and his cabinet actually bow out later this month.
Foreign Minister Keizo Obuchi, 60, has been mentioned as a top candidate to succeed Hashimoto. At stake is whether he could yield strong leadership, and depart from decision-making based on balancing power among former LDP factions.
Another leading candidate is Seiroku Kajiyama, 72, who helped formulate policy as an aide to Hashimoto in the previous government. The market favors his aggressive approach to tackling the banking crisis. The key is whether he can change his image as a backroom fixer.
The market also sees a chance for former prime minister and finance minister Kiichi Miyazawa, 78, who has emerged as an architect of bank relief plans. When he was heading the government, Miyazawa fought the burst of the economic bubble with traditional public works spending and lower interest rates.
The money market was steady in quiet trading as the Canadian dollar was recovering a bit from lows.
Canada's three-month when issued T-bill traded with a yield of 4.82 percent, unchanged from the previous close here.
NEW YORK
Monday's Markets
Wall Street was the "Land of the Rising Techs" again as the Nasdaq powered up 22.49 to its fourth straight record close. Other markets struggled, though, as the Dow slid 9.53 and the S&P 500 rose less than a point.
Despite the Nasdaq's record close, the majority of U.S. stocks were losers on the session, continuing a recent trend many market players find unnerving. In NYSE trading, 574 million shares were exchanged while advancing issues trailed declining stocks by a 4-to-3 spread. In Nasdaq activity, 792 million shares changed hands, while the breadth of the market favored losers by a 23-to-19 margin.
The tech sector was led again by traditional computer stalwarts, while Internet names overcame early trepidation to push higher still. In broader markets, weakness in General Motors (GM) and sagging oil shares weighed on both the Dow and S&P 500, while drug and financial names were higher.
The Nasdaq Composite Index (COMP) sprinted higher from the opening bell, topping out around 11:30 a.m. EDT at 1,962.63. The tech-inflamed index's upward momentum paused in the early afternoon, then resumed to send the index to its high of the session at the close, up 22.49 to a new all-time high of 1,965.53.
The Dow Jones Industrial Average ($INDUA) rose initially, then quickly retreated into negative territory and hit its intraday low of 9,073.56 within the first 30 minutes of trading. The blue-chip proxy twice managed to regain positive ground thereafter, but spent most of the day trading between 5 and 30 points below break-even. At day's end, the Dow was off 9.53 at 9,096.21.
The S&P 500 (SPX) managed to rise 0.88 to 1,165.22, while the Russell 2000 Index ($IUX) nudged up 0.32 to 458.75.
Traders greeted with optimism the news that Japanese Prime Minister Hashimoto will step down following the defeat Sunday of his Liberal Democratic Party in Upper House elections. The common thinking is that Hashimoto has been ineffective in reversing Japan's economic difficulties, and this election will spur his replacement -- and senior LDP members -- to take more drastic action. After falling above 144.50 early Monday, the yen recovered to 142.47 against the dollar.
The dollar's retreat was bad news for the bond market, where prices fell nearly 7/8 of a point. The yield on the benchmark 30-year Treasury bond rose to 5.68%, its highest level in a month.
Active issues
Oil names continued their recent woes and were the biggest drag on the S&P 500, as the AMEX Oil Index (XOI) fell 9.55 to 444.84 and Philadelphia Oil Service Index (OSX) shed 2.72 to 81.49. All major oil producers were down on the session, led by British Petroleum (BP), down 1 7/8 to 83 1/8, and Atlantic Richfield (ARC), off 2 to 70 7/16. Among Dow members, Exxon (XON) fell 1 5/16 to 70 7/16 and Chevron (CHV) slid 13/16 to 81 1/16.
Big percentage losers among oil service and drilling firms included Cliffs Drilling (CDG), which slid 2 1/2 to 24; Rowan Cos. (RDC) down 1 5/16 to 17 7/16; Oceaneering International (OII), down 1 3/16 to 15 1/2; and ENSCO International (ESV), which lost 1 7/16 to 15 1/16.
The performance of the Dow's 30 member stocks was wildly disparate, reflecting the index's uneven performance.
General Motors (GM) was the biggest drag, falling 2 to 69 1/16. GM and the United Auto Workers failed to reach an agreement on ending a six-week labor dispute, which now threatens to become the costliest
ever for the world's largest auto maker.
Chrysler Corp. (C) slid 3/16 to 55 13/16 despite posting second quarter earnings of $1.51 per share. The results more than doubled strike-impaired results of a year ago and were a dime better than expectations.
The outlook was sunnier for Ford Motor Co. (F) as its executives met meet with representatives of the South Korean government and Kia Motors Ltd. this week to decide whether Ford will bid to acquire the insolvent auto maker. Ford shares rose 1 9/16 to 59 7/16.
Dow member McDonald's (MCD) shares climbed 3/4 to 73 13/16 after Morgan Stanley Dean Witter upped its second quarter earnings estimates.
Other names aiding the index included Walt Disney (DIS), up 1 1/8 to 39 1/4, and Alcoa (AA), higher by 1 to 65 3/8.
In addition to tech names, financial components also helped ensure a favorable close, with Travelers Group (TRV) higher by 1 1/16 to 70 1/16.
Led by those names, the Philadelphia KBW Banking Index (BKX) closed up 0.42 to 915.88. Citicorp (CCI) rose 2 11/16 to 174 1/4, while brokers Merrill Lynch (MER) rose 1 3/4 to 107 15/16 and Donaldson Lufkin & Jenrette (DLJ) closed up 3 1/16 to 63 1/16.
