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ForGd«F* R. 131
BOARD DF GOVERNORS
OF THE

FEDERAL RE5ERVE SYSTEM

Office Correspondence
r

Yo

Chaiiman Eccles

Date

Jui y 19,1937

Subject:

p r o m Woodlief Thomas




In connection with your usual Treasury meeting.

Cc* 35
July 19f

COBBHHT 0011CBSTS
(Preliminary)
Dwindling gold movement
By the end of last week new gold shipments to the United States
had come to a virtual halt*

Less than $5,000,000 appears to have been

engaged for shipment to this country during the week or acquired directly
from foreigners by the Treasury*

Not only did offerings of gold in the

London market continue to be small, but the London gold price^ rose to
a level which made it unprofitable to ship gold to the United States*
Last week, for the first time in a great many months, no London market
gold was taken for United States account*

This situation in the gold

market, together with a further rise of sterling to the highest level
since the tripartite arrangement became effective, appears to reflect
the cessation of gold dishoarding and a strengthening of the demand for
sterling in this country for canmercial and other purposes*

Among the

latter, it is reported, Japanese operations have been important, the proceeds of Japanese gold sales in this country having been transferred to
London for the purpose of meeting short-term debt payments in that market*

Break in the Trench franc
A break in the French franc, which declined on Friday and Saturday
to new low levels, featured the exchange market at the close of last week*
This reversal of the previous moderate upward tendency of the franc was




Confidential
- 2 -

not linked to any particular event, but reflected, rather, the cumulative effect of a number of developments casting doubt on the success
of the new financial program.

The decline in the franc was substantial,

amounting to more than 3 percent in London at its maximum.

It is believed

that the French control did little to restrain the fall, but on Monday of
this week the Fund was reported to have intervened to some extent, and the
franc recovered slightly*

Because of the Fund's policy of conserving its

newly acquired gold and allowing the franc to decline, pressure on franc
exchange has not resulted in any gold movements of importance.
Excess reserves
Excess reserves of member banks increased #80,000,000 to a total
of $960,000,000 in the week ending July 14. The major factor responsible
for the increase in reserves was a decline of $70,000,000 in money in
circulation. Treasury deposits with the Reserve banks also declined
slightly, as did foreign bank deposits. The decline in foreign bank deposits reflected purchases of short-texm Treasury bills in this market
for account of foreign correspondents. Excess reserves of leading New
York banks continued to increase during the week. On July 14 these banks
held $230,000,000 of excess reserves as compared with $170,000,000 a week
earlier, and approximately $100,000,000 on July 2.
During the current statement week ending July 21, it is anticipated
that excess reserves will show a small decline owing to an increase in
Treasury deposits with the Reserve banks. The Reconstruction Finance
Corporation is making some large payments to the Treasury, and the Treasury's




Confidential
- 3 balance will therefore be built up to a somewhat l^gher level than it
has been accustomed to keep in the past few weeks.
Reporting member banks
In the week ending July 14, total loans and investments of reporting member banks in New York City declined further, while banks in other
leading cities showed a small increase*

At New York banks holdings of

Government obligations decreased by $40,000,000, making a total decline
of nearly #190,000,000 since the Treasury note issue of June 15. Loans
to brokers and dealers declined by $70,000,000 during the week, while
commercial loans, which had shown little change since the middle of
June, showed an increase of $75,000,000, of which half was at New York
banks*
Adjusted demand deposits increased by $180,000,000, following a
decline of $430,000,000 in the two preceding weeks. Of last week's increase only about $50,000,000 was at New York City banks, where the decrease
in preceding weeks had exceeded $250,000,000*
Government security market
Treasury bonds and notes advanced further during the past week.
The average yield on the longer-term bonds declined to 2.59 percent, as
compared with 2.62 percent on Saturday of the previous week, and the yield
on 3- to 5-year notes declined to 1,44 percent from 1.48 percent a week
earlier. These yields, which are the lowest since March, compare with the
April higjis of 2.78 percent for bonds and 1.70 percent for notes.




Confidential
- 4 -

Bond market
Moody* s averages of corporate bond yields on Friday showed no
net change from the preceding Friday* The Aaa average remained at
3.27 percent, and the Baa average at 4*95 percent. Second-grade rails
lost about 1/2 point in price during the week, following the rapid advances of the previous fortnight, but other classes were relatively unchanged in price, Maricet trading in bonds was exceptionally light.
Stock market
During the week ending July 17 the stock market was somewhat
less active than daring the preceding week, with average daily sales
of about 850,000 shares* The general level of stock prices has shown
very little net change during the past ten days, and is now about 8 peiv
cent above the low for the year, reached about a month ago.
Prices of British stocks in London declined during the week, but
remained somewhat above the low for the year, reached about two weeks
ago.
Foreign purchases and sales of -American stocks were approximately
equal last week, with business in small volume.
Hew capital issues
About 20 new security issues were offered last week and the total
amount was about #70,000,000. The largest issue was an industrial preferred stock issue of #45,000,000, of which about half was for new capital
and half for refunding. Reception of the week f s issues was favorable, and
the technical position of the market appears to be strong. It seems, however, that the total of new issues in July will be as small mm in any period
since the revival of the capital market in March 1935.