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DIVISION O F I N T E R N A T I O N A L F I N A N C E • OARO OF e O V E R N O R S F E D E R A L R E S E R V E SYSTEM vAugust 21, 1961 No, 21 Al TAL MARKET DEVELOPMENTS ABROAD 1= lie I, Germany Nine Charts on F i n a n c i a l Markets Abroad Germany s Money and C a p i t a l Markets During J u l y The t i g h t e n i n g of German money and c a p i t a l markets e v i d e n t i n t h e second h a l f of June continued i n J u l y and e a r l y August» O f f e r i n g s of s e c u r i t i e s by f o r e i g n h o l d e r s , due p a r t l y t o t h e B e r l i n s i t u a t i o n but p a r t l y t o reduced e x p e c t a t i o n s of f u r t h e r i n c r e a s e s i n German bond p r i c e s , was an important cause of i n c r e a s e d market t i g h t n e s s 0 German bondholders were a l s o i n f l u e n c e d tyr t h e r e v i s e d e x p e c t a t i o n s r e g a r d i n g f u t u r e bond p r i c e trendso Another f a c t o r c o n t r i b u t i n g t o t h e reduced l i q u i d i t y of t h e money market was t h e continued i n c r e a s e i n s h o r t - t e r m investments abroad by German banks• On August lii 9 i n a move t o c u r t a i l t h i s f l o w , t h e German F e d e r a l Bank ended t h e p r a c t i c e i t had followed s i n c e l a s t February of buying forward d o l l a r s from the commercial banks a t t h e spot r a t e without chargeo On August 15 s s p o t d o l l a r s i n F r a n k f u r t reached a new p o s t r e v a l u a t i o n high of 3„9950 e The d o l l a r has moved almost s t e a d i l y i f modestly upward s i n c e e a r l y June, L i q u i d a t i o n of forward c o n t r a c t s and s e l l i n g by f o r e i g n h o l d e r s of German bonds and s h a r e s remain important f a c t o r s c o n t r i b u t i n g t o t h e improvement i n t h e d o l l a r r a t e ; o f f i c i a l i n t e r v e n t i o n has a l s o been mentioned as a r e a s o n f o r t h e s t r e n g t h of t h e dollaro German bond markets remained g e n e r a l l y q u i e t with f u r t h e r s a l e s , p r i n c i p a l l y by f o r e i g n e r s but a l s o t o some e x t e n t by domestic i n v e s t o r s , d e p r e s s i n g p r i c e s c The t r e n d toward a 5 p e r c e n t long-term r a t e seems t o be d e f i n i t e l y h a l t e d f o r t h e time being* On J u l y 19 t h e stock market s u f f e r e d i t s s h a r p e s t setback s i n c e t h e DM r e v a l u a t i o n , t h e d e c l i n e b e i n g a t t r i b u t e d almost e x c l u s i v e l y to B e r l i n t e n s i o n s c There was some improvement i n l a t e J u l y a f t e r P r e s i d e n t Kennedy's speech of J u l y 2$ on B e r l i n , and as a r e s u l t of s h o r t covering and of o t h e r t e c h n i c a l f a c t o r s . F u r t h e r modest improvement occurred i n e a r l y August. Money Market«, During most of J u l y t h e money market, which had t i g h t e n e d during t h e second h a l f of June, remained under p r e s s u r e . C a l l money r a t e s remained around 3 per cent f o r most of t h e month u n t i l a d e c l i n e of l / 2 percentage p o i n t i n t h e l a s t week of J u l y , One month r a t e s NOT FOR PUBLICATION DECONTROLLED AFTER SIX MOUTHS NOT FOR PUBLICATION - 2 - were g e n e r a l l y around 3 p e r c e n t and three-month r a t e s above 3 per c e n t . During J u l y the German commercial banks, t a k i n g advantage of t h e r e g u l a t i o n s p e r m i t t i n g them t o o f f s e t t h e i r s h o r t - t e r m f o r e i g n a s s e t s a g