Dollar Slides Against Yen; Silver Takes Off : Market Overview
The dollar fell sharply against the Japanese yen amid reports that world’s richest nations failed to take an aggressive stance against further sharp rises in the yen.
* Silver futures prices rocketed to a 21-month high as precious metals continued to attract investors who believe that inflation has bottomed out.
* 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.
In recent days, the currency markets have begun expect that the “Group of Seven” nations--meeting in Washington Thursday to discuss ways to spur world growth--would come down hard on the yen’s rise of 12% this year. However, afternoon news reports said the G-7 planned no such action.
The dollar’s fall began early in the New York session, 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, 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. By midafternoon, news reports circulated that the G-7 nations planned to issue “a very plain vanilla joint communique,” said Marc Chandler, senior market strategist at IDEA in New York.
In late New York trading, the dollar was quoted at 110.95 Japanese yen, down from 112.15 yen at Wednesday’s close.
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.”
Trading in Tokyo, the next major market with a chance to react, was expected to be extremely quiet Friday amid a week of holidays in Japan.
The British pound continued to slip. In New York, sterling was quoted at $1.5725, less than late Wednesday’s $1.573.
The dollar closed at 1.579 German marks, down from 1.581 the day before.
Silver for current delivery soared 17.2 cents on New York’s Commodity Exchange to $4.351 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. On the New York Mercantile Exchange, 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 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 of the commodities 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.
Investors often view precious metals as a hedge against inflation. If inflation rises, interest rates will likely rise too, as the Federal Reserve Board tries to contain the upward spiral of prices and wages.
Elsewhere, light, sweet crude oil for June delivery rose 39 cents on the New York Mercantile Exchange 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 a 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 UAL released disappointing first-quarter earnings. UAL fell 4 7/8 to 140 5/8, and AMR sank 5/8 to 67 5/8. The fall in airline stocks pushed the Dow transportation average down 7.25 points to 1,587.40.
* Oil stocks were mixed after sharp run-ups on Wednesday. Texaco declined 3/8 to 64 1/4, but Mobil rose 1 5/8 at 70 3/4.
* General Motors sank 1 1/2 to 40 7/8 after climbing 2 points on Wednesday. The auto giant said its first-quarter net profit rose to 42 cents a share, up from a loss of 33.96 cents that was tied to charges for future retiree health benefits. Analysts had estimated net earnings at 34 cents.
* Telefonos de Mexico led the most-actives on the NYSE and ended up 3/8 at 47 7/8, recovering from a drop of 2 1/8 to 45 3/8, after reporting a narrower than expected gain in earnings.
* 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.
* Medical Care America slid 2 3/8 to 13 3/4. The company, which provides home medical treatments, said Wednesday that it expects a decline in first-quarter earnings.
In overseas trading, Tokyo’s 225-share Nikkei average closed 247.86 points up at 20,454.57.
Share prices finished lower on London’s Financial Times 100-share average, losing 10.5 points to close at 2,786.8. In Frankfurt, the 30-share DAX average finished down 4.93 points at 1,623.94.
In the meantime, the bond market advanced broadly for the first time in a week in response to the GDP report.
The yield on the Treasury’s main 30-year bond declined to 6.87% from 6.91% on Wednesday. Its price, which moves in the opposite direction, rose 15/32 point, or $4.69 per $1,000 in face value.
Longer-term maturities benefited the most from the negative economic report, which seemed to indicate that inflation would remain under control for now. The value of longer-term bonds can be eroded by higher prices in the economy.
The federal funds rate, the interest on overnight loans between banks, was 2.938%, down from 3% late Wednesday.
Market Roundup, D6