MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY JULY 13, 1998 (2)
MARKET OVERVIEW
INTERNATIONAL
Hashimoto Lifts European Stocks
Renewed hope of Japanese economic reform boosts London, Frankfurt
European stocks rose Monday on hopes the resignation of Japanese Prime Minister Ryutaro Hashimoto will accelerate efforts to kick-start the world's second largest economy and stave off another protracted round of Asian financial crisis.
"There are hopes [Hashimoto's] successor will finally get the economic package implemented and the Japanese government will get serious about addressing the economic woes," said Peter Cardillo, director of research at Westfalia Investments in New York.
The poor performance by Hashimoto's Liberal Democratic Party (LDP) in Sunday's Upper House elections, where it won only 44 of 61 seats it was defending, initially wiped 2 percent off Japanese stocks and boosted the dollar more than 3 yen to a high of 144.50 yen in Tokyo trading.
European stock indexes rose, with the German bourse reaching all-time highs during the day.
Frankfurt's Xetra DAX index rose 22.07 points, or 0.37 percent, to 6,023.31 after peaking at its best-ever level of 6,054.78 earlier. The floor-traded DAX closed 0.62 percent higher at 6,019.48 after hitting 6,056.09.
Shares gave up some of their gains when Wall Street opened flat to slightly weaker and the dollar came off its highs.
Degussa led the advance with a 5.5 percent rise to 115.55 marks ($63.46). Dealers said there was no specific news on the chemicals group, but it was possible analysts had upgraded their ratings on the stock.
Though the Paris stock market was closed for the two-day Bastille Day holiday, futures traded sharply higher. The CAC-40 July future rose 37.5 points to 4,285 as investors saw France's soccer World Cup victory Sunday night as triggering a recovery in consumer spending.
The UK's FTSE 100 edged higher in thin trade Monday, buoyed by hopes for more decisive Japanese action on its beleaguered economy but with most action focused on the market debut of Coca-Cola Beverages.
The benchmark stock index closed up 28.5, or 0.5 percent, at 5,958.2, paring losses of the previous two sessions but still near the middle of its trading range of the past five months.
Gaining stocks were in a two-to-one majority, while volume reached a meager 762 million shares by the close. That total was inflated by 204 million in Coca-Cola Beverages, which rose 9 pence from its issue price to 169 ($2.75).
Uncertainty Rules Mixed Asia
Hashimoto's resignation sends Nikkei up, but other major markets reel
It was a roller coaster day for Asian stocks. In Tokyo, initial market reaction to a disastrous election setback for the country's ruling party was grim, but optimism was restored when Prime Minister Ryutaro Hashimoto announced he would resign, boosting the Nikkei to a 1.68 percent gain.
Hong Kong, Singapore and Sydney failed to be cheered, however. Uncertainty about Japan's economic reform and currency issues consumed the day, causing the Singapore market to plunge 3.41 percent, the Hang Seng to shed 1.3 percent, and Sydney to end down 1.07 percent.
The key Nikkei 225 average reversed its early downtrend and ended up 270.33 points, or 1.68 percent, at 16,360.39. It had dropped nearly 2 percent at one point in the morning.
After his Liberal Democratic Party (LDP) suffered a disastrous election setback on Sunday, Hashimoto announced Monday his intention to resign.
The Nikkei average posted a sharp retreat initially due to worries that the LDP setback may throw Japan's economic management into disarray, but it soon recovered.
"Market reaction to Hashimoto's step-down was positive, as the people turned their thumbs down and the market is now hoping for more speedy action on the economy," said Tsuyoshi Segawa, general manager at New Japan Securities Co. Ltd.
In elections for the upper house of parliament on Sunday, the LDP won only 44 seats, sharply down from to the 61 it had held previously, and far short of the 69 needed for a majority.
"The outcome presses home to the LDP that they've got to do more and do it more quickly," said Coen Kluyver, manager of overseas institutional sales at ING Baring Securities.
Some dealers said there was talk that central bankers attending a Bank of International Settlements meeting in Tokyo might come up with suggestions to speed Japan's reinvigoration of its economy.
Turnover was light, with 389 million shares changing hands on the first section of the Tokyo Stock Exchange, down sharply from 597 million shares on Friday.
Singapore plunges 3.41 percent
Singapore shares ended sharply lower after Hashimoto's resignation threatened to put the country's economic reforms into disarray, dealers said.
The Straits Times Index was battered on the news, dropping 37.16 points, or 3.41 percent, to close at 1053.19.
"Hashimoto's resignation came as a shock to the LDP and the market. It creates more uncertainties over Japan's reforms and policies," said a dealer at a U.S. house in Singapore.
But not everyone was pessimistic about the departure.
"The shock to the LDP may make it more willing to embrace more aggressive measures to deal with the recession," said an investment manager at a local bank.
Hong Kong sours on the yen
Hong Kong stocks kicked off the week on a soft note, ending the day lower with sentiment soured by worries about the Japanese yen and poor local fundamentals, brokers said on Monday.