a i n s t , t h e i r s h o r t - t e r m f o r e i g n l i a b i l i t i e s i n t h e computation of t h e i r minimum r e s e r v e requirements,, moved money abroad i n c o n s i d e r a b l e amounts 0 Placed at term t h e s e short=term a s s e t s a r e not r e c a l l a b l e u n t i l e x p i r a t i o n pf t h e period* Thus t h e t i g h t n e s s of t h e money market, although i n f l u e n c e d by movement of f o r e i g n funds out of Germany because of t h e B e r l i n s i t u a t i o n , was p a r t l y caused by t e c h n i c a l f a c t o r s . On J u l y 13s r e t r o a c t i v e t o J u l y 1, the F e d e r a l Bank reduced minimum r e s e r v e requirements a g a i n s t r e s i d e n t d e p o s i t s by 5 p e r cent of t h e October 1959 l e v e l c This brought l i t t l e r e l i e f t o t h e market u n t i l t h e l a t t e r p a r t of t h e month when c a l l money f e l l t o around 2 1 / 2 per c e n t , one-month and three-month r a t e s easing only s l i g h t l y o Rates r o s e again i n the f i r s t week of August, and on August 10 t h e F e d e r a l Bank again reduced r e s e r v e requirements by an a d d i t i o n a l 5 p e r cent of t h e October 1959 l e v e l , r e t r o a c t i v e t o August 1Q This brought t h e t o t a l r e d u c t i o n so f a r t h i s year t o more than 26 p e r cent of t h e l e v e l of December 3 1 l a s t o While t h i s l a t e s t r e s e r v e requirement r e d u c t i o n w i l l a i d t h e money market i t i s not> expected t o o f f s e t f u l l y t h e adverse e f f e c t s of i n t e r n a t i o n a l t e n s i o n s * On August 1U t h e F e d e r a l Bank announced t h a t e f f e c t i v e immediately t h e r e would be a 0 o 25 p e r cent charge on d o l l a r swap o p e r a t i o n s , with business l i m i t e d t o a one= t o three=month rangeo Since midFebruary t h e r e had been no charge f o r German commercial banks wishing t o hedge forward d o l l a r purchases f o r a p e r i o d r a n g i n g from two weeks t o s i x months| t h e Federal Bank stood ready t o buy forward d o l l a r s from t h e banks a t t h e s p o t r a t e . Banking c i r c l e s i n F r a n k f u r t i n t e r p r e t t h e move as one t o ease German money markets by discouraging t h e banks from p l a c i n g s h o r t =>term funds abroad c I t i s a l s o b e l i e v e d t h a t some banks may now move funds i n t o f i x e d - i n t e r e s t s e c u r i t i e s and h e l p t o counter the r e c e n t r i s e i n long-term y i e l d s * F r a n k f u r t I n t e r b a n k Money Rates 1961 Day-to-day money Lowest r a t e Highest r a t e ™ May (monthly range) w June J u l y (weekly range) 1 - 7 8-15 16-23 21-31 Aug0 (weekly range) 1=6 n 7-13 2.38 1.75 2,63 3.00 2.88 2.38 3,00 2 0 13 3.13 3.13 3.13 3.13 3.13 2.63 3.13 2.88 NOT FOR PUBLICATION One-month loans Three-month loans 2.75 - 3 . 1 3 2.75 - 3.13 3.00 2.88 - 3.00 2.88 - 3.00 2.88-3.00 3.00 2.88 3.00 2.88 - 3.25 3.00 - 3 . 2 5 3.13 3.13 3 . 0 0 - 3.13 3.00 - 3.13 3.13 3.00 - 3.13 NOT FOR PUBLICATION There was no change d u r i n g J u l y o r e a r l y August i n t h e r a t e s a t which t h e F e d e r a l Bank i s p r e p a r e d t o s e l l T r e a s u r y b i l l s and s h o r t - t e r m bonds i n t h e open market and, a s of August 1 8 , t h e y remained a t t h e l e v e l s s e t on May 5 . 