CANADIAN MARKET WRAP / Ending December 2, 1998
Toronto Stocks Swing Lower After Recent Gains
Toronto stocks swung to a sharply lower close on Wednesday, beating a hasty retreat as investors traded shares for cash following the gains of the day before.
The Toronto Stock Exchange's key 300 Composite Index fell 76.66 points or 1.2 percent to 6380.48 points.
The 300 index has lost about 300 points in the last week, but some analysts say profit-taking wasn't surprising.
"Any movement in the market within the last few days should be seen within the context of an enormous rebound in stocks in October and November," said John McColl, portfolio strategist at Scotia Capital Markets.
"I'm among those who was amazed by the abruptness of the rebound," McColl said.
"Giving back some of that enormous rise is a normal -- almost imperative -- profit-taking pause."
New York's market also failed to make headway, helping pull Toronto lower. The Dow Jones Industrial Average slipped 69 points or nearly 0.8 percent to 9064.54.
U.S. players fretted that upcoming earnings would not meet expectations, unsettling investors north of the border.
In Toronto it was "time for a pull-back, time for a correction," said Rick Hutcheon, president of CentrePost Mutual Funds. "We've had lots of swings here in the last three days."
Hutcheon added that market participants have been very skittish in the last little while, unsure of which way to jump.
Toronto trading was active at 107 million shares worth C$1.6 billion. Declining issues easily outpaced advances 590 to 396 while another 310 closed flat.
Weakness swept across nearly all of Toronto's 14 subindexes except for consumer products, which edged higher.
The transportation sector was the TSE's biggest loser Wednesday, dropping 1.7% as Canadian National Railway dropped $1.60 to $83.00, Laidlaw fell 25 cents to $15.50 and Air Canada gave up 10 cents at $6.00.
The oil and gas sector, which has failed to make any significant gains since October, continued to take a beating Wednesday. The oil & gas composite index dropped 1.7% or 80.22 to 4691.62. Among the sub-components, the integrated oils fell 1.6% or 119.96 to 7377.92 while the oil & gas producers lost 1.8% or 76.05 to 4067.99. The oil & gas services group fell 0.4% or 5.20 to 1326.58.
Among the top fifty most actives, Gulf Canada Resources was up $0.03 to $4.58, Ranger Oil -$0.40 to $6.95, Kookaburra unchanged @ $1.20, Renaissance Energy +$0.15 to $17.75, Petro-Canada -$0.05 to $17.55, Remington Energy -$1.25 to $6.00, Talisman Energy -$50 to $25.80 and Canadian Occidental Petroleum -$0.55 to $19.20.
Only Newquest Energy was among the top gainers, rising $0.45 to $3.95. Among service companies, or those closely related to the O&G Industry, Prudential Steel gained $0.80 to $7.00, Shaw Industries $0.75 to $12.00 and IPSCO gained $0.60 to $28.10.
On the downside, Imperial Oil fell $1.20 to $26.80, Suncor Energy $0.70 to $45.50, Northstar Energy $0,60 to $10.40, Canadian Occidental Petroleum $0.55 to $19.20, Blue Range Resources $0.50 to $5.25 and Talisman Energy $0.50 to $25.80. Among the service sector, Ensign resource Service fell $0.80 to $14.05, Badger Daylighting $0.70 to $6.60 and Precision Drilling $0.55 to $16.00.
Included among top percentage gainers were Prudential Steel, Newquest Energy, Crown Joule Exploration, Shaw Industries, Triumph Energy and Pacific Cassair B.
Percentage losers included Remington Energy, Badger Daylighting, Bonus Resource Services, Enertec Resource Service, Stellarton Energy, Ultra Petroleum, Blue Range Resources, Denbury Resources, TriGas Exploration, Numac Energy, Calahoo Petroleum, Post Energy and Ryan Energy Technologies.
The list of companies reaching new 52-week lows continued to expand and included AltaQuest Energy, Bow Valley Energy, Calibre Energy, Eurogas Corp., Founders Energy, International Rochester, Kap Resources, Lateral Vector, Newstar Energy, Pacalta Resources, Ranger Oil, Remington Energy, Rigeil Energy, Seven seas Petroleum, Stellarton Energy and Tethys Energy. Among service companies, American ECO, Bromley Marr and CE Franklin reached new lows.
The heavily weighted financial services sector, which make up a hefty one-fifth of the index, also performed poorly, dropping 1.5%. Bank of Nova Scotia, which reported impressive profits for 1998, dropped 75 cents to close at $34.45 on 1.3 million shares traded. Profits at Scotiabank totalled $1.39 billion or $2.64 a share for the year ended Oct. 31, moderately better than analysts' estimates but below the bank's exceptional performance in 1997. Toronto-Dominion Bank fell C$1.50 to C$52.25.
Other losing groups included paper and forest products which fell 1.5%, industrial products 1.4%, communications and media 1.3%, Utilities 1.2%, pipelines 1.1% and conglomorates 1.1%.
