KORNER REPORT / Market Komments
Storm Chokes Downtown But Bay Street Remains In The Green
Business in Canada's financial capital slowed to a crawl Thursday as legions of workers were sent home early amid swirling curtains of snow.
But in the heart of Toronto's frigid financial district, a small army of essential staff was left behind to carry on the crucial chore of making more money.
Indeed, Bay Street may have looked like an icy, wind-blown wasteland to anyone who dared go outside. But inside the steel-and-glass towers, high above the snow-choked street, traders cozied up to the warm glow of their flickering computer screens.
Though support staff at the Toronto Stock Exchange were sent home by noon Thursday, a TSE spokeswoman insisted that one of the worst snowstorms in the city's history would have to get a lot worse before the country's most important financial market would shut down.
"The TSE has made arrangements to make sure all essential staff are here," said Brenda Edwards, noting that hotel rooms had been booked for those working on the TSE's computers, regulatory affairs and market surveilance.
"I'll just bet that we'll be open."
That's a pretty safe wager, considering what's at stake.
On average, the TSE handles about $1.9-billion worth of stock trading every business day. That's more than 80 per cent of all the equity trading in Canada.
"A lot of traders are staying overnight in hotels downtown," said Scotiabank spokesman Hugh Cameron. "They have to stay close to the markets."
One stock market specialist said trading volume slowed as the storm gathered strength.
"About eight out of 10 made it in to work today, but now (as the market is closing) only about one in 10 remains," said trader, who asked not to be named.
"People from Montreal are calling and just laughing because our whole downtown core is shut down. Toronto is just not equipped to deal with what Montreal considers a routine winter storm."
Still, the trader said, he and his colleagues were expected to be back at work today, regardless of what the storm has to dish out.
"If need be, I'll walk home. Every 15 blocks I'll stop in at a pub and have a beer."
The forecast was calling for freezing rain and ice pellets this morning, blowing and drifting snow in the afternoon with wind chills hitting - 40 C.
At CIBC, Canada's second largest bank, dozens of senior staff and stockbrokers also dodged the horrors of commuter chaos Thursday by strolling through an underground mall to the nearest hotel.
"It's pretty hard to find a room," said CIBC spokesman Rob McLeod.
"As for the stock market, we've always had enough staff to maintain service. . . We know who the key people are in every department."
Still, it was a different story at the bank's many branches.
By 1 p.m. EST, CIBC had closed all 250 of its branches in the greater Toronto area. That means 13,000 CIBC workers were sent home early.
"Customers are fairly thin on the ground," said McLeod, who added that business should return to normal today. "We'll just have to see what the heavens drop on us."
The other big banks followed a similar pattern, closing braches early to give their employees a chance to race home before the storm clamped the city shut.
Scotiabank and TD Bank branches, for example, were closed by 2 p.m. EST.
Despite the closings, there's little chance the banks would lose much business because up to 90 per cent of all transactions are now handled electronically.
Whether its by telephone, through the Internet or with the help of a bank machine, storms can huff and puff, but they can't blow the banks' profits away.
While Toronto-area retailers are losing about $1 million a day in sales because of the storm, some business are benefiting from the bad weather. Department stores are reporting heavy sales of boots, winter coats, scarves and hats, while hard goods retailers say they're selling all the snowblowers, shovels and road salt they can carry on their shelves.
Brazil's Troubles Depress U.S. Stocks, TSE Hangs Tough
Another plunge on Latin America's largest stock market Thursday hammered the stock prices of U.S. multinational companies and helped drag Canadian values lower.
In New York, stocks were pummelled as deepening economic worries in Brazil caused concerns that profits of U.S. multinationals operating there could suffer.
The pessimism and profit-taking began Tuesday with a 145-point drop and was exacerbated Wednesday by a Brazil-induced loss of 125 points. Thursday's losses finished the job of erasing the mighty five per cent rally the Dow posted during the first week of 1999.
