T-Bond Yields Fall With Drop in Oil Prices : Market Overview
* Yields on U.S. Treasury bonds fell for the second consecutive session as the lowest oil prices in five years reinforced expectations that inflation will stay subdued.
* U.S. stocks closed mixed, as a selloff in technology issues offset strength in some industrial and financial stocks.
In Mexico City, stocks surged to yet another high, while Tokyo stocks plunged again.
Credit/Energy
Interest rates fell broadly Monday as buyers continued to move back into the bond market, encouraged by plunging energy prices.
The yield on the 30-year Treasury bond slid to 6.16% from 6.23% on Friday. The latest yield is the lowest since Nov. 15.
Shorter-term interest rates also eased. The yield on five-year T-notes fell to 5.07% from 5.14% on Friday.
Traders said the continuing dive in oil prices is calming bond investors’ worries about the recent pickup in the economy. Though a stronger economy usually means higher inflation, slumping oil prices could dampen much of the inflation risk, experts say.
On Monday, light, sweet crude oil futures for January tumbled 40 cents on the New York Mercantile Exchange to $14.57 a barrel, the lowest price for near-term deliveries since Nov. 23, 1988.
Oil’s latest plunge was sparked in part by speculation that Iraq might soon flood the market with more than 3 million barrels of oil a day. With the Organization of Petroleum Exporting Countries unable to decide on production cutbacks in an already glutted market, Iraq’s re-entry could crush prices, traders say.
“The market has no confidence in OPEC taking some action. The market sees nothing on the horizon that’s going to turn it around,” said Bob Baker, energy analyst with Prudential Securities in New York.
Also Monday, reports began to filter in that oil refineries, which are producing heavily because crude prices are so cheap, are having trouble storing all the products they are turning out.
In other futures trading, unleaded gasoline contracts for January settled at 40.38 cents a gallon Monday, off 1.11 cents.
Meanwhile, in the bond market, buyers’ new bullishness suggested that the recent surge in interest rates has topped out. The 30-year T-bond yield had jumped as high as 6.39% on Nov. 22, from a low of about 5.75% in early autumn, on signs of economic strength.
Traders said the bond rally could gain steam if November inflation figures, due out this week, are at or below expectations. Wholesale and consumer price indexes for November will be reported by the government on Thursday and Friday, respectively.
Stocks
The market failed to respond strongly to the bond rally and oil price slump, as a selloff in technology issues prompted caution.
The Dow industrials added 6.14 points to 3,710.21, just shy of the Nov. 16 record close of 3,710.77.
While advancing issues outnumbered losers by about 7 to 5 on the New York Stock Exchange, they were almost evenly matched on the Nasdaq market of mostly smaller stocks. Trading was heavy in both markets.
The tech sector was slammed by news that a Merrill Lynch analyst downgraded shares of computer chip giants Intel and Motorola, citing concerns about personal computer demand in 1994.
The Merrill analyst cut his 1994 earnings estimate for Intel to $6 a share from $7.20 and to $4 a share from $4.45 for Motorola.
Intel stock plummeted 4 to 59 1/2 after trading as low as 56 1/2. Motorola tumbled 2 to 94 1/8 after trading as low as 91 3/4.
Some analysts said Merrill Lynch was being far too pessimistic about chip sale prospects. Tom Thornhill, analyst at Montgomery Securities in San Francisco, said Intel has told him it has “seen no signs of weakness” in orders beyond a normal seasonal slowdown.
Still, many tech stocks sold off, following the chip stocks lower. That dragged down the Nasdaq composite index, which fell 1.13 points to 771.09.
Among the market highlights:
* Falling computer chip issues included Micron Technology, down 1 1/2 to 46 1/2; Texas Instruments, off 2 to 62 1/8; Advanced Micro Devices, down 3/4 to 17 3/4; Cirrus Logic, down 1 1/8 to 34 7/8, and Cypress Semiconductor, off 3/4 to 12 1/8.
* Other tech issues losing ground included Compaq, off 1 5/8 to 72 3/4; AST Research, down 2 1/8 to 22 7/8; Dell, down 1 1/4 to 26 1/2; Applied Materials, off 2 to 35 3/4, and CompUSA lost 2 7/8 to 23 1/2.
* Telecommunications issues were mixed. Tellabs lost 1 1/2 to 45 1/2 and General Instrument sank 1 3/4 to 54, but 3Com rose 2 1/2 to 45 3/8 and Newbridge Networks rose 1/4 to 57 1/2.
* On the upside, some industrial issues were strong, continuing to gain on prospects for faster economic growth. Allied Signal rose 1 1/8 to 75 1/4, Goodyear added 1/2 to 45 7/8, Scott Paper rose 3/4 to 38 5/8, Deere zoomed 1 3/4 to 73 3/4, Ingersoll-Rand leaped 1 1/2 to 39 5/8 and Phelps Dodge was up 1 1/8 to 46 3/4.
But other industrials were surprisingly weak. USX-U.S. Steel slid 1/2 to 35 7/8, Cincinnati Milacron fell 5/8 to 20 3/8 and Alcoa lost 3/4 to 68 3/4.
* Financial stocks gained, responding to lower interest rates. Among banks, Citicorp rose 7/8 to 36 1/4, First Chicago leaped 1 1/8 to 42 3/8, Wells Fargo gained 3 to 121 1/8 and BancOne added 1 1/4 to 38 3/4.
Among brokerages, Morgan Stanley was up 1 1/2 to 77 7/8, Schwab surged 1 1/8 to 33 1/2, PaineWebber leaped 1 3/4 to 28 7/8 and Merrill Lynch jumped 1 5/8 to 48 1/8.
* Seagram dropped 3/4 to 26 3/4 as a large block of 3.3 million shares, representing almost 1% of the firm’s outstanding stock, was sold by a trust of Charles Bronfman, co-chairman of the company.
* Energy stocks were only marginally lower, despite oil’s latest slide. Unocal eased 3/8 to 26 1/2, Halliburton lost 1/2 to 28 7/8 and Sonat slid 1 1/8 to 27 7/8.
* Among Southland issues, Santa Anita Realty rose 1/2 to 18 1/4. The firm said it postponed the initial public offering of its Pacific Gulf Properties until market conditions improve.
In foreign markets, Mexico City stocks rallied for a fourth consecutive session on a wave of optimism about Mexico’s economic future. The Bolsa index rocketed 62.05 points, or 2.7%, to a record 2,386.14. The Bolsa has leaped 10.5% since the North American Free Trade Agreement passed the U.S. House in mid-November.
Elsewhere, Tokyo stocks suffered another hit, as concern about the Japanese economy continued to mount. The Nikkei-225 index sank 618.97 points, or 3.6%, to 16,840.38. In London, the FTSE-100 index added 3.1 points to 3,237.3. In Frankfurt, the DAX index eased 1.81 points to 2,118.80.
Other Markets
The dollar fell against most major currencies for a second straight trading day, as traders extended a selloff that began when the dollar ran out of stamina last week despite positive U.S. economic news.
In New York, the dollar was quoted at 1.702 German marks, compared to 1.720 on Friday. The dollar also fell to 107.90 Japanese yen, down from 108.52 on Friday.
In metals markets, near-term gold futures eased 90 cents to $375.90 an ounce on the New York Comex; silver gained 0.6 cent to $4.82.