Drug makers were led by Schering-Plough (SGP), up 3 1/2 to 101 3/4, and Pfizer (PFE), which gained 11/16 to 118 11/16. The AMEX Pharmaceutical Index (DRG) climbed 4.30 to 690.20.
Medical-instruments maker Bioject Medical Technologies Inc. (BJCT) rose 7/32 to 2 1/16 after announcing an agreement to provide Merck & Co. Inc. (MRK) with the rights to use its jet-injection system to deliver selected Merck vaccines.
Gillette Co. (G) fell 1 1/2 to 60 15/16 after Barron's reported that shares of the consumer-products company may be overpriced.
Fila Holding (FLH) dropped 1 1/2 to 12 1/8 after warning Friday that it could lose up $1.62 per share in the second quarter, well in excess of the 41-cent-per-share shortfall analysts were already expecting.
Pluma Inc. (PLU) also fell after waving the red flag, off 1 3/16 to 5 1/2. The manufacturer and distributor of fleece and jersey activewear said it will report a loss in the second quarter versus expectations for a profit of 17 cents per share.
Gull Laboratories (GUL) fell 1 3/16 to 3 1/4 on news that the company is subject to a takeover valued at $3 per share.
Landair Services (LAND) rose 2 3/8 to 30 3/4 after saying it plans to split into two publicly traded companies, one for trucking and one for air freight.
Suiza Foods (SZA) rose 1 1/2 to 58 5/16 thanks to an upgrade from DLJ to "top pick" from "buy."
Conversely, AFLAC Inc. (AFL) fell 1 1/8 to 36 1/8 following a downgrade by DLJ to "market perform" from "buy."
Technology stocks
Optimism about earnings among computer and software makers gave the tech sector some backbone, leading the Morgan Stanley High Tech Index (MSH) up 10.91 to 628.65 and the Nasdaq 100 Index (NDX) up 29 to 1,420.
At the forefront was Microsoft (MSFT), up 4 7/16 to 117 7/16 ahead of its earnings release, due out later this week. Today, Microsoft unveiled a new online real-estate site. Shares of one potential rival, Century 21 parent Cendant (CD), fell 3 5/16 to 18 3/4.
Earnings optimism bolstered the box makers, with Dell Computer (DELL) up 5 3/8 to 106, Apple Computer (AAPL) rising 1 7/8 to 33 15/16, and Compaq Computer (CPQ) gaining 7/8 to 32 5/8.
Dow members IBM (IBM) rose 1 to 119 1/2 and Hewlett-Packard (HWP) gained 1 13/16 to 60 1/8.
Other tech bellwethers on the rise included Cisco Systems (CSCO), up 1 5/16 to 94 1/4, and Lucent Technologies (LU), higher by 3 3/16 to 89 5/16.
Overcoming some early weakness, the Inter@ctive Week Internet Index (IIX) closed up 6.74 to 397.36. America Online (AOL) gained 6 3/8 to 118 7/8 Excite (XCIT) rose 6 3/4 to 88 5/8 and Lycos (LCOS) rose 3 1/2 to 71 1/8. Meanwhile, Yahoo! (YHOO) jumped 7 1/8 to 188 3/8 and Amazon.com (AMZN) soared 8 1/8 to 107 5/8; both overcame early weakness.
Egghead.com Inc. (EGGS) continued to rise, up 4 11/16 to 26 1/8 amid optimism the Internet retailer's value will rise because of its well-known brand name.
Internet advertising agency Leap Group (LEAP) jumped 3 25/32 to 7 on news that the company has formed a marketing alliance with BroadVision Inc. (BVSN), which closed up 7/8 at 24 7/8.
First Virtual Holdings (FVHI) rose 1 7/8 to 6 1/2 on news that it has entered an agreement to acquire Email Publishing for 6 million shares of First Virtual stock.
Zapata (ZAP) shares rose 5 5/16 to 22 1/2, thanks in part to a positive mention in the current issue of Barron's.
However, the semiconductor sector was decidedly mixed after Applied Materials Inc. (AMAT) warned Friday that it expects third-quarter earnings of 18 cents a diluted share, 3 cents below analysts' estimates. The chip-equipment maker's shares fell 15/16 to 28 3/8. Donaldson Lufkin & Jenrette lowered its recommendation to "market perform" from "buy."
Similarly, PRI Automation Inc. (PRIA) fell 1 to 15 1/16 after it said it will cut about 15% of its workforce and take a charge of $5 million to $7 million in its fiscal third quarter. PRI forecast a loss of up to 16 cents per share, excluding the charge, well shy of analyst estimates of profits of 5 cents per share.
Other chip-equipment makers followed suit. Novellus Systems (NVLS) lost 1 13/16 to 33 7/8; DLJ downgraded the stock to "market perform" from "buy."
Still, the Philadelphia Semiconductor Index (SOX) rose 2 to 257.84. Sector leader Intel Corp. (INTC) led the gainers, up 2 5/8 to 82 3/8, while VLSI Technology (VLSI) rose 15/16 to 18 9/16 and Linear Technology (LLTC) closed up 2 1/8 to 68 13/16.
Andrea Electronics (AND) rose 1 7/16 to 13 3/8 on news that IBM will sell Andrea Electronics' headsets and head-mounted microphones with selected Aptiva PCs.
Takeover rumors helped lift shares of Advanced Fiber Communications (AFCI) up 4 1/8 to 24 1/8 in heavy trading.
Digi International Inc. (DGII) fell 3 1/2 to 21 9/16 after the communications-software company warned that earnings for its fiscal fourth quarter will be less than projections for its third quarter.
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