Trading in the Sao Paulo stock exchange, Latin America's largest, was halted for 30 minutes after a 10 per cent plunge in the afternoon, following a five per cent drop Wednesday. When trading resumed a half-hour later, Brazil's leading stock index was off 9.5 per cent.
Brazil started a worldwide market rout Wednesday after its central bank chief resigned and his successor devalued the Brazilian currency by about eight per cent. The bank supervision director resigned Thursday, citing personal reasons.
The jittery Dow Jones industrial average, which sank more than 250 points in afternoon trading, ended down 228.63 at 9,120.93 after a 10 per cent plunge on the Sao Paulo Stock Exchange. The index, which fell 125 points on Wednesday, is now down 0.7 per cent in 1999.
The broader Standard & Poor's 500-share index did a little better than the Dow, falling 22.21 points or 1.8 per cent to 1,212.19, giving it a loss of 1.4 per cent for the year so far.
"This has further clouded the outlook for the global economy," said David Rosenberg, an economist with Bank of Montreal's brokerage arm, Nesbitt Burns Inc.
"For a stock market that was already richly priced, the news was obviously enough to knock a few pegs from underneath the markets."
One of the reasons New York was hit so much harder than Toronto is the exposure of major U.S. corporations in Brazil, the 11th-largest export market for the U.S. and the biggest emerging-market destination for U.S. bank investment, Rosenberg said.
"There's a lot of multinationals -- whether it be Coke, Procter & Gamble, Citicorp, GM or Ford -- that have large trading or investment exposure in the region," he said.
"It's a wakeup call for anyone who thought that global risks had evaporated because some of the emerging Asian economies have bounced back so vigorously over the past six months."
In Toronto, trading activity was somewhat dictated by Mother Nature and a severe snowfall. Stocks gave up the fight against the downward slide, losing ground by Thursday's finish as market players, who had not escaped early to avoid a winter blizzard, concentrated on the fallout from Brazil. Some investors and dealers slipped away early on Thursday or stayed away altogether as the snowstorm roared trough Canada's largest business district, shutting down some public transportation and the bond market at 1300 EST/1800 GMT.
"If you look outside the window, I don't think you have to worry too much about what's going on in the markets, because half the people are not here," said one trader. "It's a very quiet day and it could be even worse tomorrow."
Kapala agreed. "Because of the storm here, a lot of institutional investors weren't around to participate."
On Friday desks generally plan to remain open only with a skeleton crew.
The Toronto Stock Exchange's benchmark 300 Composite Index fell 38.52 points or 0.6 percent to 6593.53 points. On top of Wednesday's 69-point fall, its gain for the year so far has been cut to 1.7 per cent. Decliners outnumbered advancers 512 to 431 with 263 unchanged.
Toronto's trading was average at 102 million shares worth only C$2 billion.
The TSE 100 lost 3.06 points to 402.33. Toronto's blue-chip based S&P/TSE 60 was down 2.98 points to 381.10.
"We fared relatively okay here, we're only down 38 points," said Todd Kapala, investment specialist at Priority Brokerage.
Among active and story issues, Graphic chips maker, ATI Technologies Inc. closed C$0.90 higher to C$19.40 on more than 8 million shares. Shares surged after the Toronto area company reported a record first quarter and an unexpectedly positive outlook for fiscal 1999.
Another high tech was in the news: JDS FITEL Inc. unveiled second quarter numbers that beat street expectations. Shares in the telecommunications fiberoptics equipment maker climbed C$8.60 or 20.5 percent to C$50.60.
Shares in funeral home operator Loewen Group plunged C$2.65 or more than 25 percent to C$7.80. Florida Department of Banking and Finance said it suspended 16 operations owned by North America's second largest funeral services provider due to problems.
In Toronto, 12 of the TSE 300's 14 sub-groups were lower Thursday.
The consumer products sub-group posted the strongest performance, up 0.63 per cent, thanks to Seagram Co., which gained $1.60 to $62.80. Imasco Ltd. fell 70 cents to $31.15; BioChem Pharma was down 20 cents at $41.