60-90 days Treasuiy b i l l s From Dec. 1961 Jan. Mar. Apr. May 6-month T r e a s u r y bonds 20,1960 20, 3.75 Loo 20 23 26 5 3.25 2.50 2.38 2.25 3.50 2.75 2.63 2.50 In m i d - J u l y , r a t e s on E u r o - d o l l a r d e p o s i t s i n London d e c l i n e d somewhat. During l a t e J u l y and e a r l y August t h e margin of advantage between t h e F r a n k f u r t money market and London E u r o - d o l l a r c a l l r a t e s h i f t e d back and f o r t h , t h e s p r e a d on e i t h e r s i d e r e m a i n i n g s m a l l . S i n c e mid-June t h e s p r e a d h a s been w e l l below 1 / 2 a p e r c e n t a g e . p o i n t , The l a r g e German commercial banks c o n t i n u e t o h o l d most of t h e i r f o r e i g n a s s e t s i n t h r e e - m o i i t h E u r o - d o l l a r a c c o u n t s , which y i e l d a b o u t 3 1 / 8 p e r c e n t . Although t h e s p r e a d between t h e F r a n k f u r t t h r e e - m o n t h l o a n r a t e and t h e London t h r e e - m o n t h r a t e on E u r o - d o l l a r s h a s been a l m o s t n e g l i g i b l e s i n c e m i d - J u n e , t h e German commercial banks have had an a d d i t i o n a l i n c e n t i v e i n t h e f a c t t h a t t h e p r i v i l e g e t h e y have had s i n c e A p r i l of o f f setting t h e i r foreign assets against t h e i r foreign l i a b i l i t i e s for purp o s e s of d e t e r m i n i n g r e q u i r e d r e s e r v e s has r e d u c e d t h e amount of r e s e r v e s t h a t must b e h e l d a t t h e maximum r a t e s . German money-market r a t e s v s . London E u r o - d o l l a r r a t e s Rate Rate f o r U.S. d o l l a r I n c e n t i v e f o r U.S. Incentive in favor d e p o s i t s on i n f a v o r dollar of London 3 months Day-to-day d e p o s i t s 3 months of London a t c a l l E u r o - d o l l a r money i n basis Euro-dollar money i n F r a n k f u r t i n London c a l l r a t e F r a n k f u r t i n London 3-month r a t e May 5 12 19 26 June 2 9 16 23 30 July 7 Hi 21 28 Aug. h 11 2.82 2.88 2.88 2.75 2.50 2.50 2,13 2.50 2.50 2.63 3.07 2.9U 2 .hh 3.07 2.38 3.00 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.75 2.75 2.63 2.63 2.75 2.75 2.75 0.18 —— —— 0.13 0.38 0.38 0.75 0.38 0,25 0.12 -o.Wi -0.31 0.31 -0.32 0.37 3.00 3.00 3.13 3.13 3.13 3.07 3.07 3.07 3.13 3.13 3.13 3.07 3; 07 3.13 3.07 3.56 3.56 3»kk 3.Wi 3.UU 3.50 3.50 3,38 3.38 3.31 3.25 3.25 3.31 3.25 3.25 , 0.56 0.56 0.31 0.31 0.31 0.U3 0.U3 0.31 0.25 0.18 0.12 0.18 O.2I1 0.12 0.18 In raid-July t h e spread between V ^ : ; y b:J.i y' - Ids in t h e United S t a t e s and Germany s h i f t e d t o favor t h e German b i l l over t h e U.S. b i l l on a n e t i n c e n t i v e b a s i s , but only n e g l i g i b l y . In e a r l y August the spread again favored t h e U.S.- b i l l (but a l s o n e g l i g i b l y ) as t h e UeS5 b i l l r a t e r o s e above J u l y l e v e l s , increasing 19 b a s i s p o i n t s between August U and 11, U n t i l August 11 t h e r e was l i t t l e or no change i n the spread between the U.S. b i l l r a t e and t h e German i n t e r b a n k loan r a t e , with t h e German r a t e s t i l l favored on a n e t i n c e n t i v e b a s i s (see c h a r t s 3 and k)» As of August 11 5 however, t h e r i s e i n the U.S. b i l l r a t e had narrowed the i n c e n t i v e i n f a v o r of the F r a n k f u r t inter-bank loan r a t e from about 0.8L per cent per annum on August U t o about 0.63 per cent per annum on August 11. The German banking community has been concerned by t h e p e r s i s t e n t t i g h t n e s s of the money market in r e c e n t weeks0 Larger r e d u c t i o n s i n t h e r e s e r v e requirements had been hoped f o r , while some observers a l s o suggested t h a t both the f e d e r a l and s t a t e governments should u