Economic Reports Push Yields Up
Stocks fell Tuesday as long-term bond yields were pushed higher for the first time in a week, by news of rising retail sales and consumer use of credit.
The dollar tumbled against the Japanese yen after U.S. Trade Representative Mickey Kantor threatened Japan with trade sanctions.
On Wall Street, the Dow Jones industrial average and other major measures of market performance finished an uneventful session with lower readings. Slumping prices of economically sensitive stocks weighed down the blue chip average, which slipped 12.61 to 3,755.91.
In the broader market, losing issues outnumbered gainers by about 4 to 3 on the New York Stock Exchange, where trading volume slowed to 234.71 million shares from 259.09 million on Monday.
Market analysts said stocks stuck to the course set by bonds, given that no sensitive report on the economy was due. On Friday, the Labor Department is to issue its report on the producer price index, used to gauge inflation at the wholesale stage of production.
In the credit market, Treasury notes and bond yields rose, with long-term issues bearing the brunt of the increase through the lackluster session. The key 30-year bond yield went to 7.26% from 7.22%, pushing the bond’s price down 13/32 point, or $4.06 per $1,000 in face value. Yield and price move in opposite directions.
In the morning, bond prices edged higher after the Commerce Department reported that wholesale sales fell 1.2% in April. That reassured some market players that a slowing economy may ease inflationary pressure that can erode the value of fixed-income securities.
For the rest of the session, however, bond prices were hurt by reaction to other new data showing increased economic activity, said Maury Harris, chief economist at PaineWebber Inc.
In the afternoon, Johnson Redbook’s latest indicator of nationwide retail sales showed them rising 3.1% in the first week of June compared to the May average. The report also showed sales in the week ended June 4 were up 8.3% from the comparable week in 1993.
Also hurting bonds was a Federal Reserve Board report that U.S. consumer credit use expanded by a seasonally adjusted $8.88 billion in April, or at a 13.2% annual rate, the largest increase in nine years.
“Stocks were driven by the bond market and technical factors,” said Bill Allyn, director of equity trading at Jefferies & Co.
Greg Nie, technical market analyst at Kemper Securities, said the relatively low trading volume seen recently on the NYSE and other exchanges reflects the lean cash reserves available for equity investment. Cash had been drawn down to unusually low levels as the market advanced steadily early this year.
Among Tuesday’s market highlights:
* In the technology sector, Compaq Computer dropped 1 1/4 to 109 1/2, Cirrus Logic fell 2 3/8 to 33 1/8 and Altera fell 2 to 32.
* Sprint rose 1 5/8 to 39 5/8. A day after its plan to merge with General Motors’ Electronic Data Systems fell through, Sprint said it was talking about forming a “global partnership” with France Telecom and Deutsche Telekom.
* Allegheny Ludlum rose 1 1/8 to 21 1/8 after it announced a new contract agreement with the United Steelworkers of America and the end of a 10-week-old strike.
* Pharmaceutical company Rhone-Poulenc Rorer jumped 3 1/2 to 38 5/8 on speculation that the French company Rhone-Poulenc, which owns 68% of the U.S. firm, would bid for the remaining shares. Rhone-Poulenc said it cannot increase its stake without authorization from Rorer directors.
* Concerns that a moderation in economic growth could crimp corporate profits hurt shares of economically sensitive companies. Caterpillar lost 2 1/4 to 106, while Chrysler fell 7/8 to 45 1/2 and topped the NYSE list of active issues. General Motors fell 5/8 to 50 3/8 and also experienced brisk Big Board turnover.
* Alexander & Alexander Services rose 1 1/2 to 17 7/8 in heavy NYSE volume after a day’s suspension of trading Monday. The big insurance broker said American International Group will invest $200 million in a new issue of Series B preferred stock. The proceeds will be used to strengthen A&A;’s core businesses and to finance reinsurance coverage. The company also slashed its regular quarterly dividend and said it has named Frank G. Zarb chairman, chief executive and president.
Weakness in European stock markets acted as a drag on Wall Street. Frankfurt’s 30-share DAX average closed down 27.97 points at 2,135.10; London’s Financial Times 100-share average fell 4.6 points to 3,004.8.
In Tokyo, the Nikkei-225 average closed 316.06 points higher at 21,042.71.
Shares of smaller companies also sagged, and indicators that monitor their activity snapped a string of advances. The Nasdaq composite index dropped 4.13 to 739.30.
The dollar plunged against the Japanese yen in late trading, after Kantor threatened Japan with sanctions if the current trade talks fail.
The dollar’s drop against the yen helped drag the dollar lower against the German mark and other European currencies, analysts said.
The dollar was little changed in sluggish dealings for most of the day, with no fresh economic data to give direction to the trading. At midafternoon, news reports quoted Kantor as saying the United States would resort to sanctions to open Japanese markets to American goods if the recently revived “framework” talks don’t produce agreement.
The dollar ended at 104.20 Japanese yen in New York, down from 105.30 yen a day earlier. It declined to 1.666 German marks from 1.670 on Monday.
Meanwhile, in the commodity markets, lumber futures prices collapsed on the news that a federal court had lifted a 3-year-old ban on logging millions of acres of forest in the Northwest.
The price of spruce two-by-fours for July delivery plunged $10, the daily maximum allowed on the Chicago Mercantile Exchange, to $373.30 per 1,000 board feet.
Gold rose 70 cents to close at $381.10 an ounce on the New York Comex; silver gained 4 cents, closing at $5.288 an ounce.