Real estate and construction rose 0.51 per cent as TrizecHahn gained 15 cents to $31.70; transportation and environmental services stocks finished 0.01 per cent lower.
Mining and minerals stocks suffered a 1.68 per cent loss. Alcan Aluminium slipped 30 cents to $42.10; Cominco Ltd. was down a dime to $18.40. Inco Ltd. fell 45 cents to $18.55.
Merchandising stocks were 1.49 per cent lower, while conglomerates shed 1.52 per cent. Canadian Pacific Ltd. closed down 60 cents at $30.80; Power Corp. slipped 70 cents to $34.35. Canadian Tire Corp. A shares fell a quarter to $38.25.
Among industrials, Bombardier Class B. lost $0.60 to $20.90, BCE Inc. $0.20 to $59.85 and Northern Telecom $0.25 to $80.80.
Among oils, Berkley Petroleum rose $0.25 to $10, Petromet Resources $0.09 to $2.80; Poco Petroleum fell $0.35 to $11.60, Renaissance Energy $0.25 to $18.50.
Among mines, Barrick Gold slipped $0.30 to $30.60, Placer Dome Inc. $0.20 to $18.40; Claude Resources climbed $0.02 to $2.15, Dia Met B. $0.75 to $19.
Canadian Equity Preview: Bank Stocks, Argentina Gold, Loewen
The following stocks may make significant gains or losses in Canadian markets today. Symbols are given in parentheses after company names. Prices are at yesterday's close.
Bank stocks may fall after Brazil's currency plummeted 13 percent today, adding to Wednesday's 8 percent drop, raising concern that problems in Latin America's largest economy are worsening. Royal Bank of Canada (RY CT) fell C$1.60 (US$1.04) to C$76.50, Toronto-Dominion Bank (TD CT) fell C$1.25 to C$55.55, and Bank of Montreal (BMO CT) fell C$0.10 to C$64.40.
Argentina Gold Corp. (ARP CV): The gold miner adopted a shareholder-rights plan and appointed ScotiaMcLeod Inc. as its financial adviser in considering alternatives to an offer from Barrick Gold Corp. (ABX CT) to purchase Argentina. Its shareholders rejected the offer. Argentina fell C$0.08 to C$4.80, Barrick fell C$0.30 to C$30.60.
LionOre Mining International Ltd. (LIM CT): The nickel miner plans to merge its stake in two nickel mines with those of Perth, Australia-based Capricorn Resources Australia N.L. and sell shares in the new company. LionOre rose C$0.02 to C$0.68.
Loewen Group Inc. (LWN CT): The world's second-largest funeral company said it will appeal yesterday's ruling by the Florida Department of Banking and Finance that forces Loewen to suspend operations at 16 of its cemeteries and funeral homes in Florida because of accounting violations. Loewen Group fell C$2.65 to C$7.80, a 52-week low.
Loews Cineplex Entertainment Corp. (LCX CT): The movie theater operator closed 19 theaters in Toronto and the surrounding area because of heavy snowfall over the past few days. Loews rose C$0.10 to C$13.25.
Okanagan Skeena Group Ltd. (OKS/A CT): The Vancouver, British Columbia-based radio and television broadcaster said fiscal first quarter net income rose 14 percent to C$429,700, or C$0.07 a share, from C$375,700, or C$0.06 a share, a year earlier on its first full quarter of income from an acquisition. Okanagan fell C$0.01 to C$4.69.
Plaintree Systems Inc. (LAN CT): The maker of switches for telephone networks posted a fiscal third-quarter loss of C$5 million, or C$0.30 a share, a slight improvement from the C$5.6 million, or C$0.31 a share, recorded in the period ended Dec. 31 because of cash flow problems and poor market penetration. Plaintree fell C$0.20 to C$1.20.
