New Inflation Fears Push Dow Down 24 Points : Markets: Commodity price index hits a 3 1/2-year high, sending bond yields up sharply. The dollar also suffers.
A surprising surge in commodities Monday ignited an inflation scare that pushed bond yields sharply higher and sparked a selloff in stocks and the dollar.
The Commodity Research Bureau index of 21 agricultural and industrial commodities rose 4.67 points to 238.36, up 2% from Friday’s close and its highest daily close since October, 1990.
Seventeen commodities in the CRB index registered gains, with soybeans leading the way on fears of a drought-damaged crop. Only orange juice and oil prices were lower in a day of hectic trading.
Soybean futures prices rocketed to a 10-month high on the Chicago Board of Trade as Midwest drought fears mounted. Soybeans for July delivery leaped 29.75 cents to $7.32 a bushel.
Drought worries also pushed July corn futures up 6.5 cents to $2.75 1/4 a bushel, July wheat up 10 cents to $3.36 3/4 and July oats up 4 cents to $1.27 1/4.
This spring, near-record-low rainfall from Nebraska to northern Illinois--some of the Midwest’s most productive farmland--has led to fears of a crop shortage.
Elsewhere, cocoa prices surged 10% to a four-year high on concerns about pinched supplies. Coffee futures also continued to rise sharply, and near-term gold futures added $3.70 to $389.60 an ounce.
The commodity markets’ turmoil was the last thing the battered bond market needed: Yields zoomed as inflation fears returned.
The yield on the bellwether 30-year U.S. Treasury bond soared to 7.43% from 7.30% on Friday.
Rates on shorter-term bonds also rose, ahead of the Treasury’s sale this week of $28 billion in new two- and five-year notes.
“The CRB (index) is way too strong for the bond market to handle,” said Jay Ferguson, an analyst at Ferguson, Andrews & Associates.
Bonds had just begun to settle down last week, after the Federal Reserve Board raised key short-term rates by half a point, at the same time indicating that it is finished tightening credit for now.
The Fed has been pushing up short-term rates since February in an effort to slow the economy and keep inflation from reviving.
But the gains in key commodities suggest that the economy may still be stronger than the Fed wants.
However, some analysts say commodities are being pushed up in large part by professional funds that are pouring money into those markets, in search of the next big market “trend.” Rising prices attract more buyers, which makes higher prices a self-fulfilling prophecy, experts say.
In any case, many Wall Streeters worry that the commodity rally is just beginning.
The dollar was a victim of Monday’s inflation jitters. Its value fell to 1.643 German marks in New York, down from 1.647 on Friday. However, the dollar rose slightly against the Japanese yen, to 104.36 from 104.05.
“People are still very bearish about the dollar,” said Tom Hoge, vice president of corporate currency trading at Bank of New York. With the threat of inflation looming, “nobody is comfortable holding American assets,” he said.
Meanwhile, the stock market also fell, but the damage was fairly limited.
The Dow industrials sank 23.94 points to 3,742.41 as bond yields rose. But most broad-market indexes lost little ground. The New York Stock Exchange composite index slipped 0.80 point to 250.78.
While stocks held up well, however, traders warned that more trouble for bonds will probably reverse stocks’ recent gains.
Among Monday’s highlights:
* Food stocks surged after Gerber got a takeover offer from Swiss drug giant Sandoz. Gerber soared 15 1/2 to 50 1/8. Among other food issues, CPC International jumped 1 7/8 to 48, General Mills gained 1 7/8 to 53 3/4, Kellogg leaped 1 5/8 to 52 and Quaker Oats gained 7/8 to 66.
* Rising interest rates hurt utility stocks again. The Dow utility index fell 1.32 points to 182.57. Phone utilities were also weak. BellSouth lost 1 to 59 1/4, U.S. West sank 1/2 to 40, MCI dropped 7/8 to 23 3/8 and Nynex lost 7/8 to 37 1/2.
* Some tech stocks showed strength, led by Microsoft, up 1 11/16 to 50 9/16, and Compaq, up 2 1/4 to 113 5/8.
* TV show producer New World Communications leaped 1 11/16 to 10 5/8 after News Corp. decided to make a $500-million investment in the firm. Rival King World Productions soared 3 1/4 to 41 on the news.
Overseas, Tokyo’s Nikkei index rose 226.54 points to 20,568.71, while London’s FTSE-100 fell 18.9 points to 3,108.4. The Frankfurt market was closed for a holiday.
In Mexico City, the Bolsa index added 14.13 points to 2,431.43.
* Market Roundup, D8
FINANCIAL MARKETS / DAILY DIARY
May 23, 1994
Dow Jones Industrials High: 3,770.65 Close: 3,742.41 Low: 3,711.40
New York Volume 249.42 million shares
Interest Rates 30-Year T-Bond: 7.43% 1-year T-Bill: 5.22%