t i l i z e some of t h e i r r a p i d l y growing s u r p l u s e s , r e s u l t i n g from high t a x r e c e i p t s s t o ease the market* While t h e r e has a l s o been some p r e s s u r e t o lower the Federal Bank's s e l l i n g r a t e f o r Treasury b i l l s and short-term bonds t h e r e have been no i n d i c a t i o n s t h a t t h e Bank contemplates such a move a t t h i s time, German Inter-bank loan r a t e vs. U.S. b i l l r a t e Net covered German Spread i n c e n t i v e U.S: over 3 mos „ in favor inter-bank b i l l U.S. of German rateV loan r a t e r a t e b i l l 1961 June 2 9 16 23 30 July 7 1U 21 28 Aug.. h 11 3,13 3.07 3.07 3.07 3.13 3,13 3,13 3.07 3.07 3.13 3.07 2.UT 2.32 2.33 2,28 2,27 2.30 2.20 2.16 2.2L 2.29 2dill 0.66 0,72 0.7l 0.79 0.86 0.83 0.93 0.91 0.83 0.8k 0.63 0.66 0.72 0.7k 0,79 0,86 0.83 0.93 0.91 0.83 0.8U 0.63 Bundesbank's Treasury b i l l s e l l i n g r a t e v s , UcSt b i l l r a t e Net covered Spread incentive 3 mos. in favor over bill of German U.S. rateV bill rate 2.25 2.25 2,25 2.25 2.25 2\25 2.25 2.25 2.25 2.25 2.25 -0.22 -0.10 -0.08 -0.03 -0.02 -0.05 o.o5 0.09 0.01 =0, oU -0.19 -0.22 -0.10 =0.08 -0.03 -0=02 -0.05 . 0.05 0.09 0.01 -o.ou -0.19 1/ J o encourage c a p i t a l outflow t h e Bundesbank provided forward d o l l a r s f l a t to German banks u n t i l August llu As of t h a t d a t e a charge of 0,25 per cent was imposed on such d o l l a r swap o p e r a t i o n s . NOT FOR PUBLICATION NOT FOR PUBLICATION - 5 - Foreign Trade. S e a s o n a l l y a d j u s t e d West German t r a d e f i g u r e s f o r t h e p e r i o d s i n d i c a t e d a r e as shown below. Trade Exports Imports balance ( i n m i l l i o n s of U.S. d o l l a r s ) 1960 1961 - I -II April May June 11,37k 3,lti. 3,231 1,181 1,003 l,0k7 10,129 2,#6 2,807 971 932 90k l,2k5 585 k2k 210 71 lk3 Foreign Exchange. On t h e f o r e i g n exchange markets the spot r a t e f o r t h e d o l l a r r o s e during J u l y and e a r l y August. A f t e r t h e B r i t i s h measures of J u l y 25 t h e s p o t r a t e f o r t h e pound s t e r l i n g reached i t s h i g h e s t l e v e l i n more t h a n t h r e e months i n F r a n k f u r t . However, t h e d i s count on forward s t e r l i n g again r o s e t o more than 5 p e r cent p e r annum, making a movement of F r a n k f u r t bank f u n d s i n t o Treasury b i l l s on a covered b a s i s u n p r o f i t a b l e , d e s p i t e t h e s u b s t a n t i a l i n t e r e s t r a t e d i f f e r e n t i a l between t h e two c e n t e r s i n f a v o r of t h e London b i l l . The improvement i n t h e d o l l a r r a t e i s a t t r i b u t e d i n p a r t t o t h e s e l l i n g of German bonds and shares by f o r e i g n e r s , p r i n c i p a l l y American and Swiss, w i t h t h e B e r l i n s i t u a t i o n t h e p r i n c i p a l motive f o r such s e l l i n g . Newspaper accounts also c r e d i t the s t r e n g t h of the spot d o l l a r t o o f f i c i a l support o p e r a t i o n s . B r i t i s h banking a u t h o r i t i e s a l s o a r e r e p o r t e d t o have supported t h e pound. F u r t h e r l i q u i d a t i o n of maturing forward c o n t r a c t s through t h e purchase of « p o t d o l l a r s was a l s o r e p o r t e d . The s p o t d o l l a r , which had reached a p o s t - r e v a l u a t i o n high of 3,9796 on June 28, reached i t s J u l y high of 3.9832 on t h e l a s t day of t h e month and advanced f u r t h e r i n August t o 3.9950 on t h e 15 t h . DM-Dollar middle r a t e July tt VI u Aug. p a r (DM k . 