Sleeman Breweries Ltd. (ALE CT): The Guelph, Ontario-based beermaker plans to buy Delta, British Columbia-based Shaftebury Brewing Ltd. Terms were not disclosed. Sleeman rose C$0.05 to C$8.
Canadian Dividends
B Split Corp.: Preferred, $0.30875. Payable Feb. 1. Record Jan. 22.
Canada Utilities. Ltd.: Class A Non-voting and Class B Common, $0.43. Payable March 1. Record Feb. 10.
Canadian Earnings
ATI Technologies Inc.: Three months ended Nov. 30, 1998, $50,086,000, $0.25 a share; 1997, $24,513,000, $0.15 a share. Revenue: 1998, $327,388,000; 1997, $167,826,000.
Bridges.com: Year ended 1998, $943,944; 1997, net loss $110,248 (share
information n.a.). Revenue: 1998, $3,014,145; 1997, $1,308,036.
Canadian Medical Laboratories Ltd.: Year ended Sept. 30, 1998, $11,313,000, $0.68 a share; 1997, $7,093,000, $0.16 a share. Revenue; 1998, $74,498,000; 1997, $71,012,000.
CanWest Global Communications Corp.: Three months ended Nov. 30, 1998,
$51,711,000, $0.35 a share; 1997, $48,206,000, $0.32 a share. Revenue: 1998, $263,189,000; 1997, $244,334,000.
Phonettix Intelecom Ltd.: Year ended Aug. 31, 1998, net loss $11,220,024, net loss $0.75 a share; 1997, $1,233,277, $0.09 a share. Revenue: 1998, $29,934,713; 1997, $34,567,736.
World markets ended mixed. The Nikkei 225 index in Tokyo gained 2.50 per cent. The DAX index in Frankfurt dropped 5.16 per cent, the FT-SE 100 in London fell 0.51 per cent, but the Paris CAC index was up 0.97 per cent.
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Canadian Dollar Slightly Softer, Brazil Woes Linger
The Canadian dollar ended slightly softer at C$1.5278 ($0.6545) on Thursday as the currency looked for a new range after a wild tumble and then rebound on Wednesday's Brazilian currency devaluation, traders said.
Traders said a severe winter storm that blanketed much of southern Ontario kept many Canadian players away and thinned currency markets. Friday trade is also expected to be quieter than normal.
The Canadian dollar swung from C$1.5140 ($0.6605) to C$1.5470 ($0.6464) on Wednesday after Brazil effectively devalued its currency by 8 percent. The dollar moved in a much tighter range on Thursday as markets digested the Brazil crisis.
In cross trading, Canada's dollar edged down to 74.06 yen from 74.73. Canada was slightly softer against the euro at C$1.7932 from C$1.7771.
Bonds End Firmer, Trade Cut Short By Storm
Canadian government bonds ended a shortened session firmer on Thursday after buying on benign U.S. inflation data and lingering safe-haven bids outpaced selling at the opening.
Trading turned quiet as some traders went home earlier than usual as a blizzard continued to dump snow on the city, threatening to paralyze the transportation system further. Some traders are staying at downtown hotels to stand-by for Friday's trading, but customer demand is expected to be slow.
The Toronto Bond Traders' Association and the Toronto Money Market Association recommended an early close of trading at 1400 EST/1900 GMT.
Bonds lost some of their safe-haven attraction as financial markets calmed after reacting nervously to Brazil's effective currency devaluation on Wednesday.
But concern over Latin America remained. Standard & Poor's rating agency downgraded Brazil's long-term foreign currency debt and lowered its ratings on Latin American banks. Some fear that speculative attacks could force Brazil to devalue its currency further, which would make Brazil's exports cheaper and tempt other economies to devalue their currencies to stay competitive.
After sharp gains on Brazil concerns on Wednesday, Canada's benchmark 30-year bond due June 1, 2027 saw last-minute buying, rising C$0.65 to C$139.95, yielding 5.270 percent.
