MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JULY 12, 1998 (2)
THURSDAY CANADIAN MARKET OVERVIEW
Canadian Stocks Fell As Financial Services And Commodities Producers Slumped
Toronto stocks fell to close deep in negative territory on Thursday as Canadian investors took their cue from a tumbling New York market, which was side swiped by profit taking.
The Toronto stock market drifted lower Thursday as traders dumped a large volume of gold and banking stocks. "That's a combo that we just can't fight," said Pat Blandford, senior vice-president at Midland Walwyn in Toronto. "The drop in gold stocks hurt just about everything on the resource side," said Blandford.
Despite the losses, Blandford noted both markets closed higher than they did at the end of last week. "The Dow is now exactly where it was on Monday. . . and the TSE is above where it was last Friday," he said. "That tells us we're in a trading range. . . That's a plus. You don't want markets going up 100 points every single day because that's not sustainable."
Toronto didn't fall quite as hard as the Dow because it had not risen so high in recent sessions, one equities trader said. "I think the Canadian market will have a hard time keeping up to the U.S. market," he added.
The Toronto Stock Exchange 300 composite index fell 38.12 points, or 0.5%, to 7413.15. About 91.1 million shares changed hands on the TSE, down from 104.8 million on Wednesday. Toronto's volume was valued at C$1.8 billion. Decliners outnumbered advancers 548 to 443 with 296 unchanged.
Ten of the fourteen sub-indexes comprising the TSE 300 fell.
The metals and minerals stock group dropped 2.1% as Rio Algom shed $0.80 to $20.05. The conglomerates group fell 1.3%.
Canada's largest stock market suffered from a softer gold bullion price, which put its gold and precious minerals subindex under pressure, traders said. The group, which makes up nearly 5 percent of the index, fell 1.83 percent. Barrick Gold Corp. (ABX/TSE) fell $0.70 to $27.10 and Placer Dome Inc. (PDG/TSE) dropped $0.45 to $16.40 and Greenstone Resources dropped $0.65 to $4.35 as gold lost US$1.60 to US$291.70 an ounce on the Comex division of the New York Mercantile Exchange.
Other sub-indexes falling were pipelines 0.9%, utilities 0.7%, industrial products 0.6% and consumer products 0.4%.
Meanwhile, the heavily weighted financial services sector slipped 0.4%. Bank stocks almost always take a hit when the Canadian dollar weakens. The low loonie provoked worry that the Bank of Canada might defend the currency by raising interest rates. That would cut into bank profits, which is why traders were quick to ease out of financial stocks. Dominion Bank (TD/TSE) fell $1.35 to C$65.50, Bank of Montreal (BMO/TSE) fell $0.60 to $82.25, Canadian Imperial Bank of Commerce (CM/TSE) fell $0.30 to $49.20 and Scotiabank lost $0.25 to $38.50.
The TSE oil & gas composite index fell 0.1% or 8.62 to 6103.10. The sub-components were mixed. The integrated oil's fell 0.8% or 69.04 to 8411.31. The oil & gas producers gained 0.3% or 16.45 to 5455.34. The oil and gas services group fell 1.5% or 34.72 to 2312.53.
Petro-Canada, Northstar Energy and Poco Petroleums were among the top 50 most active issues traded on the TSE. Servive issues were represented by Bonus Resource Services.
Rio Alto Exploration gained $1.20 to $18.20, Chieftain International $0.75 to 34.55, Paramount Resources $0.75 to $14.00, Cabre Exploration $0.70 to $13.50 and Alberta Energy $0.50 to $35.50. Among service issues, Mullen Transportation gained $1.00 to $20.00.
On the downside, Seven Seas Petroleum fell $1.00 to $20.00. Among service issues, Precision Drilling fell $0.90 to $26.50, NQL Drilling $0.75 to $8.00 and Ensign Resource Services $0.55 to $24.40.
Four of the 14 TSE 300 stock groups rose. The best performer was the merchandising group, which added 0.7%, communications and media gained 0.4%, transportation and environment 0.4% and real estate 0.3%.
Petrochemical maker Nova Corp. (NCX/TSE) fell 65› to $29 in the wake of the DuPont warning. "The DuPont warning ... raises the possibility that other companies in similar sectors will also suffer and possibly report less than anticipated earnings," said Jay Spissinger, a broker at C.M. Oliver & Co. Nova was spun off when TransCanada PipeLines Ltd. purchased Nova Corp., the pipeline company. The chemicals business of the defunct Nova sold 400 million pounds a year of polyethylene to Asia, according to a December report issued by CIBC Wood Gundy Securities Inc. Nova has fallen 15% since it began trading on a "when issued" basis on June 22.
Among the TSE stocks with the biggest price changes were Rothman's, down $5.00 to $200.00, and Fairfax Financial, down $4.00 to $557.00.
Among industrial stocks, Laidlaw gained 40 cents to $15.00, Geac lost $1.70 to $41.15 and Ballard Power gave up $1.95 to $41.95.
One earnings surprise was ATI Technologies Inc. (ATY/TSE), which was the most active issue in Toronto. After rising to a record high $20.20 earlier in the session, ATI shares slipped 5› to $19.10 in late trading of 3.1 million shares, over 3 1/2 times the three-month daily average. The company said its fiscal third-quarter earnings jumped to 21› a share from 6› a year earlier, beating the mean estimate of seven analysts surveyed by First Call by 3›.
