FINANCIAL MARKETS : Bond Yields Ease on Inflation News
Treasury bond yields fell back Tuesday after the government reported no change in wholesale prices in June.
But the stock market remained stymied by the falling dollar, which set another 50-year low against the Japanese yen. Key stock indexes were mixed for the day, with the Dow Jones industrials off 0.33 point to 3,702.66.
In positive news, the Labor Department said wholesale prices held steady in June and even fell 0.1% when the volatile food and energy sectors are excluded.
Economists had predicted a rise in the overall producer price index of 0.3% and a gain in the core rate of 0.2%. The Federal Reserve Bank of Atlanta also reported minimal pricing pressures.
Bond yields, which have been surging in recent weeks, dropped modestly on the inflation reports. The 30-year Treasury bond closed at 7.68%, down from 7.73% on Monday, and shorter-term yields were also lower.
But the sinking dollar continued to raise the specter of another Fed hike in short-term rates. Higher rates would tend to support the dollar.
The dollar fell as low as 96.55 yen Tuesday in New York, before recovering to 97.50, off from 97.75 on Monday. It also fell against the German mark.
For the stock market, the dollar’s weakness dampened the impact of the inflation report and some solid second-quarter corporate earnings reports. During the day, the Dow industrials slid more than 30 points before recovering in late trading.
A surprisingly good earnings report from Motorola sent that stock sharply higher and helped technology issues in general, but the improved mood there failed to spread to the rest of the market.
Except for the dollar, “we could have had a bang-up day,” said Bill Allyn, an analyst at Jefferies & Co.
“Everybody’s sitting on their hands, waiting to see what the Fed does,” said Tony Dwyer, chief strategist at Sherwood Research.
Among the market highlights:
* Motorola leaped 5 1/4 to 50 on its earnings report. The semiconductor and cellular phone giant said late Monday that its second-quarter profit jumped 64% to 63 cents a share, from 40 cents a year earlier, on sharply higher sales.
Many other technology stocks also rallied. Apple rose 1 3/8 to 28 3/8, Adobe Systems leaped 2 to 30 1/4, Cabletron Systems rose 3 3/8 to 106, Lotus Development gained 2 to 39 7/8 and Powersoft was up 2 1/2 to 54 1/4.
* Despite Motorola’s gains, other semiconductor stocks came under pressure after the June book-to-bill report on industry demand fell to 1.08 from 1.13 in May. Advanced Micro Devices slipped 1/4 to 26 3/4 and Cirrus Logic shed 3/4 to 32 1/4. Intel rose 1/64 to 60 1/8, recovering from a session low of 59.
* Other earnings reports weren’t received as well as Motorola’s. Philip Morris fell 3/4 to 53 1/8 after the company reported net income of $1.42 per share in the second quarter, compared to $1.19 a year ago. The earnings were about on target with analysts’ expectations.
Goodyear declined 1 3/4 to 35 after the tire maker said its second-quarter earnings would be below analysts’ expectations.
Abbott Labs declined 2 1/8 to 26 7/8 after saying Monday that its second-quarter profit totaled 46 cents a share, up from 42 cents in the year-ago quarter and 1 cent below analysts’ expectations.
Birmingham Steel fell 1 5/8 to 26 3/4 after the company lowered its fourth-quarter earnings estimate to about 30 cents a share after saying just last week that it could earn 40 cents a share.
Overseas, London’s FTS-100 index closed down 19.9 points at 2,963.9. Dollar worries were blamed. The Frankfurt DAX index lost 17.61 points to 2,048.05.
Other European markets were also lower, especially Zurich, which was affected by a Roche Holdings drop of 5.6% after the Swiss drug company reported a small increase in first-half sales.
Tokyo stocks ended slightly down after another day of directionless trade. The Nikkei-225 average ended off 72.61 points at 20,400.48.
In Mexico City, the Bolsa index eased 3.72 points to 2,288.28.
Hong Kong shares closed sharply higher on a technical rebound following a recent selloff. The blue chip Hang Seng Index was up 196.51 points to close at 8,591.45.
In U.S. commodity trading, coffee prices soared again on estimates that up to 60% of Brazil’s 1995-96 coffee crop may have been ruined by two bouts of freezing temperatures over the past two weeks.
Meanwhile, two of the world’s largest coffee roasters, Philip Morris’ Kraft General Foods and Nestle, were rumored to have bought a large quantity of Colombian coffee to cover their needs.
September coffee futures advanced 11.45 cents to $2.47 a pound at the Coffee, Sugar and Cocoa Exchange.
In energy trading, August crude oil futures, extending Monday’s 70-cent rise, jumped another 25 cents to $20.43 a barrel amid continued concerns about a Nigerian oil workers strike.
Market Roundup, D6
