Record Trade Deficit Gives Wall Street a Jolt
News of a record U.S. trade deficit for June stunned Wall Street on Thursday, but by the close of trading the damage was surprisingly limited.
The dollar, however, ended at a new seven-month low against the Japanese yen as capital continued to pour back into Japan, betting on economic recovery.
The Dow Jones industrial average closed off 27.54 points at 10,963.84 after sagging as much as 118 points early in the day.
The Nasdaq composite was hit harder, losing 1.4% for the day after dropping 0.5% on Wednesday. Still, the Nasdaq index had been down 1.7% at its worst level Thursday.
In the bond market the yield on the bellwether 30-year Treasury bond edged up to 6.02% from 6% on Wednesday.
But analysts said it all could have been much worse, given the trade report.
The government said the U.S. deficit rocketed to nearly $25 billion in June, reflecting Americans’ voracious appetite for imports.
That added more weight to what is already a foregone conclusion for many Wall Streeters: that the Federal Reserve will raise short-term interest rates when it meets Tuesday, to slow the U.S. economy.
The Fed also may want to raise rates to protect the slumping dollar, analysts say. The dollar tumbled Thursday to 111.40 yen, down from 112.03 Wednesday and the weakest since January.
Just six weeks ago the dollar was at 122 yen.
The dollar also fell against the euro Thursday, as a report showed rising business confidence in Germany, the largest economy in the 11-nation euro region.
“Europe and Japan are getting their act together, and that provides alternative investment opportunities,” said Robert Blake, senior economist at NatWest Global Financial Markets.
As investors shift their portfolios, “that’s going to impact the dollar negatively” as money flows out of the U.S. and into other economies.
Indeed, Japan’s Nikkei-225 stock index, while off slightly to 17,879 on Thursday, was up 0.8% to 18,027 early today--the highest since July 21.
“Given the uncertainty in the U.S. asset markets, people have to hedge, and Japanese equities are a good hedge” as the economy recovers from recession, said Michael Klawitter, a strategist at West LB Research.
Hong Kong shares surged 3.2% on Thursday to their highest level since Aug. 4.
Today in Taiwan, the main share index soared 1.9% to 8,117, its highest level since July 13.
Another problem is that “a weak dollar means that instead of importing deflation, we’re importing inflation,” said David Ging, a strategist at Donaldson, Lufkin & Jenrette Securities Corp. A falling dollar makes imports more expensive.
With the dollar sliding, “The real concern is whether the Federal Reserve is going to stop with the interest rate hike that is expected next week or continue with more in the second half of 1999,” said Sam Stovall, investment strategist at Standard & Poor’s.
But if the bond market was upset about the dollar’s latest slide and what it may mean at the Fed, it barely registered. Yields on Treasury issues in general were unchanged or only slightly higher.
In the stock market losers topped winners by 16 to 14 on the New York Stock Exchange and by 21 to 17 on Nasdaq, but volume remained modest.
Analysts say investors may be increasingly torn between the bad news of higher interest rates and the good news of rising global optimism, which should hold benefits for many U.S. exporters and multinational companies.
Among Thursday’s highlights:
* Internet stocks pulled back sharply after rebounding for the last week.
EBay tumbled $12.19 to $113.75, America Online slid $3.19 to $96, EToys dropped $5.19 to $40, Amazon.com dropped $7 to $106.13 and UBid slumped $3.75 to $23.25.
But Onsale rose $1.38 to $17.63 as the company, which sells computer equipment and other goods over the Internet, said it expects third-quarter sales to be 8% to 12% above second-quarter levels.
* Major tech stocks were mixed. Intel fell $1.19 to $77.31 and Microsoft lost $1.19 to $83.81, but Compaq added 50 cents to $24 and Micron Technology rose $1.88 to $61.88.
* Biotech stocks were all over the map. Amgen fell $2.50 to $78.25 and Genentech lost $5 to $155, but Gilead Sciences jumped $2.38 to $79.13 and Cephalon gained $1.50 to $18.50.
* Unocal surged $2.13 to $43 amid renewed speculation that the oil and natural gas explorer may be bought. El Segundo-based Unocal may be a takeover target for Texaco, some analysts said.
Texaco added 63 cents to $64.
* Shares of some industrial companies that could benefit from a stronger global economy were higher. DuPont jumped $1.31 to $72.38, International Paper gained $1.25 to $54, GM added 44 cents to $63.13, Georgia Gulf gained $2 to $15 and Ingersoll-Rand added 81 cents to $62.50.
* Seagram surged $3.50 to $53.63 as the entertainment giant reported a quarterly loss from operations of 32 cents a share, smaller than the 42-cent average loss estimate of analysts polled by First Call.
* Some investors snapped up electric and gas utility stocks, sending the Dow utility stock index up 1.1%. Utilities often are considered “safe haven” stocks in times of market turmoil.
Duke Energy jumped $1.50 to $54.13, Southern Co. rose 44 cents to $26.75 and Texas Utilities was up 44 cents to $40.25.
But phone stocks were sharply lower. MCI Worldcom lost $1.88 to $75.75, Ameritech slid $2.69 to $68.25, GTE fell $1.38 to $72.63 and AT&T; was off 44 cents to $48.19.
Market Roundup, C8
