FINANCIAL MARKETS : Late Technical Rally Boosts Dow 19.65 : Market Overview
* Technical factors set off a late rally on Wall Street, turning around a session in which stocks meandered in response to a slightly worse than expected report on housing starts.
* Long-term interest rates declined, pushing up prices in light trading.
* The dollar rallied to a three-month high against the German mark as continued expectations for a cut in German interest rates propelled the U.S. currency above key resistance levels.
Stocks
In the last two hours of trading, the market dipped and then rallied. Analysts attributed the moves in part to Friday’s quarterly expiration of stock index futures, stock index options and options on individual stocks.
The Dow Jones industrial average rose 19.65 points to 3,511.65 on Big Board volume of 267.50 million shares, up from 234.11 million on Tuesday. Advancing issues narrowly outnumbered losers on the New York Stock Exchange.
Early in the day, the Commerce Department said housing starts rose 2.4% in May, with builders laying foundations for 1.24 million new homes and apartments at a seasonally adjusted annual rate.
Industrial production, which measures output at the nation’s factories, mines and utilities, increased 0.2% last month, the same rate as in April and March, the Federal Reserve Board said.
The late stock action pulled the market from the doldrums. Edward Nicoski, chief market strategist for Piper, Jaffray in Minneapolis, attributed the volatility in part to Friday’s so-called triple witching.
Typically, the market becomes volatile ahead of expirations as traders adjust their portfolios.
Among the trading highlights:
* Hewlett-Packard tumbled early in the day, depressing other technology stocks after the company’s chief executive was quoted as making downbeat comments in Frankfurt. But many of the stocks recovered after the company clarified the remarks. Hewlett-Packard dropped 3 3/8 to 83 5/8, while Adobe Systems fell 3 to 69 in NASDAQ trading.
* In other actively traded NYSE issues, Wal-Mart Stores fell 5/8 to 25 7/8 on no discernible news.
* American Telephone & Telegraph dropped 1 1/8 to 62 1/8 after a Prudential Securities analyst cut his 1993 and 1994 earnings estimates for the company.
* Pepsico dropped 1/8 to 35 1/2 after reports that cans of its soft drink had been tampered with.
* National Semiconductor rose 3/8 to 16 1/8 after reporting higher earnings Tuesday for the quarter ended May 30.
* USAir fell 1 3/4 to 17 1/8 after saying it expected to post a net loss for the second quarter and all of 1993.
* Other airline stocks fell, partly on concern over President Clinton’s effort to raise taxes on fuels. AMR, the parent of American Airlines, lost 2 to 66, and UAL Corp., the parent of United Airlines, dropped 4 to 126 3/4.
* In other NASDAQ trading, Price Co. rose 6 1/4 to 38 1/2 and Costco Wholesale Corp. rose 2 to 19 after saying they will merge their companies into a new holding company to be called Price/Costco.
Markets were mixed overseas. Stocks ended lower in Tokyo, with the Nikkei 225-share average closing below 20,000 for the first time since April 26. The Nikkei fell 143.46 points to 19,902.42. In Frankfurt, the 30-share DAX average closed 5.46 points higher at 1,689.56. London’s Financial Times 100-share average closed 13.0 points higher at 2,883.0.
Credit
With anxiety over the May inflation reports dispelled, bond traders found little in the housing construction and industrial production reports to drive bond trading in either direction, analysts said.
David H. Resler, chief economist at Nomura Securities International Inc., offered the following description of market activity: “Dead is a good characterization.”
The Treasury’s main 30-year bond yield fell to 6.81%. On Tuesday, the 30-year yield closed at 6.83%. Its price, which moves in the opposite direction from the yield, gained 5/32 point, or $1.56 per $1,000 in face amount.
“The market has little new information on which to move,” said Resler.
The market rallied heartily on Friday on news that May producer prices were unchanged, a sign that inflation is under control and the Federal Reserve will not need to boost interest rates. Both developments are positive signs for bonds, which erode in value during periods of high inflation.
Later in the session, the Treasury Department said it plans to sell $16 billion of two-year notes and $11 billion of five-year notes, the proceeds of which will redeem nearly $22 billion in maturing notes.
The federal funds rate, the interest on overnight loans between banks, was 3.00%, down from 3.06%.
Other Markets
The dollar’s gains against the German mark spilled over into other currencies, giving the dollar a broad-based lift. However, several participants cautioned that the upward move seemed to be driven mainly by speculators and technical factors and that the market could face a correction in the near term.
The dollar’s rally came even though Germany’s central bank failed to cut one of its shortest-term interest rates during its regular weekly repurchase operations. Many in the market thought a cut would signal the Bundesbank’s intention to ease its widely watched discount rate at its policy-making meeting today.
However, a widespread belief persists that the central bank will ease rates at its next meeting on July 1, said Michael Malpede, senior analyst at Refco Group Ltd. in Chicago.
The dollar closed in New York at 1.657 marks, up from late Tuesday’s 1.646 marks. The last time the dollar closed that high in New York was on March 17, when it finished at 1.6620 marks.
The dollar settled at 106.45 Japanese yen, up from late Tuesday’s 105.75 yen.
In commodities trading, energy futures prices turned higher on the New York Mercantile Exchange, responding to industry data showing a decline in crude oil stocks that was greater than expected.
Light, sweet crude oil for July advanced 26 cents and settled at $18.84 a barrel.
Precious metals prices were higher at the Commodity Exchange in New York.
Also on the Comex, gold for current delivery rose 70 cents an ounce, settling at $370.30, and silver for current delivery advanced 4.7 cents an ounce to $4.329.
