Bond Rates Drop as Crude Oil Prices Reach 5-Year Low : Markets: But cheaper petroleum pummels energy stocks. Japanese issues plunge nearly 3%.
Bond market interest rates fell sharply Friday as a continued drop in oil prices to five-year lows renewed optimism that inflation will be kept under control.
The stock market, however, was mixed, as large declines in oil stocks drove the Dow Jones industrial average down 3.63 points to 3683.95, a loss of 10.06 for the week. But broader market indexes gained in abbreviated trading after the Thanksgiving holiday.
Japanese stocks plunged on investor concern over the nation’s poor economic outlook--underlined by bad corporate earnings--with a key market index falling nearly 3%. Tokyo’s 225-issue Nikkei average fell 496.55 points, or 2.88%, ending the week at 16,726.37, its lowest finish in 10 months.
The Organization of Petroleum Exporting Countries’ decision earlier in the week not to cut production brought oil prices in European trading Friday to their lowest levels since 1988. In London, North Sea Brent Blend crude oil for delivery in January, which fell 58 cents Thursday, fell another 8 cents a barrel to settle at $14.48 at the International Petroleum Exchange.
New York oil markets were closed Thursday and Friday in observance of the Thanksgiving holiday.
Spurred by the oil decline, investors drove the yield on the bellwether 30-year Treasury bond down to 6.24% from 6.31% at Wednesday’s close. (U.S. stock and bond markets were closed Thursday.) Its price, which moves inversely to yield, gained 25/32 point, or $7.81 per $1,000 in face value.
Given the thin trading volume, bond traders cautioned that Friday’s price move may have been exaggerated. Nevertheless, many said further declines in oil prices would probably bolster Treasury prices next week. Inflation erodes the value of fixed-income securities such as bonds.
The decline in oil prices put pressure on the Dow, which is heavily weighted with oil stocks, but gave transportation shares a boost.
“The OPEC decision is playing a bit of havoc with the market,” said Eugene Peroni, chief technical analyst at Janney Montgomery Scott.
“It sent the transports soaring while it penalized the industrials because of the heavy weighing of the oil components in that average. That’s what is creating the impression of a mixed market,” Peroni said.
Among oil issues, Texaco tumbled 1 5/8 to 63 7/8, Exxon lost 1 1/2 to 61 3/4 and Chevron fell 4 1/4 to 85 1/2. All three are components of the Dow industrial average.
But the Dow transportation average jumped 28.85 to 1,739.89 as airline stocks were lifted by prospects of lower fuel costs. AMR, parent of American Airlines, rose 1 3/8 to 67 3/8, Delta rose 1 5/8 to 58 5/8 and United Airlines parent UAL soared 5 5/8 to 145. UAL said it will resume talks with unions about selling control of the airline.
Shares of gold producers were down as inflation expectations diminished and oil prices dropped. Placer Dome lost 7/8 at 23 3/4, American Barrick Resources eased 1/2 to 26 1/2, Newmont Mining fell 3/4 to 54 1/2 and Echo Bay Mines declined 3/8 at 12 1/4.
Besides the developments affecting oil, there was little news to give direction to stock trading, which closed at 10 a.m. PST. Retailers attracted some investor attention on the traditional first day of the holiday shopping season. Wal-Mart Stores gained 1/2 to 29 7/8 and was on the NYSE list of active issues. Meanwhile, May Department Stores rose 1 5/8 to 44 1/8 and J.C. Penney rose 1 1/4 to 53.
Paramount Communications slipped 1/4 to 79 7/8 in continuing reaction to a Delaware court ruling Wednesday that stripped it of a key anti-takeover defense Paramount used to thwart an unwanted buyout bid from QVC Network Inc. QVC declined 1/2 to 47 1/4, while Class A shares of Viacom, which has a friendly agreement to acquire Paramount, lost 5/8 to 50.
Trading was extremely light, with volume on the New York Stock Exchange amounting to 90.12 million shares. It was the lowest total of any day this year and was down from the pre-holiday quantity of 229.30 million Wednesday.
But advancing issues outpaced declines on the Big Board by about 5 to 3. The Standard & Poor’s 500 index closed at 463.06, up 0.70 for the day and 0.46 higher for the week. The Nasdaq composite added 1.69, rising to 754.87, giving it a gain of 3.31 for the week.
Foreign financial markets were mixed and did not appear to exert much influence on Wall Street.
Stocks moved ahead in London and Paris and were mixed in Frankfurt. The steep tumble in Tokyo had no meaningful impact on U.S. trading because it reflected the Japanese economic and political situation.
Japanese stocks declined partly in reaction to sharp declines in earnings for the nation’s 11 big commercial banks, staggering under a mountain of problem loans.
In Mexico City, the Bolsa closed at a record high for the second straight day as investors reacted positively to the government’s proposed new foreign investment law. The 37-share IPC index rose 30.06 points to 2261.20, topping Thursday’s record of 2231.14.
In other markets:
* The dollar rose against most other currencies amid hopes of further interest rate cuts in Germany.
It moved up to 1.7135 German marks in late New York trading from 1.7033 marks Wednesday.
However, dealers noted that the dollar’s advance was offset by other comments indicating caution on rate cuts.
Indeed, Hans Tietmeyer, the central bank’s president, said German rates could be cut further only if they did not endanger the mark.
Dealers said the dollar was also firmer on perceptions of a recovering U.S. economy.
“The dollar market was thin and drifted higher based on fundamentals, like recent economic data,” said Robert Ryan, manager of corporate foreign exchange trading for Bank of New York.
The dollar also rose against the yen following weakness in Japanese share prices. It rose to 108.80 yen in late New York trading from 108.10 on Wednesday.
* U.S. precious metals markets were closed, but gold prices were mostly lower in overseas markets.
* Lumber prices soared to their highest level in seven months after the U.S. Commerce Department reported permits for housing starts rose a revised 2.6% in October, for a fourth consecutive monthly gain.
