Roundup: Markets on 15th October 1998

Many high tech stocks had a good day yesterday as a result of Greenspan's elixir: the Fed chairman cut a quarter per cent off the federal funds rate to 5 per cent, and also from the discount rate for bank loans, making it 4.75 per cent - the first change since January 1996. This sent the Dow up 331 points (4 per cent) and Nasdaq up 4.5 per cent to 1611. What was unusual is that the rate was adjusted between meetings of the Fed Open Market Committee (FOMC) - the next is on 17 November, which may signal another reduction. The move is seen as recognition of deteriorating markets, but there are risks with such a policy, as was seen in the 1987 crash. In Tokyo, the dollar fell to Y116. Japan's current account surplus rose to Y1.16 trillion in August, up 44 per cent from a year earlier. Exports rose 0.7 per cent and imports declined 5.5 per cent, with industrial production falling 1.3 per cent compared with July. Satoru Kishu, chairman of the Japanese bankers, asked the government not to make the injection of public funds into the undercapitalised banks compulsory. It does not look good for the IT sector, and the Japanese economy looks as though it will continue towards recession. In Europe, there is much navel gazing because of the introduction of the euro, with fears that when the European central bank takes over, there will be a severe slowing of the economy. The UK will have additional options in fiscal policy not available to the continentals. Dell gained 10 per cent on news from John Legere, its Asia Pacific president saying that Dell would take market share there, which seems a little optimistic. CEO Michael Dell has sold $509 million of his shares since August, but he still has about $12.5 billion in the company. These disposals are not unusual: he does this regularly to diversify his portfolio. Lewis Platt, CEO of HP, told the Gartner symposium yesterday that HP's growth would fall. Gartner estimates that HP's Unix sales account for 14 per cent of its $43 billion sales, with PC servers making up just 5 per cent. It was perhaps unwise of Platt to stress how HP is moving to Wintel, but it does explain why Sun is picking up disaffected HP Unix customers. Microsoft was up 5 per cent on optimism about its fiscal Q1 results on Tuesday, with the financial analysts salivating. Jeffrey Maxick of Madison Securities raised his earnings estimate to 51 cent/share, saying that Windows 98 had "really surpassed their widest dreams". We wonder whether he or his company has a Microsoft position. There is considerable uncertainty as to what will happen to the share price during the trial. Amazon.com yesterday launched itself into the UK and German markets, with the great advantage that shipping will be from warehouses in those countries, so cutting a major cost in ordering from the US-based service. In April, the company bought the UK's Bookpages and Germany's Telebook. Bertelsmann tried to buy into Amazon.com, but could not agree terms, so bought 50 per cent of barnesandnoble.com for $200 million recently. Amazon's market cap is approaching $5 billion, and its profits are still negative. Micron, which has being doing well as it shares have doubled since January, announced internally yesterday it would restructure into subsidiary corporations in November, owned by Micron Electronics. Novell has put on 22 per cent in the last week, and IBM reached a new high of $138.75, closing up 4 per cent. Open Market was happy with a 28 per cent increase after AOL agreed to license its Transact business-to-business software product for an undisclosed sum. AOL put on 10 per cent. Other gainers were Intuit 11 per cent; Adobe 10 per cent; Cisco 9 per cent; Yahoo 7 per cent; AMD, 3COM, and Electronic Arts 5 per cent. ® Click for more stories