Bush Speech Fails to Buoy Markets : Dollar Slides in Europe, Leading U.S. Stocks Down : Trading: The Dow tumbles 50.79 points after posting gains early in the day. Bonds also take a drubbing.
International markets gave a thumbs-down to President Bush’s acceptance speech, prospects for the U.S. economy and chances of deficit reduction on Friday, driving the dollar to a new all-time low against the German mark while also pummeling U.S. stocks and bonds.
The Dow Jones industrial average fell 50.79 to close at 3,254.10 on the day, while the price of the benchmark 30-year Treasury bond also fell, raising its yield to 7.35% compared to 7.32% on Thursday. Bond yields rise when prices fall.
The dollar’s fall, starting in the late morning, New York time, triggered the slide in bond and stock prices, which had started the day with gains in a positive reaction to Bush’s speech.
The dollar’s tumble came despite efforts by the Federal Reserve, Germany’s Bundesbank and 16 other central banks to support the greenback by selected purchases in world markets. Central banks intervened in the markets three times Friday but could not stem the U.S. currency’s erosion.
To be sure, analysts said, there were numerous technical reasons for the dollar’s fall. It skidded to 1.4290 marks, well below its previous low of 1.4430 marks in February, 1991, and down from Thursday’s 1.4475 marks.
The dollar closed at 125.80 Japanese yen, down from 126.45 on Thursday.
“But also, the decline shows there is a lack of confidence that the U.S. will be able to reduce its deficit and get its economy growing again,” explained Patrick Alexander, a trader at Advisers Capital Management, a New York money management firm.
Foreign central bankers were also said to be disconcerted by last week’s rumors from the Republican National Convention in Houston that Bush would replace members of his Cabinet, including Treasury Secretary Nicholas Brady, and the subsequent denial of such rumors. The bankers fear that political motives will disturb fragile economic relationships.
Domestically, however, investment analysts shrugged at the dollar’s decline--even though it brought stocks and bonds down with it. Computerized trading was behind a lot of the stock market’s slide, analysts said. And the dollar’s fall also came on thin, late Friday trading--when price movements can be exaggerated.
The dollar’s fall would be more ominous for stock and bond trading next week if it occurred because of fears of U.S. inflation, investment specialists said. But that is not the case, analysts said.
In fact, there is greater worry about recession striking Germany’s economy, some analysts said. Employment, industrial production and business confidence are falling in Germany because the Bundesbank is keeping money tight and interest rates high. The central bank wants to restrain inflation, now at 5% a year, that has resulted from the government’s vast spending to support the region that used to be East Germany.
Conversely, those German interest rates, now 9% to 11%, are the reason the German mark keeps climbing in international markets--where more than $500 billion in currencies trade every day. Analysts believe that the mark will continue to rise next week, to a value of 1.42 marks to the dollar.
Elsewhere Friday, oil for October delivery closed down 17 cents a barrel to $21.08, and December gold closed down 10 cents an ounce to $337.30.
In early New York stock trading, investors had responded warmly to Bush’s Thursday night speech in which the President promised to stimulate the sluggish economy with, among other measures, tax and spending cuts.
Public opinion polls early Friday morning showed Bush narrowing the gap between himself and Democratic candidate Bill Clinton to single digits. Wall Street generally favors Republican administrations.
But once investors started to look at Bush’s proposals, “the numbers didn’t add up,” said Hugh Johnson, senior vice president with First Albany Corp. “It looked as though the speech was long on fire in the belly and short on political reality.”
In its early rally, the market also received impetus from gains overnight in foreign share prices. In Tokyo, stocks soared, finishing 6.22% higher. In London, shares also closed higher.
Among the market highlights:
* The most actively traded NYSE issue, USX-Marathon Group, the oil and gas company, fell 1/8 to 18 5/8, apparently because of market speculation that the company might cut its high-yield dividend.
* In other active issues, Telefonos de Mexico fell 3/8 to 45, following the Mexican stock market’s lead down for the second-straight day. Merck fell 1 to 50 3/4.