The Hang Seng Index fell 106.57 points, or 1.30 percent, to end at 8,099.20 after climbing back from the day's low of 7,912.23.
It was the lowest close since June 17 and brokers expected the market to have more downside in the short term.
Turnover stayed low at HK$3.94 billion against Friday's HK$4.74 billion as cautious investors shied away with little positive news to spur buying, brokers said.
"The market is run by futures operators, so a lot of genuine investors are scared off," said Howard Gorges, director at South China Brokerage. Investors "are waiting until they think shares are either very cheap or that there is some good news to justify buying."
Market focus continued to be on Japan and Hashimoto's announced resignation.
The U.S. dollar was solid against the yen by late Tokyo trade but its upside was capped by a strong rebound in stocks.
The dollar was trading at 142.18/2.28 yen compared with 141.10/20 yen in New York on Friday, but was softer than 144.50 yen which it hit in the wake of the Japanese election results.
The yen drove up local interbank rates on Monday, dampening investors' mood.
Japan uncertainty spreads to Sydney
The Australian share market ended Monday 1.1 percent down after Sunday's Japanese election spread uncertainty and dragged currencies lower.
The All Ordinaries index fell 29.3 points to 2,718.6.
"The currencies haven't turned around," said Mark Fordree, a senior institutional dealer with ANZ Securities, explaining the local market's lack of response to Tokyo's upturn.
Total turnover was a moderate A$804.8 million (US$491 million) and dealers said many investors opted to stay on the sidelines.
"We're going to continue to have a lot of uncertainty until we have a clearer picture out of Japan," Fordree said.
Losses were spread across the board although many blue chips ended above their early lows and some managed modest gains.
MORNING UPDATE
Jitters Calmed In Asia
Tax comment fuels Tokyo, but uncertainty caps gains in markets
July 14, 1998: 6:10 a.m. ET
Major markets in the Pac Rim stabilized Tuesday following Monday's more volatile session in response to news of Japanese Prime Minister Ryutaro Hashimoto's resignation.
Uncertainty over who would replace Hashimoto, however, capped gains in Tokyo, Hong Kong and Sydney, all of which ended Tuesday in positive territory. Singapore, however, dropped 1.2 percent on thin trade and a lack of fresh factors, dealers said.
Tokyo stocks closed firmer after the market staged a late rally prompted by a newswire report that the head of the government's tax panel had called for tax cuts worth six trillion yen, brokers said.
The benchmark Nikkei 225 average ended up 128.52 points, or 0.79 percent, at 16,488.91.
Turnover of the first section of the Tokyo Stock Exchange was a modest 402 million shares against 389 million shares traded on Monday.
Upward momentum was capped by uncertainty over who will replace Prime Minister Ryutaro Hashimoto, who on Monday announced his intention to step down, brokers said.
The newswire report quoted Hiroshi Kato, head of the tax panel, as saying that tax cuts worth six trillion yen -- four trillion yen in income tax cuts and two trillion yen in corporate tax cuts -- should be made.
Traders said the report fueled hopes for additional tax cuts, but uncertainty over the political situation dampened bullish sentiment.
"With prospects of the government unclear, we can't rush into buying. We're also worried how the government will fill the fiscal gap," said a trader at a second-tier Japanese securities house.
The market moved sideways for most of the session, with many investors taking a wait-and-see stance.
"We have some hopes (that a new government may be able to propose speedy economic policies), but we can't be too optimistic at this stage," said Keiko Kondo, strategist at Merrill Lynch Japan Inc.
Hashimoto's ruling Liberal Democratic Party will select a party president on July 21. The lower house, in which the party holds a majority, will then vote on a prime minister.
By sector, gainers were led by gas, oil, retailers and iron/steel. The major losing sectors were precision instruments, sea transport and real estate.
Overseas investors were seen snapping up steel and high-technology stocks.
"Foreigners who've been underweight on Japanare sniffing around for bargains," said a trader at a Japanese brokerage.
HK firms as it awaits clues from Japan
Hong Kong stocks closed higher Tuesday, echoing stronger markets in Japan, but most investors sat on their hands awaiting fresh news on the Japanese yen and the local property market, brokers said.
The Hang Seng index added 79.73 points, or 0.98 percent, to end at 8,178.93. Turnover shrank to a quiet HK$2.70 billion against Monday's already low HK$3.94 billion.
"Everyone is still waiting for the new Japanese government," said Tom Leventhorpe, director of sales and trading at Indosuez W.I. Carr.
Uncertainty over who will become the new Japanese prime minister held the market in check.
The yen provided support, with the U.S. dollar trading at around 141 yen compared with the 142 yen level on Monday.
Banking giant HSBC Holdings climbed HK$3.50 to HK$184.00, accounting for more than half of the Hang Seng Index points gain.
Singapore drops as traders avoid market
Singapore shares ended marginally softer on Tuesday with trading thinned by the absence of fresh factors, dealers and analysts said.
