Yields Fall on Job Report
Bond yields plunged Friday as inflation concerns eased after the government reported a smaller-than-expected gain in new jobs in November.
The report also helped drive the battered dollar lower. But the stock market was largely unfazed, and major indexes ended little changed.
The Dow Jones industrial average added 7.09 points, or 0.1%, to 10,592.21, and was up 0.7% for the week.
Oil prices fell for a fourth day, closing below $43 a barrel.
The bond market, which had been hit by heavy selling in recent weeks tied in part to fears that inflation might accelerate, did an about-face after the government said the economy created a net 112,000 jobs last month. That was about half what had been anticipated.
The yield on the 10-year Treasury note, which hit a four-month high of 4.41% on Thursday, tumbled to end the day at 4.25%. The two-year T-note fell to 2.92% from 3.04%.
The rally in bonds brought an end to a seven-day price slump in the 10-year T-note, the longest such streak since March 2002.
Analysts said the employment report suggested that the economy might be less robust in 2005 than hoped, which also could dim inflation pressures.
Yet in a survey reported Friday, many manufacturers said they planned to raise prices next year.
The Federal Reserve still is expected to raise its key short-term interest rate to 2.25% from 2% when policymakers meet Dec. 14. “But after today’s numbers, [investors] are paring expectations on how much the Fed will increase rates next year,” said Scott Gewirtz, co-head of Treasury trading at Deutsche Bank Securities in New York.
Traders also reported sizable buying of Treasuries by Asian investors overnight, before the job data were released. That relieved concerns that the falling dollar might be discouraging Asian investors from adding to their U.S. bond holdings.
The dollar sank further Friday, as currency traders bet that the employment report means the United States is unlikely to seek to bolster its currency. A weaker dollar makes U.S. exports cheaper, and thus could help boost domestic employment in the long run.
“This is about as bad as it gets,” T.J. Marta, a currency strategist at RBC Capital Markets in New York, told Bloomberg News. “This is just one more excuse to sell the dollar.”
The euro surged to a record $1.345 from $1.327 on Thursday. Eight weeks ago the euro was worth $1.24.
The dollar also slumped to 102.09 yen from 103.19 on Thursday, and is the lowest since 2000.
Near-term crude oil futures dropped 71 cents to $42.54 a barrel. It was the fourth straight drop and left oil at its lowest price since Aug. 31.
Oil plunged $6.90, or 14%, for the week, the biggest such decline since March 2003.
Rising U.S. crude inventories have allayed concerns about supplies, driving many speculators out of the oil market, analysts said.
Friday’s decline was kept in check, however, after a senior delegate of the Organization of the Petroleum Exporting Countries raised the possibility that the oil cartel could rein in output when it meets in Cairo next Friday, if prices keep declining.
On Wall Street, lower energy prices and a surprisingly upbeat business outlook issued by semiconductor giant Intel late Thursday helped take the sting out of the November employment report.
The bullish view was that the jobs report “doesn’t really change that the economy is growing nicely,” said David Straus, who helps manage $160 million at Johnston Lemon Asset Management in Washington.
The Standard & Poor’s 500 index edged up 0.84 point, or 0.1%, to 1,191.17, and gained 0.7% for the week. The index hit a three-year high Wednesday.
The Nasdaq composite, boosted by Intel, rose 4.39 points, or 0.2%, to 2,147.96, and was up 2.2% for the week.
The Nasdaq index traded as high as 2,164.63 early Friday, briefly eclipsing the 2004 closing high of 2,153.83 set on Jan. 26.
Winners topped losers by about 5 to 3 on the New York Stock Exchange. Losers had a modest edge on Nasdaq.
Among the day’s market highlights:
* Intel jumped $1.20 to $23.91 on its sales outlook. But other chip stocks were mixed. Advanced Micro Devices was up 60 cents to $23.22, but Broadcom eased 9 cents to $33.42.
* Elsewhere in the tech sector, Hewlett-Packard gained 42 cents to $20.99 while Apple Computer fell sharply for a second day, off $2.53 to $62.68. Some analysts have raised concerns about Apple’s recent run-up.
* Many bank stocks ended lower. Fifth Third Bancorp slumped $3.67 to $47.99 after the 10th-largest U.S. bank said it would earn 28 cents to 30 cents a share this quarter, less than the 82-cent average analyst estimate in a Thomson First Call survey. Fifth Third said Thursday that it was cutting debt and selling securities to reduce the effect of higher interest rates.
* Near-term gold futures in New York jumped $5.60 to $456 an ounce, a 16-year high. Gold has rallied as the dollar has slumped. But gold mining stocks were mixed Friday.
* MGM Mirage soared $2.84 to $63.54. Mandalay Resort Group, which MGM plans to buy, reported quarterly earnings that beat Wall Street forecasts by 11 cents a share, fueled by record-setting performances at its Las Vegas Strip properties.
