Dollar Slides Against Yen; Silver Takes Off : Market Overview
The dollar fell sharply against the Japanese yen amid reports that the world’s richest nations failed to take an aggressive stance against further sharp rises in the yen.
* Prices for silver futures rocketed to a 21-month high as precious metals continued to attract investors who believe that inflation may be on the rise again.
* Late computer-program buying helped nudge blue chip stocks into positive territory after an indecisive session marked by fresh concern about the economy. Long-term bond yields fell.
The dollar’s fall began early in New York, when the U.S. government released weaker than expected gross domestic product statistics showing that the economy grew at a lackluster 1.8% annual pace during the first quarter.
After sinking to 1.569 German marks from Wednesday’s 1.581, however, the dollar managed to recover most of its losses in heavy cross-trading, in which participants sold marks and bought yen.
But the recovery lost steam late in the day. By midafternoon, reports circulated that the G-7 industrial nations, meeting in Washington, planned to issue “a very plain-vanilla joint communique” on recent currency fluctuations, said Marc Chandler, market strategist at investment house IDEA in New York.
Traders had expected the G-7 to come out in support of the dollar, which has plunged against the yen this year. When those expectations were dashed, the dollar fell again.
By the close in New York, the dollar was at 110.95 yen, down from 112.15 Wednesday.
The G-7 statement, released after most trading in New York, repeated Treasury Secretary Lloyd Bentsen’s comments that “excessive volatility is undesirable” in the currency markets.
To guard against rapid changes in the relationships of their currencies, the finance officials pledged “our continued commitment to close cooperation in exchange markets.”
The dollar also closed at 1.579 German marks versus 1.581.
Silver for current delivery soared 17.2 cents on New York’s Commodity Exchange to $4.35 an ounce, the highest price for near-term deliveries since July 19, 1991.
Gold for current delivery jumped $3.10 an ounce to $356.70. And on the New York Merc, July platinum climbed $8.70 to $390.40 an ounce.
Silver has risen about 24% since its Feb. 22 low of $3.51 an ounce. It had gained more than 9 cents Wednesday and took over on Thursday as the leader of a powerful rally in the precious metals that began last month.
“Silver has been depressed more severely and for a longer period than the other precious metals,” said analyst James Steel at brokerage firm Refco Inc. in New York.
“If you were to look very quickly at where you think you can get the most bang for your buck, the highest upside, silver holds that potential,” he said.
Precious metals have been boosted by a growing perception among investors that a period of low inflation and interest rates is coming to an end, said Martin Reichenberg, manager of trading services at the Pegasus Econometric Group in Hoboken, N.J.
Elsewhere, light, sweet crude oil for June rose 39 cents on the New York Merc to $20.58 a barrel.
Investors got an early jolt when the Commerce Department reported that the GDP, the sum of all the goods and services produced, grew at a seasonally adjusted annual rate of 1.8% in the first quarter. Analysts had expected growth of 2.4%. The figure also came in well below the 4.7% GDP rate of the 1992 fourth quarter.
Adding to the gloomy report, inflation indicators within the GDP surged. The first quarter’s implicit price deflator rose 3.3% and the fixed-weight deflator gained 4.2%.
The Dow Jones average rose 11.62 points to 3,425.12 on Big Board volume totaling 249.76 million shares, down from 267.98 million on Wednesday. Advancing issues outnumbered declining ones by about 7 to 6 on the New York Stock Exchange.
Thom Brown, chief strategist at Rutherford, Brown & Catherwood in Philadelphia, said the GDP report was “a little bit worrisome, because it would suggest, prior to any revisions that will come along, that the economy was somewhat weaker than everybody thought it was.”
The market largely ignored a Labor Department report that first-time unemployment claims dropped by 7,000 last week, a bit less than the 9,000 decline that was forecast.
The Dow sank as low as 3,392 early in the day, but computer-driven buy programs pushed it higher in the afternoon.
Among the market highlights:
* Airline stocks fell after United parent UAL released disappointing first-quarter earnings. UAL fell 4 7/8 to 140 5/8, and American Airlines’ parent AMR eased 5/8 to 67 5/8. The weakness in airline stocks pushed the Dow transportation average down 7.25 points to 1,587.40.
* GM fell back 1 1/2 to 40 7/8 after climbing 2 on Wednesday. The auto giant said its first-quarter net profit rose to 42 cents a share, up from a loss a year earlier. Analysts had estimated net earnings at 34 cents.
* Mexican phone giant Telmex led the most-actives on the NYSE and ended up 1/2 at 48, recovering from a plunge Wednesday after reporting disappointing earnings. The Mexico City market as a whole recovered somewhat too: The Bolsa index gained 15.70 points to 1,654.58.
* Insurance stocks rose after American Insurance Group reported an increase in first-quarter earnings. AIG jumped 4 1/2 to 124 1/2, Cigna rose 5/8 to 60 5/8, and Chubb advanced 1 1/4 to 88 3/4.
Overseas, stocks finished lower in London, as the Financial Times 100-share average eased 10.5 points to 2,786.8. In Frankfurt, the 30-share DAX average finished down 4.93 points at 1,623.94. The Tokyo market was closed for a holiday.
In the bond market, meanwhile, yields fell broadly for the first time in a week, aided by the weak GDP report.
Longer-term maturities benefited the most from the negative economic report, which seemed to indicate that inflation would remain under control for now. The news spurred heavy buying from pension fund managers, and there were wide reports that several foreign central banks were also buying U.S. Treasuries.
The yield on the Treasury’s main 30-year bond declined to 6.87% from 6.91% on Wednesday.
The federal funds rate, the interest on overnight loans between banks, was 2.938%, down from 3% late Wednesday.
Market Roundup, D6