0 0 » $1) 7 20 26 31 3 9 Ik 15 3.9772 3.9793 3.9810 3.9832 3.98UU 3.9938 3.9930 3;9950 Bond M a r k e t T h e bond market, which l o s t i t s buoyancy i n June, continued under p r e s s u r e i n J u l y and t h e f i r s t h a l f of August. P r i c e s f e l l , and t h e t r e n d toward a 5 p e r cent bond r a t e , t h e "magic f i v e per c e n t * as i t i s being c a l l e d by Germai f i n a n c i a l r e p o r t e r s , has d e f i n i t e l y been h a l t e d , a t l e a s t f o r t h e time b e i n g . Twice b e f o r e , i n 1957 and 1959, t h e f i v e p e r cent r a t e was i n s i g h t , b u t f a i l e d t o be NOT FOR PUBLICATION NOT FOR PUBLICATION - 6 - reached because r e s t r i c t i v e measures were adopted f o r a n t i - i n f l a t i o n a r y p u r p o s e s . The c u r r e n t r e v e r s a l , l i k e t h e r e c e n t t i g h t n e s s i n t h e moneymarket, i s a t t r i b u t a b l e p r i m a r i l y t o i n t e r n a t i o n a l t e n s i o n s which i n r e c e n t weeks have l e d t o s e l l i n g of German bonds and s t o c k s , e s p e c i a l l y among f o r e i g n e r s . The f i r m e r p o s i t i o n of t h e d o l l a r has c o n t r i b u t e d t o t h e l i q u i d a t i o n of f o r e i g n h o l d i n g s . Moreover, some German i n v e s t o r s , expecting f u r t h e r i n c r e a s e s i n i n t e r e s t r a t e s , see l e s s chance f o r c a p i t a l g a i n s from r i s i n g bond p r i c e s , and have a l s o reduced t h e i r holdings of domestic bonds. Following t h e J u l y 13 r e d u c t i o n i n r e s e r v e requirements t h e r e was some s l i g h t improvement i n t h e market; i n d u s t r i a l bonds were up somewhat while i s s u e s of t h e p u b l i c a u t h o r i t i e s managed t o s u s t a i n t h e i r l e v e l s . But t h e r e v e r s a l of t h e assumption t h a t i n t e r e s t r a t e s would cont i n u e to f a l l caused buyers t o demand h i g h e r r a t e s on bonds, e s p e c i a l l y t h o s e of t h e p u b l i c a u t h o r i t i e s * The F e d e r a l Bank1 s l a t e s t monthly r e p o r t c o n f i r m s t h e r e p o r t t h a t the 12-year £ p e r cent German F e d e r a l R a i l ways i s s u e o f f e r e d between J u l y I4. and 12 a t a p r i c e of 98 was not f u l l y p l a c e d , t h e u n d e r w r i t i n g banking consortium being f o r c e d t o hold a p o r t i o n of t h e i s s u e i n i t s own p o r t f o l i o . As of August k t h e o f f e r p r i c e on t h e market was down t o 96« There has been almost no mortgage bond a c t i v i t y now f o r s e v e r a l weeks, A heavy demand f o r mortgage funds i s expected i n t h e f a l l , and borrowers are c u r r e n t l y unable t o p l a c e low-yield bonds except a t marked d i s c o u n t s . In J u n e , U8 p e r cent of i s s u e p e r m i t s were f o r mortgage and municipal bonds t o be i s s u e d a t 5 p e r c e n t . In J u l y t h e p r o p o r t i o n f e l l t o around 2J> p e r c e n t , o t h e r permits covering o b l i g a t i o n s t o be i s s u e d a t higher r a t e s . Well-informed banking c i r c l e s have r e p o r t e d t h a t t h e German F e d e r a l Bank i n t e r v e n e d on t h e bond market t o keep y i e l d s from r i s i n g above 5§ p e r c e n t . 1 On J u l y 11 t h e Bank bought bonds of t h e p u b l i c a u t h o r i t i e s t o support p r i c e s . I n t e r v e n t i o n a t l a t e r d a t e s has a l s o been r e p o r t e d . I t had been hoped t h a t once i t was known t h a t t h e Bank was d e termined t o s t a b i l i z e p r i c e s , confidence would r e t u r n to t h e f i x e d i n t e r e s t - b e a r i n g s e c u r i t y market. In J u l y , however, t h e average y i e l d on i s s u e s of p u b l i c a u t h o r i t i e s i s expected t o show a s l i g h t r i s e t o 5 . 