FINANCIAL MARKETS : Dollar Gains, Dow Creeps; State ‘RAW’ Yields Rise
The dollar shot up against the German mark and rose against other major currencies Thursday as Treasury officials and German central bankers spoke out firmly in favor of a stronger buck.
Meanwhile, short-term Treasury bond yields continued to rise on worries about another potential Federal Reserve Board credit tightening. The turmoil in the Treasury market helped push up yields on the 22-month notes, or “RAWs,” sold by California on Wednesday.
In the stock market, most indexes closed marginally higher despite the bond market’s problems. The Dow industrial average added 5.18 points to 3,732.45, but analysts noted that the Dow’s gain was paltry considering that bellwether IBM rocketed 6 1/2 to 62 3/8 after reporting surprisingly good quarterly earnings.
The dollar’s rally caught many traders off guard. The dollar jumped to 1.589 German marks in New York from 1.565 on Wednesday, one of the largest single-day dollar-mark jumps in several months.
Analysts said the dollar was boosted by some of the strongest talk to come out of the U.S. government since the greenback’s latest descent began a few weeks ago.
U.S. Treasury Undersecretary Lawrence Summers said in Senate testimony Thursday that a higher dollar “would have important economic benefits for the United States” and would restore confidence in financial markets.
Earlier in the day, Hans Tietmeyer, president of Germany’s central bank, also made dollar-supportive statements. The combination of his comments and Summers’ suggested to some traders that major industrial nations could be mulling a concerted move to defend the dollar.
“A lot of things came together at once” for the dollar, said Chris Igo, economist at Chase Manhattan Bank. “There’s been a fundamental change in market sentiment.”
The dollar also rallied against the Japanese yen, fetching 99.20 yen in New York, up from Wednesday’s 98.65.
“It’s verbal intervention,” said Kevin Lawrie, director of foreign exchange at Mellon Bank, describing Summers’ and Tietmeyer’s comments. “They’re doing better with these comments than they did when they were buying dollars.”
Yet the bond market didn’t get much of an assist from the dollar’s boost. Short-term yields, which had jumped Wednesday on comments by Fed Chairman Alan Greenspan, rose again Thursday.
The yield on three-month T-bills rose to 4.45% from 4.40% on Wednesday and 4.37% on Tuesday.
Long-term Treasury yields, however, were flat. The 30-year T-bond closed at 7.54%, unchanged after leaping Wednesday.
Greenspan had warned in Senate testimony Wednesday that the Fed may be forced to boost short-term rates again if inflation flares. Some analysts believe Greenspan is priming the nation for yet another rate hike in August, to slow the economy further.
The rise in short-term Treasury yields this week has been bad news for Wall Street brokerages that bought $4 billion in revenue anticipation warrants, or RAWs, from California on Wednesday.
The brokerages bought the RAWs at an annualized yield of about 4.9% and intended to market them to institutional and individual investors at yields of 4.8% or lower. But as other short-term yields have jumped since Wednesday, the brokerages have been forced to mark down the prices of the RAWs--thereby boosting the yield on the notes.
Some traders said investors demanded yields as high as 4.97% on the RAWs late Thursday. Some money managers said they were holding out for 5% or better. That could hurt California next week: The state needs to sell another $3 billion in notes Wednesday, this time in 11-month securities, to fund its huge budget deficit.
Meanwhile, on Wall Street, IBM’s healthy earnings report failed to energize the broad market. Losers edged winners by 11 to 10 on the Big Board.
Traders noted that when IBM reported surprisingly good first-quarter earnings on April 21, the stock jumped 6 1/8 to 58 3/8--and the Dow index surged 53.83 points.
This time, IBM’s gain was offset in the Dow by United Technologies’ 3 7/8 plunge, to 62 1/2, on its earnings report, and by smaller losses in nearly half of the 30 Dow stocks.
“The market (Thursday was) one stock--IBM. That is the story of the day and the story of the week,” said Lawrence Rice, market strategist at Josephthal Lyon & Ross in New York.
Among other market highlights:
* Some tech issues rallied with IBM. Gainers included Apple, up 1 3/8 to 28; Dell Computer, up 7/8 to 26 5/8; Advanced Micro Devices, up 1 1/4 to 25 7/8, and Computer Associates, up 1 1/8 to 40 3/8.
* Other companies gaining on earnings reports included AT&T;, up 5/8 to 53 3/4; Sears, up 1 3/8 to 47 3/8; Monsanto, up 1 to 76 3/4; Johnson & Johnson, up 1 5/8 to 46 3/8; Gillette, up 2 1/4 to 68 3/4, and information systems developer Cerner, which rocketed 6 7/8 to 32.
* Stocks falling on earnings reports included Colgate Palmolive, down 1 3/4 to 50 1/2, and Caterpillar, down 1 1/4 to 106 3/8.
* Among Southland issues, computer parts supplier Golden Systems tumbled 1 to 2 1/2 after reporting quarterly earnings of 1 cent a share, down from 12 cents a year ago. Another tech firm, Rainbow Technologies, sank 2 1/2 to 10 7/8 after reporting lower earnings.
But electronics distributor Marshall Industries rose 1/2 to 21 1/2 after reporting quarterly earnings of 53 cents a share, up from 41 cents.
* Golf club shaft maker Aldila dropped 2 1/4 to 13. The San Diego-based firm reported higher quarterly earnings but also announced that major investor Forstmann Little will distribute its 29.4% stake in Aldila to individual Forstmann partners. The market fears that the individual partners may then dump significant amounts of stock on the market, depressing the price.
Overseas, Frankfurt’s DAX stock index lost 25.35 points to 2,113.30, while Tokyo’s Nikkei average ended off 157.84 points at 20,622.92.
In London, the FTSE-100 index gained 17.9 points to 3,095.1. In Mexico City, the Bolsa index rebounded 21.86 points to 2,223.88.
