AN EYE ON THE MARKETS / Weekend Edition - Part 2
Markets Rally On Brazil Hopes: TSE Up 80, Dow 90
The Canadian Press
Stock prices rose Friday on optimism over a deal aimed at solving economic problems in Brazil as well as hopes for a solution to domestic financial concerns.
Expectations of an interest rate cut at Tuesday's meeting of the U.S. Federal Reserve Board are rising, boosting the Toronto market and bank stocks in particular, analysts say.
In New York, blue chip stocks rose sharply after the long-awaited international financial aid package was approved for Brazil.
The TSE 300 composite index gained 80.03 to close at 6,336.09, with 13 of 14 industry groups gaining on the session. In New York, the Dow Jones industrial average was up 89.85 at 8,919.59.
Bank stocks soared on the TSE, up 2.86 per cent on the day, amid hopes of a U.S. interest rate cut, likely to be matched by the Bank of Canada.
Standard and Poor's anticipates a Fed rate cut of one-quarter of a percentage point to help lift a faltering economy, said technical analyst Jeff Cheah.
"When the Fed eases next week, they're not doing it because they feel that the economy is going to slow down in November or December; they're thinking ahead to what might happen in the first quarter of 1999," said Cheah.
"The Fed would make a pre-emptive move and it wouldn't be considered unreasonable."
Royal Bank shares rose by $2.45 to $68.20 while Bank of Montreal gained $2.15 to $58.15 on the session.
Canadian Imperial Bank of Commerce gained 70 cents to $30.90 despite reports it will report radically reduced fourth quarter earnings.
Meanwhile, turbulence in the oil-rich Middle East had some investors anticipating reduced oil supplies and higher prices. That boosted the TSE energy index by one per cent. It had dropped as much as 16 per cent on the year.
Canadian Natural Resources gained $1.05 to close at $28.80 while Canadian Occidental gained 55 cents to $24.05.
The International Monetary Fund's $41.5-billion US rescue package for Brazil is designed to stop global financial turmoil from spreading. IMF officials hope the plan will assure financial markets that Brazil will have the money to pay its debts while putting its fiscal house in order.
On the TSE, transportation and environmental services was up 2.50 per cent and mining and minerals rose 2.15 per cent.
Canadian National Railway gained $1.05 to $79.75, while industrial services giant Philip Services Corp. shed six cents to $0.75 after reporting losses of more than $1 billion Cdn and plans to renegotiate more than $1 billion US in bank debt.
The biggest and only declining group Friday was gold and silver, off 1.31 per cent.
Barrick Gold slid 70 cents to $33.05, Placer Dome fell 60 cents to $25.20, and Franco-Nevada Mining lost 65 cents to $30.75.
On the week, communications and media stocks fared worst, shedding 4.59 per cent. Conglomerates were 2.83 per cent lower, while utilities stocks lost 2.45 per cent.
On the positive side of the weekly ledger, transportation and environmental services stocks were 2.21 per cent higher, while paper and forestry stocks gained 1.41 per cent. Pipelines were up 0.62 per cent.
Friday's advances outnumbered declines 568 to 405 with 280 unchanged in trading of 94 million shares worth $1.5 billion.
The TSE 100 rose 5.75 points to 386.98.
The Vancouver Stock Exchange index finished at 407.75, up 2.94 on the day but 10.38 lower for the week. The Montreal portfolio index ended the day 67.63 higher at 3,222.17, down 58.49 on the week.
Among TSE industrials, BII Enterprises gained $0.58 to $1.74, Mitel Corp. $0.40 to $11.60; United Dominion Industries lost $0.30 to $31.20, Baton Broadcasting $0.05 to $19.90.
Renaissance Energy rose $0.30 to $20.80, Poco Petroleums $0.15 to $14.60; Northrock fell $0.25 to $16.60.
Toronto Stocks Finish Week In Buoyant Mood
Reuters
Toronto stocks finished the week in a buoyant mood, with the key index gaining 1.28 percent on Friday, chiefly in the closing hours of the session as hopes grew that a U.S. military strike on Iraq may be averted.
News that the International Monetary Fund was preparing to organize a US$42 billion-plus bailout package for troubled Brazil was an added spur to the market. Many analysts believe the worst of the globe's financial troubles may be in the past.
