Bond Prices Rally; Blue Chips Inch Up : Market Overview
* Treasury bond prices rebounded from a selloff as market participants appeared to retreat from recent fears about a Clinton presidency. The Treasury’s key 30-year bond’s yield fell to 7.60% from 7.64% late Tuesday.
* Blue chip stocks ended slightly higher after drawing support from gains in General Motors Corp. and International Business Machines Corp.
Credit
The long bond has fallen more than $10 in recent days because of concerns that Gov. Bill Clinton would increase spending to restart the economy if elected President, increasing the deficit and inflation.
Both scenarios would be bad for bonds. A higher deficit would increase the supply of bonds the government would need to pay off its debts, and higher inflation would erode the value of fixed-income securities.
Clinton has said he is committed to reducing the deficit, but bond investors have been reluctant to believe him.
Elliott Platt, research director at Donaldson, Lufkin & Jenrette Securities Corp., said the market in recent days may have overreacted to Clinton’s plans. “Overall, people started to take a more dispassionate view of what any Clinton package might entail,” he said.
The gains also appeared to be technical after the four-day selloff. Also, U.S. bonds traded in Japan and Europe recovered some ground.
The price of the 30-year bond, which rises when rates fall, rose 20/32 point, or $6.25 per $1,000 in face amount.
The federal funds rate, the interest on overnight loans between banks, was quoted at 2.938%, up from 2.813% late Tuesday.
Meanwhile, Germany’s Bundesbank engineered another small drop in a key money market interest rate Wednesday, triggering several rate cuts in Europe but disappointing markets anticipating a more aggressive relaxation.
In the latest move, the Bundesbank pumped cash into the banking system at its lowest rate of 8.75%, below the 8.90% at which it had fed banks over the last three weeks.
Stocks
The Dow Jones average edged up 1.08 to close at 3,187.10 after having slipped 2.43 points on Tuesday. But declining issues outnumbered advances by about 11 to 10 on the New York Stock Exchange. Big Board volume came to an estimated 219.10 million shares, down from the previous session’s 258.21 million.
* General Motors shot up 1 1/4 to 31, apparently on a report that the company’s outside directors want Chairman Robert Stempel to step down within the next month.
* IBM rose 1/4 to 68 5/8 after several days of losses on a grim third-quarter earnings report.
Although investors bid up stocks, the buying lacked fire amid a smattering of mixed earnings reports and questions about the nation’s future fiscal growth plans.
The Dow index approached the key 3,200 level during the day, getting as high as 3,199.80, but failed to surmount it.
* Eli Lilly fell 1 1/8 to 59 1/2 in active trading. On Tuesday, the company reported a $268.50-million loss for the third quarter, which included special charges for restructuring.
* Syntex tumbled 3 to 25. The company said it has begun a cost-reduction and restructuring program, citing disappointing results for the first two months of its fiscal first quarter, which ends Oct. 31.
* Conner Peripherals dropped 2 1/2 to 18 5/8 after posting a third-quarter earnings gain that fell short of some expectations.
* United Technologies, a component of the Dow Jones industrial average, lost 1 1/8 to 45 1/2. Third-quarter profit came to 95 cents a share, against 90 cents a share in the corresponding period last year.
On the plus side, airline stocks were broadly higher even though AMR Corp., parent of American Airlines, reported a larger than expected loss for the third quarter. AMR officials indicated that prospects for the fourth quarter had been brightened by higher fares.
* AMR shares rose 1 1/8 to 62 1/8; Delta Air Lines 3/4 to 59; UAL 1 1/2 to 120 1/8, and USAir Group 3/8 to 11 5/8.
* Auto issues also advanced, led by Chrysler, up 3/4 to 26 1/4 and trading at its highest levels since 1989 after the company’s report Tuesday of a bigger than expected profit for the third quarter.
* Intel, the most active issue in the NASDAQ market, rose 2 1/4 to 69, pacing a strong semiconductor group. Motorola, up 1 at 97 1/4, and Texas Instruments, up 2 3/8 to 49 5/8, both traded at new 52-week highs on the Big Board.
In overseas trading, London stocks raced ahead to a sharply higher close after the interest rate cuts across Europe prompted further speculation of a cut soon in British rates. At the close, the Financial Times 100-share average was up 28.7 points, or 1.09%, to 2,645.7.
In Frankfurt, the 30-share DAX average ended 7.65 points lower at 1,503.90, chipping away at strong gains earlier this week.
Share prices closed firmer in Tokyo, with the 225-share Nikkei average rising 153.86 points to close at 17,141.52.
Currency
A late rally inspired by the dollar’s technical strength overcame a pall of skepticism about German interest-rate cuts to pull the dollar higher, dealers said. The dollar initially fell after comments by a Bundesbank official, who warned against excessive expectations that the German central bank will cut interest rates. Lower German rates would help the dollar by making dollar-denominated securities more attractive to investors.
In New York, the dollar settled at 122.60 Japanese yen, up from Tuesday’s 122.50 yen, and rose to 1.520 German marks, up from 1.516 marks the day before.
Commodities
Energy futures plunged on the New York Mercantile Exchange as a selloff spurred by crude oil inventory figures was accelerated by heavy fund selling.
Light, sweet crude oil for December delivery settled 44 cents lower at $21.61 a barrel, and November heating oil was 1.56 cents lower at 62.65 cents a gallon.
Meanwhile, on New York’s Commodity Exchange, October gold was 30 cents higher at $344.10 an ounce, and December silver closed up 1.2 cents higher at $3.805 an ounce.
