FINANCIAL MARKETS : Fed Again Aids Dollar; Stocks Await Report
The dollar finished slightly higher Thursday after the Federal Reserve Bank of New York snapped up the U.S. currency for a second straight day, signaling the Clinton Administration’s newfound desire to defend the buck.
Stock and bond markets, meanwhile, mostly treaded water, awaiting today’s report on October employment growth.
The Dow Jones industrial average rose 8.75 points to 3,845.88, breaking its three-day losing streak. In the bond market, yields were mostly unchanged, though the yield on the 30-year Treasury bond inched up to a new 2 1/2-year high of 8.10% from 8.09% on Wednesday.
Currency traders, who appear to have been stunned by the Fed’s decision to intervene in the market Wednesday as the dollar hit a new post-World War II low against the Japanese yen, tried to get out of the central bank’s way early Thursday.
The Fed stepped into the currency market at least three times after 11 a.m., purchasing an estimated $800 million, traders said.
Wall Streeters said the Clinton Administration, which directs the Fed’s actions in the currency market, was underscoring its commitment to boost the battered buck.
But significant early gains in the dollar’s value eroded by day’s end. The dollar jumped as high as 1.527 German marks in New York but fell back to 1.518 late in the day, up from 1.514 on Wednesday.
Against the Japanese yen, the dollar reached 98.30 in midday trading but closed at 97.68, just above Wednesday’s close of 97.60.
Many currency traders are skeptical that the Fed can keep the dollar from going still lower, given the powerful forces working to depress the currency: a severe glut of dollars abroad, foreign investors’ lack of confidence in the Clinton Administration and worries about higher U.S. inflation as the economy expands.
Today’s government report on October employment could be crucial in molding investor expectations for the dollar and for stocks and bonds. A strong report could increase investors’ perception that the Fed’s five interest rate increases this year have been too small to cool the economy and that the central bank will have to act much more boldly to raise rates at its Nov. 15 meeting.
But economists aren’t sure that even a full percentage point increase in short-term rates would be enough to help the dollar now, with international psychology so negative toward the currency and inflation jitters keeping many global investors from buying U.S. stocks and bonds.
“Not that many people are saying, ‘I should be buying dollars,’ ” said Win Thin, international economist at MCM Currencywatch Inc.
In the stock market Thursday, investor sentiment was mildly positive for the first time in three days. Winners barely edged losers on the New York Stock Exchange, though trading slowed in advance of today’s employment report.
Among the market highlights:
* Retail stocks got a lift even though October sales reports were far from robust. Analysts said expectations for the Christmas spending season are still quite bullish. Among major retailers, Dayton Hudson leaped 4 3/8 to 81 7/8, Limited surged 1 3/4 to 20 3/4, Gap rocketed 2 5/8 to 36 1/4 and Sears gained 1 1/8 to 49 1/2.
* Many industrial issues recovered somewhat from recent profit taking. Scott Paper leaped 2 1/8 to 67 3/8, USX-U.S. Steel gained 7/8 to 37 5/8 and BWIP jumped 1 1/4 to 19 1/4.
* Among Southland issues, financial services firm SunAmerica gained 1 1/8 to 39 1/8 after reporting higher quarterly earnings. Also, Harvey Entertainment surged 2 1/4 to 16 1/2 after it signed a deal with Universal Pictures to form a new animation studio.
Elsewhere, U.S. Alcohol Testing rocketed 15/16 to 4 13/16. It said it is in talks with two large national laboratories to provide alcohol breath-testing services.
Overseas, London’s FTSE 100 index rose 23.1 points to 3,104.4 and Frankfurt’s DAX average closed at 2,051.48, up 9.13 points.
The Tokyo stock market was closed for a national holiday. In Mexico City, the Bolsa index eased 9.01 points to 2,543.07.