7 per c e n t . Through August 11, boiid p r i c e s showed no improvement; but i t i s hoped t h a t t h e f u r t h e r r e d u c t i o n i n r e s e r v e requirements on August 10, and t h e imposition of a charge on commercial bank d o l l a r swap o p e r a t i o n s , w i l l a i d the market t o some e x t e n t . NOT FOR PUBLICATION NOT FOR PUBLICATION - 7 - Yield of F i x e d - i n t e r e s t - b e a r i n g s e c u r i t i e s ( p e r c e n t ) 1960 J u l y Oct. Dec. 1961 J a n . Feb. Mar. Apr. May June July ( e s t . ) Mortgage bonds Industrial bonds Loans of public authorities 6.5 6.U 6.5 6.1 6.1 5.8 5.7 5.8 5.7 5.6 5.6 5.7 6.7 6.3 6.1 6.1 6.0 5.9 5.7 5.6 5.6 5.7 - 6.2 6.2 6.2 6.1 5.9 5.8 5.8 5.9 Market. The German s t o c k market experienced a st setback i n J u l y as a r e s u l t of i n c r e a s i n g t e n s i o n s over B e r l i n . On J u l y 19 t h e German s h a r e s markets s u f f e r e d t h e i r s e v e r e s t d e c l i n e s s i n c e t h e r e v a l u a t i o n of t h e EM. Between J u l y 17 and J u l y 21 p r i c e s f e l l s h a r p l y , i n some cases by as much as 100 p o i n t s i n a day, and German f i n a n c i a l c i r c l e s expressed t h e opinion t h a t t h e German s t o c k markets were i n t h e i r most s e r i o u s s i t u a t i o n s i n c e World War I I . The v u l n e r a b i l i t y of t h e German stock exchanges t o the r e a c t i o n s of f o r e i g n h o l d e r s of German s h a r e s became q u i t e e v i d e n t . There was heavy s e l l i n g on Swiss and American account sending s t o c k p r i c e s downward. I t was a l s o r e p o r t e d t h a t some s m a l l German i n v e s t o r s s o l d out a t any p r i c e because of f o r e i g n s e l l i n g and mounting t e n s i o n s , although t h e m a j o r i t y of s m a l l and medium domestic i n v e s t o r s r e t a i n e d t h e i r h o l d i n g s . Chemical and e l e c t r i c s h a r e s , r e c e n t f a v o r i t e s , were e s p e c i a l l y hard h i t as were department s t o r e and automobile s h a r e s , t h e l a s t two being h e a v i l y involved i n r e c e n t s p e c u l a t i v e a c t i v i t y . Daimler Ben* f e l l over 200 p o i n t s (from DM 2560 t o IM 2300) i n two d a y s , J u l y 19-20, while chemical s h a r e s f e l l an average of more than 2) p o i n t s i n the same p e r i o d . On J u l y 21, s t o c k v a l u e s were 11 p e r c e n t below t h e l e v e l a t t h e end of I 9 6 0 , and 23 per c e n t below t h e i r a l l - t i m e h i g h e a r l y l a s t September. The f a l l was a t t r i b u t a b l e almost e x c l u s i v e l y t o i n t e r n a t i o n a l t e n s i o n s of a p o l i t i c a l n a t u r e , although some i n v e s t o r s were r e p o r t e d as b e l i e v i n g t h a t a f t e r t h e r a p i d r i s e i n s h a r e p r i c e s during t h e p a s t year stock p r i c e s were t o o high and out of l i n e w i t h e a r n i n g s , d i v i d e n d s , and p r o s p e c t i v e d i v i d e n d s . E x c e l l e n t company r e p o r t s were not s u f f i c i e n t t o c o u n t e r a c t i n v e s t o r u n w i l l i n g n e s s t o t a k e r i s k s i n t h e f a c e of Berlin# In l a t e J u l y , s t o c k p r i c e s s t r e n g t h e n e d , aided by s u p p o r t o p