The U.S. 30-year bond, after gaining more than two points at one point on Wednesday, rose 16/32 to yield 5.100 percent. The Canada-U.S. yield spread remained wide at 17 basis points as Canada has lagged behind U.S. gains.
U.S. economic data, released this morning, set the tone for the day. A rise in the December consumer price index was smaller than forecast, presenting low inflation outlook, good for capital gains. December retail sales came in stronger than thought, but this did not discourage buying of U.S. treasuries as traders had anticipated healthy gains after seeing sustained strong job creation for December last week.
The market will see if the U.S. dollar will stay steady and support U.S. treasuries, and how funds flow between stocks and bonds. Toronto's key stock index lost earlier modest gains, while New York suffered sharp losses.
The steepening of the Canadian yield curve eased as the long end of the curve recovered. Canada's two-year bond rose C$0.06 at C$100.55, yielding 4.686 percent. The two-year to 30-year yield spread narrowed to 58.4 basis points from 59.7 at the previous close.
The money market was mixed in narrow ranges in quiet trading after posting gains across the curve on Brazil on Wednesday.
Canada's three-month when-issued T-bill yielded was 4.62 percent, a bit weaker than 4.61 percent at the previous close.
Investing
Market Volatility Requires Careful Look At Investments
For those seeking refuge from the renewed market volatility that Brazil's economic crisis triggered this week, financial advisers are suggesting fixed income investments such as bonds and a disciplined approach to investing.
Wednesday's devaluation of Brazil's currency laid waste to the small upswing that the loonie and Canadian commodity markets had been enjoying in the first few trading days of 1999.
"We felt that some of the really strong, good news we were seeing in the first week of the year was a bit premature," said Peter Drake, deputy chief economist for TD Bank.
Drake said a market recovery from last year's fallout over the Asian econmic crisis should not be expected until the second half of the year.
"We're still cleaning up after last year's economic storms, so I think there is going to be some volatility."
And if the volatile ups and downs of this week's market are making you queezy, Drake suggests heading for safe harbour in fixed income investments.
"I think most people in terms of equity market volatility tend to be looking for something that's maybe a little calmer."
Norm Light, Royal Bank's vice-president for deposits, says his bank has really noticed a change in the GIC market.
"What we saw was that GICs started growing again where they had been
shrinking. I think the story that hasn't been told is there has been a fundamental shift."
Light said there's more to it than the usual flight of capital from riskier markets to the relative safety of secured investments.
It has to do with a host of new GICs tailor-made for a wide spectrum of investors.
Prior to October, 1997, Royal bank had only two permanent GIC offerings. Today there are 11, including ones that have floating rates, rates fixed to the markets and those set in relation to the prime.
"You might be pleasantly surprised that they're now tailored much better to meet your needs than the staid old GIC of the past."
Pat Blandford has another plan.
The senior vice-president at Merrill Lynch Canada was patiently waiting in his Toronto office Thursday as the markets dropped.
He was placing orders for a client who concentrates his investments on just a few big name companies. And when the markets dip, he buys.
"This is the kind of disciplined approach that really can help an investor. Look at the company you want to own."
Blandford recommended paying attention to just a few good companies, and not getting worked up about the day to day movements of the marketplace.
"Then on a miserable day like this when some people are loosing their cool and saying 'Oh the market's going down, I'm selling,' the disciplined investor's there getting a bargain because he knows that these companies intrisically are sound."
Lloyd Atkinson, chief investment officer for Perigee Investment Counsel, recommends a longer-term view.
"My general sense is we'll live to see another day for commodities."
Atkinson said that this time last year, the world economy was forecast to grow nearly four per cent. By the time 1998 was over, growth was closer to 1.5 per cent. "And that's big-time bad news for commodities."
He said the most optimistic forecasts for this year predict global growth around two per cent, with some predicting growth will be even slower than last year.
"The interesting part of the story is that virtually everybody at this point is unanimous that there is potential for quite robust growth in the year 2000."
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