FINANCIAL MARKETS : Economy News Slams Markets; Dollar Dives to Postwar Low
A new batch of upbeat economic reports sent financial markets back into inflation-paranoia mode Thursday, while the dollar, in a paradox, tumbled further.
A jump in housing starts nationwide and a surge in raw materials prices reported in a survey by the Federal Reserve Bank of Philadelphia panicked the bond market, sending the yield on the bellwether 30-year Treasury bond above 8% for much of the day.
At the close, the yield was quoted at 7.996%, up sharply from Wednesday’s 7.89% and the highest since May, 1992.
The stock market, in contrast, managed to limit its losses, but the Dow industrials still fell 24.89 points to 3,911.15. Analysts said the market would have tumbled further except for continuing strength in corporate earnings reports.
Financial markets were also pressured by the falling dollar and by rocketing commodity prices.
“Everything that can go wrong went wrong” Thursday, said Sung Won Sohn, chief economist with Norwest Corp. in Minneapolis.
The dollar’s weakness set a bad tone early in the day, after Treasury Secretary Lloyd Bentsen said the United States has no plans to intervene to prop up the currency.
Foreign-exchange traders, sensing that Bentsen was sanctioning a lower dollar, pummeled it down to 1.492 German marks in New York, compared to 1.502 on Wednesday and the lowest since Oct. 19, 1992.
The dollar also fell to 97.15 Japanese yen in New York, down from 97.25 on Wednesday. Early today in Tokyo, the dollar slid to a new post-World War II low of 96.57 yen, until the Bank of Japan began intervening. At midday in Tokyo, the dollar was at 96.87 yen.
Traders noted the irony of the falling dollar: Good economic news in the United States should mean a stronger, not weaker, currency.
Meanwhile, in commodity markets Thursday, hefty gains in energy, soybean, cattle, lumber, orange juice and cocoa futures powered a 1.1% rise in the Commodity Research Bureau index, which added 2.55 points to 233.72.
The commodity increases underscored the Philadelphia Fed regional economic survey, which showed manufacturers generally paying more for raw materials.
Despite the surge in interest rates already this year, analysts said the latest bond market selloff shows that many investors don’t believe yields are high enough to compensate for the potential rise in inflation in 1995, if the economy fails to slow and commodity prices keep moving up.
All of this raises the odds of another Federal Reserve Board increase in short-term interest rates soon, experts said.
Among Thursday’s highlights:
* On the New York Stock Exchange, losers outnumbered winners by 15 to 9 in heavy trading. But, like the Dow, most broad market indexes suffered only modest losses.
Wall Street drew support from some positive earnings reports, analysts said. Stocks gaining on earnings news included Microsoft, up 2 to 59 5/8; Reebok, up 3/4 to 39 3/8; Northwest Airlines, up 1/2 to 21 1/8; General Instrument, up 1 1/8 to 29 7/8, and Conrail, up 2 1/4 to 53 3/4.
* On the downside, GM’s disappointing earnings report sent its stock reeling 3 3/4 to 43 1/8. Kimberly-Clark sank 5 to 52 3/4 after failing to beat Wall Street earnings expectations.
In foreign markets, Tokyo’s 225-share Nikkei average rose 123.03 points to 19,991.90. In Frankfurt, the DAX index added 18.79 points to 2,069.95, while London’s FTSE 100 index edged up 2.4 points to 3,063.2.
Mexico City’s Bolsa index eased 6.77 points to 2,743.36.
Market Roundup, D6
FINANCIAL MARKETS / Interest Rates
30-year T-Bond: 7.99%
1-year T-Bill: 6.16%
