FINANCIAL MARKETS : Dollar Gains; Stocks, Bonds Marking Time
The dollar hit a seven-week high against the Japanese yen and gained on other major currencies Monday, but stocks and bonds closed little changed from Friday.
Analysts said some of Monday’s market action appeared to be posturing ahead of the U.S. Treasury’s quarterly “refunding,” which begins today with the sale of three-year notes.
In New York, the dollar jumped to 101.52 yen from 100.25 yen Friday. Monday’s close was the dollar’s highest level against the yen since June 20.
The dollar also inched up against the German mark, to 1.583 from 1.581 on Friday.
Traders said the dollar was helped on two fronts: First, some foreign investors appeared to be purchasing dollars with which to buy Treasury notes and bonds at this week’s auctions.
Second, anticipation that the Federal Reserve Board will again raise short-term interest rates may be influencing some investors’ thinking about the dollar’s next big move. A rise in rates would tend to support the U.S. currency.
But neither stocks nor bonds got much of a lift from the dollar’s gains Monday.
The Dow Jones industrial average added 6.79 points to 3,753.81 in typically thin summer-Monday trading. Winners topped losers by 11 to 9 on the New York Stock Exchange.
In the bond market, the yield on the Treasury’s 30-year bond closed at 7.54%, unchanged from Friday. Yields had rocketed Friday after the government reported a surge in job creation in July, suggesting that the economy is stronger than the Fed desires.
That raised expectations that the Fed will tighten credit soon for a fifth time this year, by boosting short-term interest rates. The Fed’s policy-making committee meets Aug. 16.
In the meantime, the bond market in particular faces the hurdle this week of the Treasury’s refunding, which will dump $40 billion in new notes and bonds on the market.
Also, both stock and bond markets may be volatile in advance of the government’s report on July wholesale inflation, due out Thursday, and July consumer inflation, due on Friday.
Higher-than-expected inflation numbers could force the Fed to boost short-term rates by half a percentage point, some traders say. Many economists now believe the Fed will raise rates a quarter of a point next week.
Among Monday’s market highlights:
* Some industrial shares continued to decline in profit taking. Deere fell 1 3/8 to 65 5/8, Phelps Dodge lost 1 to 61 1/8, Great Lakes Chemical slid 1 3/8 to 56 3/4, Illinois Tool Works eased 1/2 to 40 3/8 and Kennametal dropped 1 3/8 to 51 7/8.
* Many transportation issues were also weak. British Airways fell 2 1/4 to 64 3/8, Federal Express lost 1 to 66 1/8 and Conrail sank 1 1/8 to 54 7/8.
Also, Mesa Airlines plunged 3 7/16 to 6 9/16 after the regional airline lowered its 1994 and 1995 earnings expectations, citing rising competition.
* On the plus side, technology issues were broadly higher. Apple rose 1/2 to 33 3/4, Compaq jumped 7/8 to 34 1/2, Adobe Systems surged 1 7/8 to 31 1/8, Cabletron Systems gained 2 7/8 to 98 7/8 and IBM rose 7/8 to 63 1/4.
* One of the day’s big winners was North American Mortgage, which rocketed 3 to 30 5/8. The firm hired Morgan Stanley & Co. to help it consider options to increase shareholder value.
* Viacom shares continued to climb. The entertainment giant’s stock has been gaining recently as investors re-evaluate its near-term prospects. Viacom Class B shares rose 1 to 35 3/8. The stock traded as low as 21 3/4 in the spring.
In foreign markets, Mexico City shares succumbed to profit taking after their recent surge. The Bolsa index sank 39.04 points to 2,603.93.
In Tokyo, the Nikkei 225-share average ended up 114.13 points at 20,635.83.
In Frankfurt, the DAX average eased 0.09 point to 2,184.67. London’s FTSE-100 index added 4.4 points to 3,171.9.
In U.S. commodity trading, speculators bailed out of the coffee market Monday, sending prices to five-week lows as the threat of further damaging frosts in the world’s biggest producing nation, Brazil, receded.
September coffee futures plunged 24.15 cents to $1.78 a pound, the lowest since the day following the first of two Brazilian frosts.
In precious metals trading, gold futures for August eased 60 cents to $376.70.