The benchmark Straits Times Industrials index ended down 10.75 points, or 1.02 percent, to 1,042.44.
"The currencies improved a little this morning, but the market had lost whatever trading gains it made," said one retail dealer with a local brokerage.
"Everyone is expecting the market to get worse, so they are basically staying out," she added.
Dealers said much of the activity was from investors and brokerage houses trading their proprietary accounts on an intraday basis.
They said the market had not reacted much to Malaysian Deputy Prime Minister Anwar Ibrahim's downward revision of the country's Gross Domestic Product (GDP) and most dealers remain focused on rumors about more companies seeking court protection in neighboring Malaysia.
The market was also awaiting news on Japanese Prime Minister Hashimoto's successor and where Japan's economic reforms are headed, dealers added.
"There's been a lot of trading but no genuine direction. The market is just waiting for more direction from Japan," said one dealer with a local brokerage.
Sydney makes up for Monday's losses
The Australian share market ended broadly firmer on Tuesday as the local dollar bounced and international markets stayed calm.
The All Ordinaries index rose 35.6 points, or 1.31 percent, to 2,754.2 on moderate turnover of A$754.2 million (US$467.6 million).
"We had such a severe cutback yesterday," said broker Kevin Lourey of Peak Lands Kirwan. Others agreed, but said the jump after Monday's 1.1 percent dip appeared over-confident.
"It was over-cooked yesterday, and today it's over-cooked in the other direction," one senior dealer in Sydney said.
Brokers said concerns over Japan's financial problems had not gone away, but that investors took heart from the Australian dollar's recovery to above 61.5 U.S. cents after its recent battering over the regional economic turmoil.
Europe Rises On Japan Hopes
Promise of tax cuts by Japan's next gov't. fosters optimism, keeps yen firm
July 14, 1998: 6:59 a.m. ET
Hopes that Japan's next government will cut taxes to jump-start the economy gave European shares a lift for a second day on Tuesday morning as the yen remained firm in the wake of Prime Minister Ryutaro Hashimoto's resignation.
But record highs on the German, Dutch and Belgian bourses were eclipsed by the Russian market, which soared 11 percent on jubilation over Monday's $22.6 billion international aid package.
Early gains in European shares were underpinned by a steady yen, which remained around 141 to the dollar after bouncing back from above 144 following Hashimoto's resignation on Monday.
Traders said the currency market was holding fire as it assessed whether a change in Japan's prime minister and cabinet would speed up reforms in the recession-hit economy.
"The market is still fairly choppy but it is unlikely to want to push too far in either direction at the moment," said James McKay, chief economist at Commonwealth Bank of Australia.
"But there is a risk of policy paralysis in Japan and if we don't see the Japanese government sorting its problems out soon, then we're likely to see the yen weaker," McKay added.
The dollar was also steady against the mark as investors assessed the impact of Monday's agreement on financial aid for Russia.
International lenders threw Russia's economy a $22.6 billion lifeline Monday in a resounding vote of confidence in the government's plans for dealing with an acute financial crisis.
Russian share and debt prices leapt on the announcement, which gives the government sorely needed breathing space as it struggles to meet debt-servicing obligations and stave off a possible devaluation of the
ruble.
Russia's RTS share index rose 11.05 percent in the first hour to 174.57, after leaping 9.15 percent on Monday.
The prospect of the Russian and Japanese economies improving weighed on German bonds for a second day as the lure of safe-haven investments declined.
The September Bund future was a touch higher in early trade, but dealers expected the market to fall after setting a record high in early trade on Monday.
London jumps on low inflation
In addition to Japan, London's FTSE 100 blue-chip index got a further lift from weaker than expected inflation data, which were interpreted as easing pressure for another interest rate rise.
By late morning, the index had risen 80.6 points, or 1.35 percent, to 6026.4 on news that the underlying annual inflation rate fell to 2.8 percent in June, its lowest in three months.
Government bonds also raced higher as the prospect of tighter monetary policy receded.
"I don't think there is any doubt that inflation has peaked," said Glenn Davies, chief U.K. economist at Credit Lyonnais. "There's less chance of another rate hike."
Banks were among leading gainers, with Lloyds up 20.5 pence at 882 amid renewed bid speculation in the industry and ahead of the sector's results at the end of this month.
Mobile phone operators also rose after the telecom industry's watchdog agreed to extend the deadline of an inquiry into the price of calls to mobile phones.
Frankfurt keeps the records coming
German shares again led the continent's rally early in the day as the DAX index rose 0.88 percent to 6072.37 in early morning trade, setting an all-time high for a second consecutive day.
The record-setting continued into late morning, when the DAX climbed still further, up 56.26 points, or 0.93 percent, to 6075.74.
Banks were among leading gainers.
Trading was limited ahead of the release of economic data in the United States later on Tuesday. The data includes June retail sales and consumer prices.
The French market was closed for Bastille Day.
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