FINANCIAL MARKETS : U.S.-Japan Pact Gives Stocks, Bonds and Dollar a Lift
Stocks, bonds and the dollar all finished stronger Wednesday in a volatile session dominated by news of the surprise U.S.-Japan trade agreement.
After three days of losses, the Dow Jones industrial average gained 14.18 points to 4,556.79, and the broader market also ended mostly higher.
A sharp rise in the dollar, which closed at 85.68 Japanese yen in New York, up from 84.18 on Tuesday, helped push bond yields down.
The 30-year Treasury bond yield finished at 6.51% compared to 6.54% on Tuesday. Shorter-term yields were also modestly lower.
With the trade pact, “you’ve removed a very big imponderable,” said Morton Swinsky, co-head of U.S. bond trading at Fuji Securities. “That’s what’s giving the market a lift here.”
For the bond market in particular, the trade agreement eliminated the threat that Japanese owners of U.S. bonds might sell in retaliation for the trade sanctions the United States had planned to impose.
Also, a stronger dollar--which could result if the trade agreement helps reduce the huge U.S. trade deficit with Japan--would give foreign holders of U.S. assets more incentive to hold on or buy more.
Still, some analysts were disappointed that the stock market didn’t appear more relieved that an all-out trade war was averted.
Ricky Harrington, technical analyst at Interstate-Johnson Lane, noted that the Big Three U.S. auto stocks, which might have been expected to rise, finished unchanged for the day--Chrysler at 47 3/4, GM at 47 7/8, and Ford at 30 1/4.
In Tokyo, the downbeaten Nikkei 225-share index, which shed 140.98 points to 14,618.07 on Wednesday before the trade deal was announced, rallied early today before ending the morning session at 14,567.43, off 50.64 points.
On the New York Stock Exchange on Wednesday winners beat losers by 12 to 10, but losers had a slight edge in Nasdaq trading. NYSE volume was active at 368 million shares.
Some analysts said another selloff in technology stocks early in the day may have undercut any exuberance over the trade deal.
The tech stocks’ decline was tied to rumors that Microsoft will again delay the introduction of its highly touted Windows 95 operating system. Microsoft stock fell as low as 83 15/16 early in the day, but the company’s denial of the rumors brought buyers back, and it closed at 87 7/8, up 1 for the day.
In the bond market, meanwhile, a better-than-expected reception for the Treasury’s sale of new five-year notes helped sentiment. The notes were sold at an average yield of 5.91%, the lowest in 16 months.
Many analysts say the near-term health of stock and bond markets continues to hinge on the Federal Reserve Board’s next move with interest rates. The Fed will meet next Wednesday, and markets appear to be betting heavily that the central bank will cut short-term rates.
Among Wednesday’s highlights:
* Many interest-rate-sensitive stocks renewed their rallies. Bank of Boston rose 1 1/8 to 38, Chemical Banking gained 1 1/8 to 48 1/4, Barnett Banks added 1 1/4 to 52 1/4 and Wells Fargo jumped 3 1/2 to 185 5/8.
* Energy stocks rose as oil prices continued to rebound, pushed by an American Petroleum Institute report showing smaller-than-expected U.S. inventories of crude oil.
Exxon rose 1 1/2 to 72 1/8, Chevron gained 1 1/8 to 48 3/8 and Amoco was up 5/8 to 67 1/8.
* Technology issues were mixed. Intel added 1/2 to 63 1/8 and IBM was up 3/4 to 96 1/8, but Autodesk lost 1 1/2 to 41 3/4 and Texas Instruments slid 4 to 132 3/4.
* Many health-maintenance organization stocks continued to slide, after brokerage Smith Barney downgraded the group on profit concerns. Oxford Health Plans tumbled 1 5/8 to 46 1/2, U.S. Healthcare dropped 1 1/8 to 30 3/4 and Wellpoint lost 1/2 to 28.
In foreign trading, Mexico’s Bolsa index shot up 60.98 points to 2,173.68, its highest level since Jan. 17, as interest rates fell.
But Frankfurt’s DAX index shed 25.96 points to 2,096.44 after industrial giant Daimler-Benz predicted a huge 1995 loss.
