FINANCIAL MARKETS : Dollar Slide Clips Stocks, Bond Prices
A steep fall in the dollar sent bond yields soaring and dragged stock and bond prices lower Monday.
Oil prices also dropped on signs that a strike by Nigerian oil workers might be unraveling.
The dollar edged back toward its record low against the Japanese yen as dealers grew pessimistic about the outlook for progress in U.S.-Japan trade talks.
Market participants said American investment funds and Japanese exporters were heavy sellers of the U.S. currency, further depressing a dollar market glutted by persistent trade deficits and the movement of long-term capital out of U.S. assets.
The Mexican peso strengthened against the dollar on the apparent election victory of Ernesto Zedillo, presidential candidate of the ruling Institutional Revolutionary Party. It cost 3.338 pesos to buy a dollar in New York on Monday, compared to 3.359 on Friday. Zedillo’s victory also sent Mexican stocks soaring, with the Bolsa index rising 50.79 points, or 1.88%, to close at 2,758.97.
Long-term U.S. Treasury bond yields rose, pushing prices down for a fourth consecutive session as the tumbling dollar threatened to sap foreign demand for bonds and other U.S. government securities.
But the decline in bonds was exaggerated by light trading volume, with many investors and traders vacationing ahead of Labor Day. In thin activity, even relatively few bond sales can have a disproportionate impact on prices.
The key 30-year bond yield rose to 7.55% from 7.48% on Friday, while its price, which moves in the opposite direction, dropped 13/16 of a point, or $8.13 per $1,000 in face value.
Confronted with a lack of news or fresh economic data, the bond market’s few participants focused on the dollar, which began to weaken in Asia and continued to drop when trading shifted to European and U.S. markets. It closed in New York at 97.83 Japanese yen, down from 98.65 on Friday and near its all-time New York low of 97.50 yen July 12. The greenback also closed at 1.527 German marks, down from 1.539 on Friday.
Persistent weakness in the dollar has discouraged overseas investments in Treasury bonds, since U.S. securities become worth less when converted into foreign currencies that are worth more against the dollar.
Meanwhile, the retreating dollar and surging long-term bond interest rates scared off buyers in the stock market.
The Dow Jones industrial average fell 3.89 points to 3,751.22 as 235.88 million shares changed hands, down from 279.65 million on Friday. In the broader market, declining issues outnumbered advances by about 4 to 3 on the New York Stock Exchange.
“Basically, the stock market is trying to digest the problems in the dollar and bond markets,” said Rao Chalasani, chief investment strategist at Kemper Securities.
Lower stock prices abroad also hurt the U.S. market. In Tokyo, the 225-share Nikkei index ended down 118.12 points at 20,394.58. In Frankfurt, the 30-share DAX average fell 25.78 points to close at 2,123.79. And in London, the Financial Times 100-share average closed down 20.1 points at 3,171.3.
Among the market highlights:
* Novell fell 1 1/8 to 14. The company said late Friday that it expects fiscal third-quarter earnings to be as much as 20% below analysts’ expectations.
* Neutrogena rose 6 1/64 to 34 49/64. Johnson & Johnson will buy Neutrogena, maker of skin and hair care products, for $924.1 million, or $35.25 a share. Johnson & Johnson rose 1/8 to 49 1/8 on the NYSE.
* Telefonos de Mexico ADRs rose 1 to 66 1/2, Grupo Televisa rose 1 7/8 to 61 1/4 and Grupo Casa Autrey rose 2 1/4 to 34.
* Williams Cos., which agreed to sell its WilTel network services business to LDDS Communications for $2.5 billion, ended unchanged at 31 1/4. LDDS fell 3/4 to 23 1/16.
Meanwhile, the expiring contract for September delivery of light, sweet crude oil plunged 71 cents on the New York Merc to $16.87 a barrel, the lowest settlement for a near-term contract since May 4.