"The U.S. economy is going great. The Japanese bailout is in place. The Brazilian bailout is in place. I think other Asian countries will follow a Japanese-type formula. We've seen the worst over there and things are getting more optimistic," said Douglas Davis, president of Davis-Rea Ltd. Investment Counsel.
The Toronto Stock Exchange key TSE 300 Composite Index rose 80.03 points, or 1.28 percent, to close at 6336.09. Volume was a fairly brisk 94.4 million shares worth C$1.48 billion.
Advancing issues led declines 568 to 405 with 280 issues holding their ground.
On the week, the TSE 300 was actually down 81.82 points, or 1.27 percent. Analysts characterized action during the week as range-bound and some predicted that key indexes could track fairly narrow ranges for a few more days.
"Last week was very bullish and this week has brought us to this trading range which is about 1101 to 1150 on the S&P. Until it goes one way or the other, it could be here a while," Davis said.
The spotlight next week is expected to fall squarely on interest rates and the November 17 meeting of the policy-making Federal Open Market Committee. Many traders are still betting on a rate reduction although some question whether one is necessary in light of the improving economic outlook.
Levesque Beaubien Geoffrion liability trader David Jarvis said the Federal Reserve is more likely to look at the current tight credit conditions in the U.S. as a motive for a rate cut rather than at the recovery in financial markets.
On Friday, only the precious metals group closed in negative territory. The remaining 13 subindexes found Friday the 13th a day to celebrate.
Financial services rallied, buoyed by the Brazilian bailout news. The subgroup climbed 211.89, or 2.86 percent, to 7624.28. The transportation sector rose 151.18, or 2.5 percent, to 6197.39.
Communications and media and base metals shares also moved solidly higher.
Active issues were topped by supermarket chain Provigo Inc., Canada's third-largest, which dipped C$0.05 to C$15.15 after rising on Thursday when its biggest shareholder, the Caisse de depot et placement, hinted it was seeking other buyers for its holding.
The largest grocer in the country, Loblaw Cos Ltd., has bid C$1.6 billion for Quebec-based Provigo.
Saddam And Fed Boost Oil And Bank Stocks; Dollar Off
Canadian Press
Share prices jumped on North American stock markets Friday as fears of rising oil prices lifted energy stocks and hints of lower interest rates boosted bank stocks.
But the Canadian dollar came under selling pressure, closing down just over one-tenth of a cent on North American currency markets.
The Toronto Stock Exchange 300 composite index was up 80.03 points at 6,336.09 and in New York the Dow Jones industrial average pressed closer to the 9,000 mark, rising 89.85 to 8,919.59.
Meanwhile, the Canadian dollar closed at 64.54 cents US, down 0.13 cent, after regaining some strength late in the day. The dollar had slipped as much as one-quarter of a cent in early afternoon trading before retracing some losses.
The loonie should gain a lift early next week from a series of economic updates including September manufacturing and merchandise trade reports, said Rob Palombi, a currency specialist at Standard and Poor's MMS in Toronto.
Early suggestions are these reports will show the economy is not as weak as some have thought, said Palombi.
"The numbers that we've seen so far tell us the economy is not in all that bad of shape, so I would say the data probably is going to be supportive for the Canadian dollar."
On the Toronto stock market, energy shares rose as the price of crude oil jumped another two per cent before easing after an apparent climbdown by Saddam Hussein. Oil prices have been volatile amid concern the U.S. will attack Iraq, possibly disrupting Middle East oil supplies.
The Toronto market's energy index group has dropped 16 per cent this year, but gained back about one per cent today. Canadian Natural Resources gained $1.05 to close at $28.80 while Canadian Occidental gained 55 cents to $24.05.
Bank stocks soared 2.86 per cent on the session on hopes the U.S. Federal Reserve will again lower rates Tuesday. Standard and Poor's anticipates a Fed rate cut of one-quarter of a percentage point, said technical analyst Jeff Cheah, to ensure economic growth doesn't grind to a halt in early 1999.
"When the Fed eases next week, they're not doing it because they feel that the economy is going to slow down in November or December; they're thinking ahead to what might happen in the first quarter of 1999," said Cheah.
"The Fed would make a pre-emptive move and it wouldn't be considered unreasonable."
Royal Bank shares rose $2.45 to $68.20 while Bank of Montreal gained $2.15 to $58.15 on the session.
