Commodities Fall Again; Bonds Rally
Commodity markets were hit by heavy profit taking for a second day Wednesday, helping to ease inflation fears and spark a small rally in bonds.
The stock market also edged higher, with the Dow Jones industrials adding 10.13 points to 3,755.30.
But in Europe, stocks and bonds suffered a major selloff on worries that interest rates have bottomed.
In U.S. trading, commodities stole the spotlight as the recent surge in prices of grains, oil, coffee and other raw materials reversed in widespread selling.
The Commodity Research Bureau index of 21 key commodities, which hit a 3 1/2-year high of 238.36 on Monday, plunged 3.10 points, or 1.3%, to 231.59 on Wednesday. The index lost 3.67 points on Tuesday.
Forecasts for more rain in the dry Midwest pummeled soybean prices. At the Chicago Board of Trade, July soybean futures fell 20 cents to $6.75 a bushel, on top of Tuesday’s 37-cent drop.
A monthlong decline in beef prices gathered momentum as cattle and hog prices dropped sharply. Profit takers also clipped coffee, copper and oil futures.
And in precious metals trading, June gold futures edged down 50 cents to $386.80 an ounce on the Comex, and June silver fell 6.4 cents to $5.54.
Still, many analysts were cautious about calling an end to the bull market in raw materials, arguing that this week’s selling was an overdue correction.
“On a broader perspective, the CRB index has been rallying since August, 1992, when it made a low of 198.17. . . . The technical factors are still bullish,” said Jake Bernstein, president of MBH Commodity Advisors.
Commodities’ losses were bonds’ gain Wednesday: Interest rates were lower across the board. The 30-year Treasury bond yield fell to 7.36% from 7.40% on Tuesday.
Also helping bonds was good demand at the Treasury’s auction of $11 billion in five-year notes. The top yield on the notes was 6.78%, and the Treasury received 2.9 bids for each note sold, which was above average.
Yet some analysts were disappointed that bonds’ rally wasn’t more substantial, considering the government’s report that orders to U.S. factories for durable goods inched up just 0.1% in April--suggesting a slowing economy.
In the stock market, most broad indexes closed marginally higher in slow trading. Winners topped losers by 11 to 10 on the Big Board, where the composite index added 0.66 point to 252.06.
The Nasdaq composite index of mostly smaller stocks gained just 0.60 point to 732.07.
Many analysts say action in stocks is likely to dwindle today and Friday, as the long holiday weekend approaches and traders depart early.
In Europe, meanwhile, stocks and bonds posted large losses as investors focused on the possibility that short-term interest rates aren’t going lower.
A ballooning German money supply and recent comments by Bundesbank President Hans Tietmeyer and central council member Reimut Jochimsen convinced investors that further cuts in German interest rates aren’t on the horizon.
Also, the Bundesbank canceled a bond auction Wednesday because bids were too low--the first time the German central bank has pulled a bond sale in a decade. The news helped send bond yields surging in Germany, France and England, undercutting stocks.
In Frankfurt, the DAX stock index slumped 39.95 points to 2,158.77 after falling 50.93 points Tuesday.
In Paris, the CAC index dropped 48.91 points to 2,084.41, led by Euro-Disney shares, which slid 15%. London’s FTSE-100 index sank 68.4 points to 3,020.70, its lowest level since September.
In the London bond market, the yield on benchmark 15-year government issues jumped to 8.37% from 8.18% on Tuesday.
“This is only the beginning,” warned Nick Knight, equity strategist at Nomura Research Institute Ltd. He fears that European bond and stock markets are poised for a sharp decline, similar to what U.S. markets endured earlier this year when the Federal Reserve Board began to tighten credit.
Stocks in Tokyo, by contrast, had a decent session after investors were encouraged by a compromise in U.S.-Japanese trade talks. The Nikkei index finished up 41.51 points at 20,663.63.
Also, Mexico City’s Bolsa index added 3.64 points to 2,472.16, its seventh consecutive gain.
Among U.S. market highlights:
* Industrial issues that gained included Dow Chemical, up 1 1/4 to 69; Chrysler, up 7/8 to 49 5/8; Monsanto, up 1 3/4 to 81 3/4, and Harnischfeger, up 7/8 to 19 3/8. But Deere lost 1 1/4 to 70 3/8, continuing to slide on worries about 1995 profit growth.
* Many health care stocks were strong. Medtronic jumped 3 7/8 to 83, Columbia/HCA rose 1 1/8 to 40 1/4, National Medical Enterprises leaped 7/8 to 17 1/8, Schering-Plough gained 1 to 65 1/2 and Warner-Lambert was up 3/4 to 70 1/2.
But biotech firm Chiron slid 4 23/64 to 62 17/64 after Montgomery Securities slashed its 1995 earnings-per-share estimate to $1.74 from $3.62, citing possible competition for Chiron’s multiple sclerosis drug, Betaseron.
* Philip Morris stock was halted all day on the NYSE at 53 3/4 as its board met to consider plans to divide the company’s tobacco and food operations. The company said late in the day that the board had not acted on the matter.
* Among Southland issues, struggling restaurant chain Sizzler closed unchanged at 6 7/8 after its chief executive resigned.
* The day’s big losers included Gtech Holdings, which tumbled 12 3/4 to 22 7/8 after the lottery equipment firm said it expects current fiscal-year earnings to be flat or below last year’s level.
