T-Bond Yield Nears 7%; Dollar Falls : Market Overview
* Long-term bond yields were pushed up by waves of selling ahead of today’s release of March employment data.
* The dollar plummeted anew against major currencies. At the opening of trading today in Tokyo, the dollar dropped to 113.50 yen, an all-time low.
* Stocks closed mixed for a second day, nervously eyeing bond and currency markets. But in Tokyo, the Nikkei index rocketed 507.64 points on the first day of the new fiscal year. Early today the advance continued.
Credit
Traders once again pummeled the bellwether 30-year Treasury bond, pushing its yield from 6.93% Wednesday to 6.96% by Thursday’s close. That was the highest since Feb. 20, when the yield was at 7%.
Shorter-term bond yields, however, rose only marginally.
The turmoil in bonds was in anticipation of today’s March employment report. Traders fear a strong report that would all but close the door on further declines in interest rates.
Yet two economic reports Thursday should have dampened those worries. The National Assn. of Purchasing Management said its overall index of manufacturing activity dropped to 53.4% in March from 55.8% in February.
Also, the Labor Department said new claims for unemployment benefits shot up 33,000 in late March to 380,000.
Analysts said many traders now seem focused on inflation worries and refuse to acknowledge signs of a slowing economy.
The bond market wasn’t helped by comments from San Francisco Federal Reserve Bank President Robert Parry. He said the Fed may have to take action if higher commodity prices and other signs of rising inflation persist.
The Fed’s primary tool in combatting inflation is to raise short-term interest rates--a move that could devastate the economy.
Currency
The relentless selling of the dollar against the yen continued unabated, and boosted other currencies as well.
While U.S. bond traders appear to believe that the domestic economy and inflation are getting stronger, dollar traders worldwide are taking the opposite view: That the U.S. economy is weakening, which would pull down the dollar’s value.
In New York on Thursday, the dollar finished at 114.04 yen, down from 114.75 Wednesday and the lowest close since modern currency exchange rates were established in the late 1940s.
Early today in Tokyo, another rash of dollar selling dropped its value to 113.50 yen before the Bank of Japan intervened.
Thursday, the dollar-selling fever spread through European markets. “It was a feeding frenzy,” said Ken Gettinger, trader at Union Bank of Switzerland. When the dollar broke below 1.600 (German) marks, “you saw a quick liquidation of long dollars.”
The dollar settled at 1.592 marks in New York versus 1.607 on Wednesday.
Stocks
The broad market fell in reaction to the rise in bond yields and fears that the nation’s employment picture may not be improving.
The Dow industrials added 4.33 points to 3,439.44, but declining issues led advancers by about 9 to 8 on the New York Stock Exchange.
Volume shrank to 234.53 million shares, reflecting traders’ confused outlook. “Nothing is down that big and nothing is up that big,” said analyst Paul Hennessey at the Boston Co. “The market’s just treading water.”
Today’s March employment report could be a catalyst for movement at least for the near-term, analysts said. A strong report should bolster stocks--unless it also sends bond yields soaring.
Meanwhile, in Tokyo, the Japanese market started the first day of the new fiscal year with a bang: The Nikkei index rocketed 507.64 points, or 2.7%, to 19,099.09 on Thursday, the highest in a year.
At midday today the Nikkei was up another 596.22 points to 19,695.31, as traders continued to pile in on optimism about the government’s huge planned program of public spending, which is designed to spur the economy.
Among U.S. market highlights:
* Health care stocks began the second quarter with another broad selloff. Johnson & Johnson slumped 1 7/8 to 40 3/4, Merck dropped 1 to 34 3/8, Lilly slid 3/4 to 48, and American Home Products lost 1 1/2 to 64 5/8.
Merck sharply attacked the Clinton Administration’s proposal to provide free vaccines to all American children.
* Cable TV stocks plunged after the Federal Communications Commission ordered rollbacks of some cable rates. Telecommunications Inc. fell 2 to 20 1/2, Comcast dropped 2 1/2 to 20 7/8, Jones Intercable lost 1 1/4 to 14, and Cablevision Systems tumbled 2 3/8 to 36 1/4.
Time Warner, another cable owner, fell 1 5/8 to 33 1/8. It also was hurt by the FCC’s removal of a ban that had prevented networks from holding a financial interest in the profitable rerun rights of programs. The company’s Warner Bros. unit was among firms that had criticized the decision.
* Wal-Mart, long a market leader, lost 5/8 to 31 1/8. The stock has been weak since a Prudential Securities analyst shaved first-quarter earnings estimates early in the week, warning that sales were slower than expected in the quarter.
* Among Southland issues, Computer Sciences slid 2 3/4 to 76 5/8. A Raymond James & Co. analyst lowered his rating on the computer services company, saying it has failed to win four major federal contracts on which it has bid over the last year.
Overseas, European markets were weak. Frankfurt’s DAX average finished off 12.63 points to 1,671.58. In London, the Financial Times 100-share average eased 0.3 of a point to 2,878.4.
Commodities
Gold continued its recent advance. Gold for current delivery rose $1.10 an ounce to $338.70 on New York’s Comex. Silver added 1.8 cents to $3.90.
On the New York Merc, light, sweet crude oil for May delivery rose 8 cents to $20.52 a barrel.
In Chicago, lumber dropped the daily limit of $10 per thousand board feet, to $389, ahead of today’s federal timber summit. Traders fear an end to high prices.
