Soviet Actions Rock Markets Around World : Investing: Stocks and grain prices take a beating, but the dollar, Treasury bonds, precious metals and oil prices benefit from the uncertainty.
World financial markets roiled Monday as the dollar, assuming its role of safe haven, rallied strongly and stocks tumbled in hectic trading after news of Soviet President Mikhail S. Gorbachev’s ouster.
The Dow Jones industrial average did better than other world stock markets but still posted its worst loss in more than 10 months. The Dow lost 2.4%, closing off 69.99 points to finish at 2,898.03 after having plunged 107 points within 50 minutes of the opening bell.
Fear also gripped commodities markets as grain futures fell on news that the United States had suspended economic aid to the Soviets. Oil and gold rallied.
“Financial markets hate uncertainty, and all of a sudden they have a massive dose of it,” said Norman Robertson, chief economist of Mellon Bank in Pittsburgh. “The world has become has become a very unsettled and uneasy place.”
“This issue is going to dominate news and trading for the foreseeable future,” added Tim O’Dell, managing partner of Wrightson International, a London-based foreign currency analyst. “For the markets, this is a bigger watershed than Kuwait. There are no military solutions for the West.”
Germany’s DAX index led the world stock market plunge, skidding 9.4% on traders’ belief that the German economy has the most to lose from turmoil in the Soviet Union. In France and Italy, authorities temporarily halted trading to brake the price falls of major stocks, while in Britain, Prime Minister John Major issued a public appeal in a bid to calm roiled markets.
Japan’s Nikkei stock index fell 6% on Monday. Early today, the Nikkei rebounded at the opening, climbing 200 points in early trading before edging lower to close the morning session down 36.48 points to 21,420.28. Other Asian markets were mixed early today, as Taiwan and Thailand plunged anew, but Hong Kong and Singapore rebounded slightly.
Although Japan’s economy won’t be directly affected by events in the Soviet Union--with the exception perhaps of costlier oil--analysts said word of the Soviet coup hit the Japanese stock market at a particularly vulnerable time.
“The news knocked out the underpinnings of the market,” Steve Usher, deputy general manager at Kleinwort Benson’s Tokyo office, said Tuesday. “There is not much buying, even though many areas look oversold.”
At the New York Stock Exchange on Monday, the early morning decline tripped off “circuit breakers” that temporarily limited large computer-driven selling programs. That and the appearance of bargain hunters seemed to stabilize things.
New York Stock Exchange volume was a heavy 230.35 million shares. Traders said news from the Soviet Union pushed the scandal surrounding government bond powerhouse Salomon Inc. into the background.
The New York market opened slowly because of order imbalances. Trading in many issues was delayed because of too many sellers and not enough buyers. By the NYSE close, 1,555 stocks had fallen in price and only 235 had gained.
Defense contractors, oil companies and gold producers provided the few bright spots. McDonnell Douglas rose $2.50 to $51.25, Loral gained 50 cents to $43.75 and E-Systems climbed 50 cents to $40.25 as traders bet that rising international tensions would at least temper planned cuts in military spending.
Oil stocks climbed in tandem with oil prices as traders anticipated possible supply disruptions in the Soviet Union, the world’s largest oil producer.
Atlantic Richfield, for example, climbed $2.875 to $120, while on the New York Mercantile Exchange, light, sweet crude for September delivery rose $1.17 a barrel to $22.47. Oil prices jumped $3 a barrel in Europe, before settling lower.
Stock traders girded for further losses today should the situation within the Soviet Union deteriorate. “It could be an ugly session,” said Jack Conlon of Rothschild Inc. in New York.
“The only thing we know for sure is that the uncertainty will persist for some time, and that is awful for markets,” added Robert Falconer, senior vice president of Aubrey G. Lanston & Co., a primary dealer of government securities.
Interest rates fell as investors flocked to Treasury issues and the Federal Reserve Board temporarily injected $1.5 billion in liquidity into the banking system through overnight purchases of government securities.
Fed watchers said the purchases reflected technical factors rather than a policy change in the direction of easier credit. They said the first sign of a change in Fed credit policy could come today at the regularly scheduled meeting of the Fed’s open market committee.
“The Soviet situation makes it a little more likely that there will be an easing in Fed policy, especially if the dollar’s rise gets totally out of hand,” said Leonard Santow, managing partner of Griggs & Santow, a financial consulting firm in New York.
The dollar climbed a sharp 3.5% against the German mark Monday and posted smaller gains against other foreign currencies.
“A higher dollar is bad news for an economy that is still in the tentative stage of a recovery,” said Louis Crandall, chief economist of R. H. Wrightson & Associates in New York. By raising the relative prices of U.S.-made goods, the stronger dollar could choke off U.S. exports and fuel a new wave of imports by American consumers.
For the moment, however, there appears to be no immediate need for easing as investors from around the world poured money into Treasury bills, one of the safest investment vehicles there is. “People are running to safety and liquidity, and they really don’t care about the yield,” Santow said.
At the Treasury’s auction of three-month bills Monday, the discount rate averaged 5.17%, the lowest since they sold for 5.12% in October, 1987.
Bond prices rose, but later reversed course on profit taking. The key 30-year Treasury fell 7/32 to 100 3/16. Its yield rose to 8.11% from 8.09% on Friday.
Grain prices plummeted at the Chicago Board of Trade as traders feared that the overthrow of Gorbachev might halt exports to one of the world’s biggest purchasers of American grain.
Chicago corn for September delivery quickly fell the limit to $2.37 a bushel and closed at that level. Soybeans for September dropped 27 cents to $5.21 a bushel before recovering some strength to end at $5.28 a bushel.
Gold prices rose modestly at the New York’s Commodity Exchange, but gains were limited by fears the Soviets may have to sell gold to finance grain purchases.
Gold for October delivery ended with a small gain of 70 cents at $360.90 an ounce after jumping to $365.50 initially.
Times staff writer Leslie Helm in Tokyo contributed to this story.
THE KREMLIN COUP: A1
WALL STREET REACTS: D2, D3
World Stock Markets Plunged ... News of Soviet President Mikhail S. Gorbachev’s ouster sent stock prices plummeting around the world.
Monday Pct. Market/Index close change Israel/blue-chip 361.33 -10.6% Germany/DAX 1,497.93 -9.4% Hong Kong/Hang Seng 3,722.00 -8.4% France/CAC 40 1,687.54 -7.3% Japan/Nikkei 21,456.76 -6.0% Mexico/Bolsa 1,111.98 -5.1% Britain/FTSE-100 2,540.50 -3.1% U.S./NASDAQ composite 497.64 -2.9% U.S./Dow industrials 2,898.03 -2.4%
. . .as Did the Dow Here are half-hourly readings of the Dow Jones industrial average, according to Bloomberg Financial Markets. Friday’s close: 2,968.02 Monday’s close: 2,898.03
