MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING WED., JUNE 17 1998 (2)
MARKET OVERVIEW, Con't
After the bell
Oracle Corp. (ORCL) reported fourth-quarter earnings that exceeded analysts' estimates. The Redwood Shores, Calif.-based software maker announced profits of 41 cents per share, 5 cents better than the year-ago period and 3 cents above analysts' estimates.
WorldCom's (WCOM) proposed $42 billion acquisition of MCI Communications Corp. (MCIC) is still being reviewed by the U.S. Justice Department, according to industry officials familiar with the inquiry, Bloomberg Business News reported. The sources said the review is being extended because the acquisition might reduce competition in the wholesale long-distance business.
Ericsson AB (ERICY) is in talks to acquire Ascend Communications Inc. (ASND) and other computer networking companies, Bloomberg reported, citing a person familiar with the talks.
Merck & Co. (MRK) announced that it has begun early testing of vaccine for human papilloma virus, which is linked to cervical cancer.
Ligand Pharmaceuticals Inc. (LGND) and its partner Seragen Inc. (SRGN) reported that the U.S. Food and Drug Administration found deficiencies in the company's application to sell its Ontak drug. Company officials said the FDA won't approve Ontak for use in treating patients with a rare cancer at this time.
Rexall Sundown Inc. (RXSD) said net income for its third quarter rose to 26 cents a diluted share, beating the Street by 2 cents.
Andrew Corp. (ANDW) warned that earnings for its third quarter will be 5% to 10% below last year's 31 cents a diluted share. Analysts had estimated that the company would earn 33 cents a share. The company also said it plans to buy back an additional 5 million shares of its stock.
Evolving Systems Inc. (EVOL) warned that it expects a second-quarter loss of 6 cents to 11 cents a diluted share. The applications-software company was expected to earn 5 cents a share.
Trek to Asian recovery awaits the next step
Investor staff with wire services
The first shoe in the long hike to economic recovery in Asia dropped Wednesday, as the United States and Japan sold dollars for yen in an attempt to slow the slide in the Japanese currency that threatened to undermine economies worldwide.
Stock markets responded accordingly, especially in the U.S. The Dow jumped 164 points and the Nasdaq rose 23, and nearly every stock index closed on the upside. European and Asian markets bounced higher as well.
Now the second shoe -- concrete fiscal-recovery steps by Japan's government -- will have to drop before anyone is convinced that the Wednesday optimism is more than a mere short-term phenomenon.
The American intervention, which marked the first such U.S. action since August 1995, came on the heels of a pledge by Japanese leaders to hasten resolution of the bad bank-loan problems that drove the nation's current recession. President Clinton spoke with Japan's prime minister, Ryutaro Hashimoto, by phone shortly before authorizing Treasury Secretary Robert Rubin to take the action.
"We were running the risk of a real meltdown, and this stabilizes the situation," said Steven Smith of Brandywine Asset Management. "The last thing we need over the Pacific Rim is another round of currency devaluations."
"There was a lot of political pressure for the U.S. to intervene," said Keith Woodfin, a currency analyst at Foreign Exchange Analytics. "China had started to waver on the yuan and the U.S. saw the threat of another emerging-market collapse."
Yet Woodfin, like many other analysts, says the intervention simply isn't a strong enough measure to succeed on its own. "If Japan's economy doesn't improve and the U.S. economy keeps going full steam ahead, it's going to be a challenge to keep the yen down," he said, adding that the Japanese government's promises so far are "pretty weak."
At least the Asia crisis is keeping a lid on interest rates in the U.S. The No. 2 official at the Federal Reserve, vice-chair Alice Rivlin, reinforced expectations that the U.S. central bank was unlikely to alter interest rates anytime soon in a Reuters interview Wednesday. Rivlin suggested the Fed will wait to see how economic problems in Asia affect the trade sector and the overall U.S. economy.
"At the moment, it's kind of a balance of worry," Rivlin said. "There are really two worries and they are in opposite directions."
One of the risks is that the economy may be growing too fast and that some factors that have been keeping inflation from rising will turn around, she said.
But Rivlin added: "On the other hand, you have the weakening situation in Asia, which will slow us down, and there's always the chance it will slow us down too much."
With mon ey arriving in the American markets from foreign investors seeking a "flight to safety," and a short-term lid on pessimism about the Asian economy, traders could well continue the upswing on Thursday. Two key economic releases -- the trade-balance data and initial jobless-claims figures -- are likely to sway the markets' movement.
But most eyes will remain trained on the scene overseas. Money managers are likely to focus on companies with steady or growing profits despite the problems in Asia.
Investors should avoid U.S. commodity companies that will continue to be hurt by weak demand and cheap exports out of Asia, said Michael Weiner, a portfolio manager at Banc One Investment Advisors. "The vast majority of the companies that are large-capitalization are going to do very well," he said. "The average company has modest exposure to Southeast Asia and Japan."
U.S. on Edge of Asian Whirlpool
It is hard for Americans to comprehend the deadly black whirlpool that is inexorably sucking in more of the world's economy.
It's vacation time in America. Joblessness is down, wages and profits up. Ordinary people have become investors. The economy has been described as the most beautifully balanced in about a half-century.
But the economies of much of Asia have been crippled as piece by piece their productive capacity disappears into the sea storm. And the destruction is spreading: Europe, Latin America and, yes, North America.
The currency of Japan, the world's second-largest industrial nation, where banks hold $550 billion in bad loans, is endangered. Its economy is in recession, and officials have been slow to deal with the situation.
Linked through exports and imports to other nations in the global economy, exports by the United States already have been hurt; the industrial operating rate in April was the lowest in two years.
Farmers are angry. Agriculture secretary Dan Glickman predicts Asia's problems will lower their exports by $2 billion this year. Oil is in a glut situation. High-tech companies are battling crash-price imports.
Canada's exports are damaged, and its dollar fell below 68 U.S. cents in mid-June. Mexico is hurting too; Asia's exports are underpricing theirs. And South American nations too have felt the effect.
Economic destabilization creates political problems. Can China protect its economy, or will it too devalue? Can the United States afford to impose economic sanctions on Pakistan, a big wheat importer?
Important as they are, these questions are minor compared with the biggest question of all: Can the United States and Europe risk their own economies in order to continue importing from distressed nations?
While nobody can read the future, economists try. Some of them now say the remarkable U.S. economy risks inflation while others foresee the possibility of deflation. Plausibility supports their concern.
If the United States chooses to force-feed its aged economic expansion in order to help disabled economies export their way to health, will it then face the prospect of inflation that will destroy its equilibrium?
On the other hand, as importers of last resort, will the economies of the United States and Europe be overwhelmed by goods that underprice and undermine domestic production and jobs, producing a downward price spiral?
The impact of either would, of course, be catastrophic for the U.S. securities markets and, by extension, the entire world economy. And the political consequences would be unfathomably complex and dangerous.
A world economy is one of mutual responsibility and dependence; when one nation or group of nations tries to do more than it can afford, a day of reckoning approaches, and the consequences are shared by all.
Meanwhile, the U.S. economy is still strong, even if it has suffered serious damage: the loss of many tens of thousands of jobs, diminished production, unfair price competition. Even Alan Greenspan concedes this.
But Greenspan, the Federal Reserve chief, and Treasury Secretary Robert Rubin, know that no economy, even the world's largest, can escape the dark whirlpool if it is allowed to grow any larger.
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