The only stock group to gain Wednesday was consumer products, which added a meagre 0.07 per cent.
Declining issues outnumbered advances 590 to 396 with 310 unchanged in trading of 106 million shares worth $1.5 billion. The TSE 100 lost 5.36 points to 393.47.
Fiber-optic products maker JDS FITEL Inc. popped C$1.20 higher to C$33.35 by day's end in busy dealings of nearly 800,000 shares. A U.S.-based rival named E-Tek Dynamics made an impressive debut on Nasdaq, soaring to more than double its initial offering price of $12, which helped boost shares in its Canadian counterpart.
Open Text Corp. jumped $3.00 to $30.50. On Tuesday, Open Text proposed a $162-million all-stock merger with competitor PC Docs Group International.
Bid Com International dropped 32 cents to $3.91 on 4.7 million shares traded. BCE fell $1.35 to $54.00 on 1.7 million shares traded.
Ballard Power dropped $2.85 to $50.10. Merrill Lynch was up $2.00 to $115.00.
On a bright note, Hutcheon noted that markets are likely to rebound in a traditional year-end rally. "Decembers are typically positive months," he said. "We get a Santa Claus rally."
In review of the top 25 most active issues on the Alberta Stock Exchange, Belfast Petroleum, Colt Energy, Key West Energy, Gopher Oil & Gas, Scarlet Exploration, Oilexco, Parkcrest Exploration, Red Sea Oil, Storm Energy and Grey Wolf Exploration made the list.
Only Carpetsky Petroleum was among the top net gainers.
Net losers included Progress Energy, Belfast Petroleum, Meota Resources, Edge Energy and Solid Resources.
Among the most active on the VSE were Stanford Oil & Gas, Ultra Petroleum and Range Petroleum.
New Index Causes A Stir - Overlooked Stocks Slip
By GARRY MARR
The Financial Post
ATI Technologies Inc. (ATY/TSE), up 45¢ to $16.70, on volume of 1.6 million shares. TrizecHahn Corp. (TZH/TSE), down 15¢ to $31.50, on volume of 277,752 shares. Power Corp. of Canada (POW/TSE), down 15¢ to $34.10, on volume of 61,269 shares.
The new S&P/TSE 60 index created by the Toronto Stock Exchange and Standard & Poor's Corp. helped create a buzz around a number of stocks. ATI rose 2.8% while excluded Power Corp. and TrizecHahn fell slightly.
Greenstone Resources Ltd. (GRE/TSE), up 9¢ to $1.78, on volume of 455,150 shares. The gold miner said after the market close on Tuesday that it had retained Nesbitt Burns Inc. as an advisor to enhance shareholder value. The company believes its shares are undervalued and is in talks with several companies about a possible merger or sale. Greenstone rose 5.3%.
Royal Group Technologies Ltd. (RYG/TSE), up 50¢ to $34.50, on volume of 32,915 shares. The stock rose 1.5% after the company, which makes building products, released fourth-quarter results. For the period ended Sept. 30 net income rose to $42.8-million (50¢ a share) on sales of $305.2-million, which compares with net income of $34.2-million (42¢) on sales of $258.6-million for the same period a year earlier.
The company said sales growth resulted from continuing advances in core building product markets, growth in demand for the Royal Building System and sales of new products.
Crosskeys Systems Corp. (CKY/TSE), up 70¢ to $11.70, on volume of 26,320 shares. The Kanata, Ont. company said its Resolve software will provide service level management as part of the Newbridge Networks Corp. contract from Wind, a new Italian telecommunications consortium. The Crosskeys Resolve order is part of the $100-million order won by Newbridge.
8x8 Inc. (EGHT/NASDAQ), up $51 1/16 (US) to $9 3/8 (US), on volume of 23.8 million shares. The multimedia equipment maker rose 154% after it announced its Internet telephony products' ability to operate in conjunction with those of the world's largest makers of cellular phones, Motorola Inc. and NetSpeak Corp.
Harmac Pacific Inc. (HRC/TSE), down 10¢ to $3.90, on volume of 1.2 million shares. The pulp producer's stock was down 18.75% in early trading on the strength of a 1.2 million share cross by Goepel Shields & Partners Inc. for $3.25. The stock finished down only 2.5%.
Talisman Energy Inc. (TLM/TSE), down 50¢ to $25.80, on volume of 492,998 shares. Canadian Bond Rating Service downgraded its ratings on Talisman and revised its ratings outlook to "stable" from "negative." CBRS lowered its ratings on Talisman's commercial paper program to A-1 (low) from A-1; medium-term notes to A (low) from A; and senior unsecured debentures to A (low) from A.
CBRS also said it has assigned a rating of A (low) to Talisman's $200-million senior unsecured notes, which are being issued to reduce existing levels of bank debt. The notes have been assigned a stable rating outlook. The ratings agency said Talisman will be "hard pressed" to improve its financial flexibility in a difficult pricing environment.