e r a t i o n s of the German banks and covering by s p e c u l a t o r s who had s o l d s h o r t . There was f u r t h e r improvement i n e a r l y August f o l l o w i n g P r e s i d e n t Kennedy 1 s speech of J u l y 25 on B e r l i n . The s t r e n g t h i n F r a n k f u r t was NOT FOR PUBLICATION NOT FOR PUBLICATION i n t e r p r e t e d as r e f l e c t i n g t h a t of t h e . New York market, and o r d e r s from t h e United S t a t e s f o r German s h a r e s were r e p o r t e d . There were good gains i n most s t o c k p r i c e s , e s p e c i a l l y i n d u s t r i a l s , and t h e good showing of s t o c k s which have been f a v o r i t e s of Swiss and American i n v e s t o r s (Badische A n i l i n , Siemens, Hoechst Farbenwerke, Dresdner Bank, e t c . ) mayi n d i c a t e some r e t u r n of Swiss and American funds i n t o t h e German stock exchangeso In t h e second week of August some stock p r i c e s d r i f t e d below t h e f i r s t week l e v e l s , but f i r s t week gains i n g e n e r a l were m a i n t a i n e d . F r a n k f u r t Allgemeine Zeitung Index of I n d u s t r i a l Share P r i c e s (Dec. 31, 195k = 100) " ' l?6l Apr. 28 May 5 26 June 3 16 30. J u l y 13 18 21 28 Aug. U 11 1*26.88 U3ii.01 U65o69 U77.88 H62.67 WtO.85 131.10 398.85 U22 o 05 125.39 1+29.65 ^European S e c t i o n . II. Nine Charts on F i n a n c i a l Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart 1 2 3 h 5 6 7 8 - I n t e r e s t A r b i t r a g e U e S 0 /Canada - I n t e r e s t A r b i t r a g e New York/London - I n t e r e s t A r b i t r a g e New Y o r k / F r a n k f u r t =» I n t e r e s t A r b i t r a g e Frankfurt/London - Short-term I n t e r e s t Rates - Long-term Bond Y i e l d s - I n d u s t r i a l Stock I n d i c e s - Major Currencies i n Terms of Spot United S t a t e s Dollar Chart 9 - 3-month Forward Rate—London Quotations NOT FOR PUBLICATION INTEREST ARBITRAGE, THREE-MONTH UNITED TREASURY STATES/CANADA ' BILL R A T E S CANADA RATE DIFFERENTIAL A N D FORWARD CANADIAN DOLLAR S P I I A D IN F A V O I OF CANADA + • RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER NET INCENTIVE IN F A V O I OF CANADA + 1141 \jr INTEREST ARBITRAGE, 3-MONTH J TREASURY NEW YORK / LONDON BILL R A T E S V.V RATE DIFFERENTIAL 3-MONTH AND FORWARD STERLING SPREAD IN FAVOE OF LONDON V/lT FORWARD EXCHANGE COVER IN FAVOt OF NEW YOU 1960 INTEREST ARBITRAGE, Friday figures 3-MONTH GERMAN RATE TREASURY 3-MONTH NEW BILL Y O R K / F R A N K F U R T RATES INTERBANK DIFFERENTIAL AND AND LOAN FORWARD DEUTSCHE | LOAN RATE DIFFERENTIAL WITH FORWARD RATES MARK RATE EXCHANGE COVER /Vv M * Not*: I J luo. Tnf Special forward dollar role (.either flat or premium on ipol) available le German commercial banks. # INTEREST ARBITRAGE, FRANKFURT/LONDON Per ceiU p»r 3-MONTH T R E A S U R Y BILLS — A N D L E N D I N G RATES — LOAN BATE RATE D I F F E R E N T I A L AND FORWARD GERMAN STERLING \ LOAN RATE PREMIUM+ OR DISCOUNT — RATE D I F F E R E N T I A L - WITH FORWARD EXCHANGE COVER NET INCENTIVE OF UNITED KINGDOM Bills' OVER: UI GERHAH-llLIERBANK LOAN RATE A - - ' lL ' 3-month treoiury bill roles lor all coui ^ 3-month role for U. S. dollar deposits LONG-TERM BOND YIELDS '"\V SWITZERIAND INDUSTRIAL STOCK INDICES traded on Tokyo exchange. \V MAJOR CURRENCIES IN T E R M S O F THE S P O T U. S. D O H A R Above por XV - i - r Below par Above p a r AY. A A. n 3-MONTH FORWARD RATES - L O N D O N QUOTATIONS j r\ N _Per c>nt per a n n u m PREMIUM + ' G E R M A N MARK U. S. DOUAR PREMIUM + FRENCH FRANC f BELGIUM FRANC D I960 M "'I
@FedFRASER