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Canadian Dollar Softer Ahead Of Busy Week
The Canadian dollar tested key weak-side levels and ended softer at C$1.5495 ($0.6454) in thin volume on Friday ahead of a series of key economic and political events next week.
Traders said the Canadian dollar did not suffer an extended break above the C$1.5525 ($0.6441) level in afternoon trade after losing ground on Canada dollar selling, yen buying in the morning.
Volume was thin ahead of a Bank of Canada monetary report on Monday, a Federal Reserve meeting Tuesday, and the only leaders' debate in the Quebec provincial election, also Tuesday.
Higher-than-expected U.S. retail sales numbers boosted the U.S. dollar against major currencies in the morning, but did not kick-off an extended slide for Canada's dollar. U.S. retail sales rose 1.0 percent in October after a 0.3 percent gain in September.
The Canadian currency has given back all of its November gains and is again ensconced in its October range. The impending threat of air strikes against Iraq has caused dealers to move to the safe-haven of the U.S. currency, which has further weighed on Canada.
But analysts point to next week's events as key for the near-term future of the local currency.
"Going forward it's going to be the Quebec election, an upcoming report on monetary conditions and the Fed meeting that are going to determine the (Canadian) dollar's direction," said Marcel Kasumovich, associate economist at Goldman Sachs Canada.
"You look at the market and it's basically a coin toss if the Fed will cut, but we are still looking for a quarter percentage point rate cut," he said.
Canadian Market Wrap
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Canadian Dividends
Corporate dividends declared Friday (quarterly unless otherwise indicated):
Akita Drilling Ltd.: Class A Non-Voting and Class B Common, $0.07.
Payable Jan. 04. Record Dec. 17.
First Australia Prime Income Investment Company Ltd.: Common, $0.08.
Payable Dec. 15. Record Nov. 30.
Onex Corporation: Subordinate Voting Share, $0.11.
Payable Jan. 29. Record Jan. 08.
Paramount Resources: Common, $0.05.
Payable Dec. 01. Record Nov. 24.
Canadian Earnings
CFM Majestic Inc.: Year ended Sep.30, 1998, $26,216,000, $0.63 a share; 1997, $23,602,000, $0.61 a share. Revenue: 1998, $272,740,000; 1997, $250,646,000.
Dayton Mining Corporation: Three months ended Sep. 30, 1998, net loss
$3,242,000, net loss $0.04 a share; 1997, $799,000, $1.10 a share. Revenue: 1998, $11,873,000; 1997, $12,249,000.
Laser Rejuvenation Clinics Ltd.: Three months ended Sep. 30, 1998, net
loss $67,700, net loss $0.01 a share; 1997, net loss $63,500, net loss $0.01 a share. Revenue: 1998, $1,040,600; 1997, $319,900.
McCoy Bros. Inc.: Three months ended Sep. 30, 1998, $294,045, $0.03 a
share; 1997, $279,427. Revenue: 1998, 17,100,000; 1997, 15,600,000.
Pendaries Petroleum Ltd.: Three months ended Sep. 30, 1998, net loss
US$865,131, net loss $0.10 a share; 1997, net loss $154,378, net loss $0.02 a share. Revenue: 1998, $165,014; 1997, $176,418.
Philip Services Corp.: Three months ended Sep. 30, 1998, net loss
US$645,399,000, net loss $4.92 a share; 1997, $19,463,000, $0.21 a share. Revenue: 1998, $537,239,000; 1997, $506,780,000.
Royal Oak Mines Inc.: Three months ended Sep. 30, 1998, net loss
$107,392,000, net loss $0.72 a share; 1997, net loss $2,362,000, net loss $0.02 a share. Revenue: 1998, $21,890,000; 1997, $53,926,000.
SMK Speedy International Inc.: Three months ended Oct. 3, 1998,
$2,851,000, $0.23 a share; 1997, net loss $10,079,000, net loss $0.80 a share. Revenue: 1998, $173,905,000; 1997, $171,338,000.
St. Andrew Goldfields Ltd.: Three months ended Sep. 30, 1998, net loss
$47,439, net loss $0.00 a share; 1997, net loss $480,517, net loss $0.03 a share. Revenue: 1998, $1,774,423; 1997, $1,372,550.
Steeplejack Industrial Group Inc.: Three months to Sep. 30, 1998,
$505,000, $0.07 a share; 1997, $773,000, $0.11 a share. Revenue: 1998, $6,700,000; 1997, $6,800,000.