Other Canadian exchanges lost ground. The Montreal Exchange portfolio fell 24.19 points, or 0.6%, to 3754.63. The Vancouver Stock Exchange slipped 4.16 points, or 0.8%, to 526.61.
On the Alberta Stock Exchange, the combined value index fell 11.86 to 2096.76. Declining issues outnumbered the gainers 151 to 111 with another 110 unchanged.
Oil and gas related issues among the top 25 most active traded issues included Oilexco, Alta Pacific Capital, Sunburst Oil & Gas, Scimitar Hydrocarbons, Canop Worldwide, Raptor Capital, Request Seismic, ICE Drilling, Anvil Resources, Niko Resources, Dalton Resources and Wolverine Energy.
BW Technologies gained $0.30 to $4.20, Northline Energy $0.20 to $1.40, Petro-Reef Resources $0.14 to $0.50 Golden Trend Petroleum $0.10 to $0.40, Wenzel Downhole $0.06 to $1.56, Brittany Energy $0.05 to $0.30, Corker Resources $0.05 to $0.60 and Scimitar Hydrocarbons $0.05 to $0.35.
On the flipside, Venator Petroleum fell $0.19 to $1.55, Niko Resources $0.10 to $4.40, oilexco $0.10 to $0.30 and Red Sea Oil $0.10 to $1.65.
The C$ resumed its slide against the US$ yesterday, closing at another record low as commodity prices continued to slump on economic uncertainty in Asia.
The currency closed at US67.78›, down US0.17› on the day, and traded as low as US67.70›, which was also a new record.
Despite the C$'s woes, analysts stressed its decline remains orderly and inevitable in light of the US$'s rise and plummeting commodity prices. Until those developments are reversed, the C$ is unlikely to halt its drop.
The US$ rose against the Japanese yen and German mark yesterday, as doubts surfaced about the effectiveness of Japan's recently announced economic stimulus plan. Concerns also spread that the Chinese may soon feel forced to devalue the yuan to escape the spiral that has dragged down most Asian economies.
The C$ is down more than 6% since the Asian crisis erupted last fall. Since September, the Bank of Canada has raised its key overnight lending rate four times - from 3.5% to 5% - largely to shore up the C$.
However, in May the bank signalled it plans to hold rates steady until November unless there are further shocks to the economy.
Most analysts have endorsed the bank's policy, arguing the C$'s decline would only be halted by a large hike in interest rates, which would sink the economy.
"The C$ broke to new historic lows, but nobody seems to be accusing the Bank of Canada of mismanagement," said Jeoff Hall, a Canadian market analyst with Boston based Technical Data.
With inflation low and the economy having lots of room to grow, there is no fundamental reason to raise interest rates, unless the C$ comes under "sustained, severe pressure," said Ruth Getter, chief economist at Toronto Dominion Bank.
Jeff Rubin, chief economist at CIBC Wood Gundy Securities Inc., predicted in a recent report the bank would pull the trigger on a half-percentage-point rate hike if the C$ weakened to US67.34›.
Canadian bonds ended flat to weaker on Thursday, failing to catch up with moderate gains in U.S. treasuries.
While a firming U.S. dollar propped up U.S. treasuries, Canada lacked buying incentives. Players were taking a breather after strong speculative buying on Tuesday.
The short end of the Canadian yield curve was hurt a bit as the Canadian dollar slipped to a record intra-day low of C$1.4770 (US$0.6770) before cutting some losses on Thursday.
Canada's benchmark 30-year bond, in lacklustre trading, fell C$0.24 to C$136.81, yielding 5.454 percent.
The U.S. 30-year bond rose 10/32 to yield 5.61 percent. The U.S.-Canada spread was 16 basis points after 17 points at the previous close here.
"There isn't much news out there today. I think everyone is getting ready for Friday's numbers," said Richard Wylie, economist, fixed income research, at TD Securities Inc.
Canada's June jobs data are due out at 0700 EDT/1100 GMT on Friday, and the U.S. June producer price index (PPI) is due out at 0830 EDT/1230 GMT.
Economists on average forecast the jobless rate at 8.4 percent, unchanged from May. Employment is expected to recover with an increase of 26,000 jobs after falling by 7,300 in May, which came in contrast to a sharp gain in April. General Motors plant shutdowns and Ontario construction sector strikes are expected to be a drag on employment.
The U.S. June PPI is forecast to show a benign inflation picture, unchanged after a 0.2-percent rise in May. The core rate, excluding food and energy prices, is seen rising 0.1 percent after a 0.2-percent rise.
The money market was relatively steady.
Canada's three-month when issued T-bill traded with a yield of 4.83 percent, compared with 4.81 percent at the previous close here.
This morning, U.S. data showed that jobless claims fell to 392,000 in the July 4 week from a revised 393,000. There was little market impact.
"Overall the economy in the U.S. is slowing... We've seen that now very consistently in the manufacturing data. The labor market is still very tight, however. Even with the GM shutdowns, the labor market will continue to be quite strong for some time," Nesbitt Burns chief economist Sherry Cooper told Reuters Television.
Also this morning, Canada released June housing starts, which fell for the third consecutive month, by 4.6 percent to a seasonally adjusted annual rate of 132,700 units from a revised 139,1000 units in May.
Strikes in the province of Ontario slowed construction.
"Due to the labor disruptions, existing home sales actually increased sharply. You can see that demand is there," said Louis Trottier, economist at Canada Mortgage and Housing Corp's market analysis center.
"Apart from the strikes, we expected some moderate growth this year, but this is not happening because of technical factors. There should be a rebound in the second part of the year," he told Reuters Television.
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