Inflation News Helps T-Note Sale
Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* Treasury bond yields fell sharply on new evidence of low inflation, helping the Treasury successfully sell $11.3 billion in new 10-year notes.
* Blue chip stocks eased, with the Dow Jones average losing 15.40 points to 3,225.47. But small stocks continued their powerful rally.
* Gold sank to 1986 levels as worries about inflation dissipated.
Credit
Interest rates fell across the board after the government said the producer price index, which measures inflation at the wholesale level, rose just 0.1% in August.
The yield on the Treasury’s 30-year bond slid to 7.66% from 7.73% Monday as the bond’s price jumped $7.81 per $1,000.
Rates have been rising since late September on worries that President-elect Bill Clinton’s proposals to spur the economy will mean a resurgence of inflation in 1993. But Tuesday’s report calmed many investors’ fears of inflation, traders said.
In fact, the Washington Post reports today that key Federal Reserve officials believe that inflation is low enough that Clinton can launch an economic-stimulus plan without risk of pushing interest rates up.
Tuesday’s inflation news also helped the Treasury in the second leg of its quarterly bond auction. The Treasury saw strong demand for the 10-year notes offered Tuesday, which carried an average yield of 6.93%, up from 6.49% at the last auction Aug. 12.
On Monday, the government sold new three-year notes. On Thursday, it will auction new 30-year bonds.
The fed funds rate, the rate on overnight loans between banks, was 2.75% versus 3% Monday.
Stocks
A late round of computer-triggered program selling pushed the Dow lower. But advancing issues still outnumbered losers 5 to 4 on the New York Stock Exchange, where volume totaled a heavy 223.18 million shares.
The real action continued to be centered in the NASDAQ market of smaller stocks. The NASDAQ composite index surged 5.71 points, or 0.9%, to 627.76. Investors appear to be betting that many smaller companies will benefit most from a stronger economy in 1993.
Among market highlights:
* Technology stocks led NASDAQ issues higher. Cisco Systems jumped 3 5/8 to 70, Apple Computer gained 1 to 56 1/4, Novell rose 1 1/8 to 33, Qualcomm added 1 1/8 to 26 1/2, and System Software rose 1 1/4 to 26 1/2.
Among Southland issues, satellite communications firm IDB Communications jumped 1 3/4 to 18 1/4 after reporting record quarterly earnings.
* Financial stocks rallied as interest rates fell. BankAmerica gained 7/8 to 43 5/8, Wells Fargo jumped 1 3/4 to 73 5/8, Merrill Lynch added 1 1/4 to 58 1/2, and Golden West was up 1 to 39 1/8.
* Gold stocks plunged as the price of the precious metal sank. Newmont Mining fell 2 3/4 to 40 1/2, Homestake Mining dropped 7/8 to 10 1/2, and ASA lost 3/4 to 31 5/8.
Overseas, London’s Financial Times 100 index rose 19.2 points to 2,714.6, and Frankfurt’s DAX average climbed 10.26 points to 1,519.06. In Tokyo, the Nikkei index gained 20.06 points to 16,437.11.
Other Markets
Gold futures tumbled $2.90 to $329.70 an ounce, the lowest price on New York’s Comex since January, 1986.
Speculators sold gold after the government’s October wholesale inflation report showed a minuscule gain--persuading more investors that there is no need to hold gold as a hedge against inflation.
Silver prices, which had collapsed Monday, fell further. Near-term silver futures lost 5.7 cents to $3.65 an ounce.
Elsewhere, light, sweet crude oil fell 15 cents to $20.47 a barrel on the New York Merc.
In currency trading, the dollar was mostly lower, falling in New York to 1.595 German marks from 1.600 Monday, and to 124.20 Japanese yen from 124.25.
Market Roundup, D6