ST Systems Corporation: Three months ended Sep. 30, 1998, US$139,000,
$0.01 a share; 1997, net loss $98,000, net loss $0.01 a share. Revenue: 1998, $2,900,000; 1997, $2,700,000.
Canada Bonds End Mostly Weaker
Canadian government bonds ended mostly weaker on Friday as expectations of an imminent U.S. rate cut subsided after the release of higher-than-expected U.S. consumer spending and inflation rate data.
On the week, the long bond price has shown steady gains as the heightened tension in the Middle East has generated some safe-haven buying and fears of oversupply of bonds have faded.
The market is going into an eventful week next week. The U.S. central bank will decide on Tuesday whether to cut interest rates further to boost the economy, while the Bank of Canada on Monday will map out its monetary policy in a semi-annual report.
"Those two will decide how the shape of the curve is going to be, and whether the bonds can rally," said Jeffrey Cheah, financial market analyst at Standard & Poor's MMS, which forecasts a 25-basis point cut in the key U.S. lending rate.
"If the Fed eases, the yield curve should re-steepen. The front end of the curve should outperform the back end of the curve," he said. Subsiding expectations of a rate cut have pushed up the front end, resulting a slight flattening of the curve in recent trade.
The decision by the Federal Open Market Committee will be released on Tuesday afternoon, and the Bank of Canada is expected to follow suit quickly, probably on the following morning, unless the Canadian dollar is under selling pressure.
Canada's benchmark 30-year bond due June 1, 2027 cut earlier losses, falling only C$0.07 to C$135.73, yielding 5.503 percent. The U.S. 30-year bond also trimmed losses to a drop of 1/32 to yield 5.254 percent. The spread between the bonds was 25 basis points after 26 points at the previous close here.
At the short end, Canada's three-month when-issued T-bill weakened to yield 4.88 percent after 4.85 percent at the previous close.
The busy economic calendar next week will present more data of how the North American economies were faring in September and October.
In addition, the focus will return to the Quebec election campaign ahead of the November 30 vote. A debate on television between the three party leaders in the provincial election is scheduled for 1900 EST/2400 GMT on Tuesday.
U.S. October retail sales rose 1.0 percent against the consensus forecast of 0.5 percent. The U.S. October producer price index rose 0.2 percent. Economists on average had forecast a rise of 0.1 percent.
Strong economic data, which suggest higher corporate earnings tend to prompt a capital shift to equities from fixed-income securities, while higher inflation dampens hopes for an interest rate cut.
"The data sort of reduces market expectations of Fed easing," said Paul Ferley, assistant chief economist at Bank of Montreal. "However, our view is that the cut we saw in October was meant to address more the risk of credit crunch in the U.S. economy, and indications are those credit pressures are still there."
Looking ahead, following the release of the monetary policy report at 1030 EST/1530 GMT on Monday, Bank of Canada Governor Gordon Thiessen holds a briefing at 1145 EST/1645 GMT. The bank is expected to present a dimmer outlook for the Canadian economy than it did six months ago, but analysts say it will be careful so as not to give the impression that it might ease credit more aggressively than the Fed.
On Tuesday, the Bank of Canada releases a quarterly review, at 1130 EST/1630 GMT. Thiessen appears before the House of Commons Standing Committee of Finance at 1730 EST/2230 GMT.
On the economic fundamentals front, Canada will issue the following data.
*Nov 17 - September manufacturing shipments (forecast range: a fall of 0.5 percent to a rise of 1.0 percent)
*Nov 18 - September trade balance (C$1.80 billion to C$2.13 billion)
*Nov 19 - October consumer price index year on year (a rise of 0.7 to 0.9 percent), core CPI year on year (a rise of 1.0 to 1.4 percent)
*Nov 20 - September retail sales month on month (a rise of 0.3 to 0.7 percent)
Financial markets have been swinging between high expectations and subsiding hopes of further easing by the Fed.
Before strong economic data dampened hopes, the latest bet on a higher chance of a rate cut on November 17 was set after Federal Reserve Vice Chairwoman Alice Rivlin warned on Monday that global turmoil will slow the U.S. economy sharply. Last week bonds came under selling pressure by comments from Federal Reserve Chairman Alan Greenspan, which were taken as a signal that the Fed might not now be in such a hurry to ease credit further.
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