Dollar Surges While Stocks, Bonds Plunge
While the U.S. stock and bond markets plunged Friday, the dollar zoomed in the opposite direction for the same reason: Rising employment means less of a chance for interest-rate cuts.
The dollar hit highs against the German mark and the Japanese yen not seen since last month, but retreated to less modest gains as the stock and bond markets took late afternoon dives.
The impetus for Friday’s volatility was a report showing that the economy added 705,000 jobs last month - more than double expectations. It was the biggest one-month gain since 1983.
The news of an unexpectedly strong economy seemed to doom prospects for a U.S. interest-rate cut that could have spurred growth and at the same time made dollar-denominated assets less attractive, weakening the currency.
Traders reacted with “complete surprise at the (employment) number, then horror as the (stock and bond markets) went into free-fall,” said Chris Iggo, an international economist at Chase Manhattan Bank.
By 4 p.m. in New York, the dollar was quoted at 105.72 yen, up from 105.25 yen late Thursday. The dollar was changing hands at 1.4840 marks, up from 1.4763 marks.
Traders have waited all week for the employment report, especially after mixed economic data Thursday failed to give a clear indication of interest rate trends.
Friday, traders got their signal on the economy with the release of the employment report and the dollar quickly shot up as hopes of rate cuts faded.
Some of the stocks that moved substantially Friday:
NYSE
International Paper unchanged at 38-1/8.
Champion International rose 3/8 to 44-1/2.
Georgia Pacific rose 1/2 to 67-3/4.
Westvaco rose 1/4 to 29-3/4.
On a day when the Dow Jones industrial average dropped 171 points, paper stocks held firm on a bullish sales outlook for the industry.
Tektronix fell 9-3/4 to 34.
Salomon Brothers downgraded the stock to hold from strong buy, saying it was “alarmed at the revenue shortfall” in the firm’s color-printing and video businesses. In a phone call with analysts on Thursday, Tektronix repeated its third-quarter estimates of 67 cents a share, compared with a consensus estimate of 87 cents.
Bay Networks rose 2 to 34-3/8.
Goldman Sachs crossed a block of one million shares, representing both the seller and buyer, at 31-7/8. The transaction amounted to 0.5 percent of the company’s shares outstanding. But Gruntal & Co. downgraded the stock to neutral from outperform, saying the company will have trouble meeting Wall Street’s third-quarter projections even in a strong market for networking products.
NASDAQ
Intel Corp. rose 3/8 to 53-1/2.
Applied Materials rose 1-1/16 to 33-3/4.
3Com Computer rose 1/8 to 45-1/8.
Some computer-related stocks, bucking a powerful downward draft in the stock market, rose in a snapback from losses early this week.
NASDAQ
American List fell 3 to 31-1/4.
The company priced 1.4 million shares late Thursday at $32 per share. The size of the offering was increased from 1.2 million.