Club Monaco Inc. (CMI/TSE), up $1.10 to $6.25, on volume of 87,179 shares. The clothing retailer's stock rose 21.4% with volume more than double its three-month average. It has now recorded a gain of 28.9% over the past two sessions.
C$ inches firmer as US$ dips
The Canadian dollar closed firmer at C$1.5315 ($0.6529) on Wednesday, inching stronger in a narrow range and thin market as falling U.S. stocks dragged the U.S. dollar lower.
Traders said currency markets are still generally bullish on Canada after better-than-expected results for the federalist Liberals in the Quebec provincial election.
Slumping commodity prices have prevented a Canadian dollar rally, however.
The markets are awaiting the Canadian employment report due on Friday to gauge the strength of the economy and the near-term direction of the Canadian dollar.
Employment in Canada is forecast to have grown by 18,600 in November after a strong rise of 57,200 in October. The jobless rate is seen flat at 8.1 percent.
"The November employment report is very important," said Sal Guatieri, senior economist at Bank of Montreal.
"If we get another big gain on top of the 166,000 in the past 3 months, that suggests our economy is doing really well and will boost the currency," he said.
A Reuters' survey of economists forecasts an unchanged unemployment rate of 8.1 percent for November, however. Guatieri said he expects little change in the job numbers, but possibly a slight decline.
The market's fear of a Quebec referendum on sovereignty now largely removed, economic fundamentals will again set the direction of the Canadian dollar.
"We did get a positive result from the Quebec election so there's a reduction in political uncertainty that's supporting the currency," said Guatieri.
"On the other hand, commodity prices, led by lower energy prices, are continuing to fall, so that will temper any gains in the currency," he added.
On the crosses, the dollar was slightly softer against the Japanese yen at 78.31 from 78.77. The dollar was also down against the German mark at 1.0900 from 1.0937.
Canada bonds end stronger as stocks remain bearish
Canadian government bonds and bills ended stronger on Wednesday as investors favored safer fixed-income securities over slumping stock markets.
North American bonds maintained a bullish tone, although prices came off the day's highs in the face of profit-taking.
Canada's bonds attracted good buying across the yield curve, adding to recent strong gains fueled by fading concerns about Quebec separatism.
"The underlying sentiment of the market is still bullish," said Andrew Pyle, chief strategist at ABN AMRO Bank Canada. "You are seeing some flows in bonds because there's growing concern in the market now that what we saw back in the summer could be repeated."
Canada's benchmark 30-year bond due June 1, 2027 was off the day's highs, rising $0.68 to C$140.33, pushing down the yield to 5.254 percent, a level unseen since October 7.
The long bond yield has been falling steadily towards record lows hit early October.
The U.S. 30-year bond was stable, rising 11/32 to yield 5.021 percent. The Canada-U.S. spread was 23 basis points after 24 at the previous close here.
Canada's 10-year bond was up C$0.39 to C$108.56, yielding 4.862 percent, keeping its spread with the U.S. 10-year little changed at 28 basis points.
For clues to how the Federal Reserve will formulate its monetary policy, the market is looking at U.S. jobs data due out on Friday. The U.S. non-farm payrolls are forecast to have risen by 158,000 in November after a gain of 116,000 in October. The jobless rate is seen unchanged at 4.6 percent.
Employment in Canada, also due out on Friday, is forecast to have grown 18,600 (range: 10,000 to 26,000) in November after a strong rise of 57,200 in October. The jobless rate is seen flat at 8.1 percent.
"For fund managers, they've had a fairly decent gain, recovery in equities since the summer. But the last thing you want to do with three weeks left in the year, is to gamble that," Pyle said.
Some of those fund managers are locking in profits in equities, and being attracted by bonds now that the market is talking about a possible Fed easing at a meeting of the Federal Open Market Committee (FOMC) in February, he said.
Pending the financial market condition, analysts expect the Fed to hold interest rates steady at the next meeting, on December 22, of the policy-setting FOMC. The Fed has cut key lending rates three times, between late September and mid-November, to alleviate jitters over the global financial system and economic growth. The Bank of Canada has followed closely.
"The long-duration bond should be a good hedge against any market turmoil," said Harvinder Kalirai, economist at I.D.E.A. in New York.
The money market was firmer because the fear of a near-term Quebec referendum on separation has faded after Monday's Quebec election.
Canada's three-month when-issued T-bill yielded 4.67 percent after 4.70 percent at the previous close.
"We are going into the situation, where accounts need to buy product going into the year-end," a money trader said. "The Quebec situation seems to be on the backburner now. Foreign and domestic interests are more willing to own product and get out of overnight."
Canada's currency and bonds are detached from the Quebec risk for now, but Canada is faced with bearish energy and commodities prices, which are clouding the nation's economic growth outlook.
In Monday's Quebec election, the opposition Liberal Party, seeking to keep Canada unitedm won slightly more of the popular vote than the incumbent separatist Parti
Quebecois, although the PQ secured a majority of seats in the provincial assembly.
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