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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 BOARD OF GOVERNORS F E D E R A L R E S E R V E SYSTEM H. 13 February 19, 196U. No, 138 I CAPITAL MARKET DEVELOPMENTS ABROAD ^ I* I# II, United Kingdom Nine Charts on F i n a n c i a l Markets Abroad United Kingdom: Money and C a p i t a l Markets i n January E l e c t o r a l u n c e r t a i n t i e s and concern about e x t e r n a l payments s t r a i n s had p r o g r e s s i v e l y u n s e t t l i n g e f f e c t s on B r i t i s h f i n a n c i a l markets during t h e p e r i o d under review» During January, p r i m a r i l y i n response t o domestic p o l i t i c a l c o n s i d e r a t i o n s , s t o c k p r i c e s broke s h a r p l y and t h e d i s c o u n t on forward s t e r l i n g widened« (See Table 1 , ) During February, u n s e t t l e d cond i t i o n s developed i n s e v e r a l other f i n a n c i a l markets as a r e s u l t of growing concern about B r i t a i n ' s i n t e r n a t i o n a l payments p o s i t i o n . Table 1 . United Kingdom: S e l e c t e d F i n a n c i a l S t a t i s t i c s , November 1963-February 196U ~~ ( i n p e r c e n t per annum u n l e s s otherwise i n d i c a t e d ) November: _8 _lk_ S e c u r i t y Yields Treasury b i l l s Bonds: 196U 1965-75 .2008-12 War Loan Consols Stock P r i c e Index Industrials Exchange R a t e s : Spot (U.S. c e n t s ) Forward (3-month d i s c o u n t i n per c e n t p e r annum) Fully-hedged U,K, money-market a s s e t s : Treasury b i l l d i f f e r e n t i a l in f a v o r of U.K.: '..Lui purchase d e p o s i t s (actual yield) ' January: j. a. February: J-11 3.61 3.76 3.61 3-73 3.61 3.78 3.61 3.7k 3.6k 3.87 3.6k 3.82 U.98 5.58 5.Hi 5.7k 5.28 5.88 5.22 5.90 5.13 5.92 5.29 5.95 5.66 5.53 5 . 8 3 ~r" 5.71 5.95 5.77 5.99 5.85 6.03 5.88 6.05 5.91 3iiU«6 3U2.6 351.0 279.77 279.80 a/ 279.73 279.79 279.78 " 2 7 9 . 6 1 -0,21 —0 *22 -0»2li -0*35 -0.I4I1 - 0 «L5 -0,13 -0.13 -o»iU -0.23 -0.29 -0.31 3.98 1,00 U.00 3.85 3.90 3.85 331.8 329.3 Note: Bond y i e l d s a r e f o r Thursday, o t h e r q u o t a t i o n s f o r F r i d a y , a / Quotation f o r Tuesday, February 18. OFFICIAL USE ONLY (Decontrolled a f t e r s i x months) 335.9 OFFICIAL USE ONLY - 2 - E a r l y i n F e b r u a r y t h e f or war o. d i s c o u n t widened f u r t h e r and b o t h s h o r t h a n d l o n g - t e r m market r a t e s moved u p 6 S t c c k p r i c e s r e c o v e r e d some l o s t groundo E x p e c t a t i o n s cf r i s i n g i m p o r t s and e v i d e n c e of p r i c e and wage advances i n B r i t a i n . , which would r e q u i r e h i g h e r i n t e r e s t r a t e s i n B r i t a i n , e l e c t o r a l u n c e r t a i n t i e % and t a l k about a p o s s i b l e r e v a l u a t i o n of t h e D-mark p r o v i d e d t h e background a g a i n s t which r e n d i t i o n s i n f i n a n c i a l markets t e n d e d t o d e t e r i o r a t e -> By mid-month,, p r e s s ' cciraent about, p o s s i b l e payments s t r a i n s c o n t r i b u t e d t o a f a l l i n s p o t pounds f r o m 2 ? 9*?5 cn F e b r u a r y l i t o 279064 on F e b r u a r y 1 8 , The announcement of u n f a v o r a b l e f o r e i g n t r a d e r e t u r n s f o r J a n u a r y on F e b r u a r y 18 added t o p r e s s u r e s on t h e poind in f o r e i g n -exchange markets The g r a d u a l widening, of. vhe d i s c o u n t on • I r v a r d pounds d u r i n g t h e p e r i o d under review ( s e e Table _) t h r e a t e n e d to push up s h o r t - t e r m r a t e s i n London, I n e a r l y F e b r u a r y , t h e T r e a s u r y b i l l r a t e r o s e by J b a s i s p o i n t s . The i n c e n t i v e i n f a v o r of T r e a s u r y b i l l s ever B r i t i s h b i l l s i n c r e a s e d from 1U t o 23 b a s i s p o i n t s d u r i n g January and t r . i, b a s i s p o i n t s on F e b r u a r y II4.: This development c r e a t e d i n f i n a n c i a l markets t h e expo ion t h a t t h e Bank of England might scon f i n d i t n e ^ ' e s a r y t o r a i s e Bank, r a t e i n o r d e r t o p r e v e n t 'too s u b s t a n t i a l a 'shift., of f u n d s from London, Bond y i e l d s were November and December; b u t (See Table l s ) Between ear i n bond y i e l d s were ( i n p e r 1965 '10 <8 - con c .c x i d a t e d d u r i n g January a f t e r s h a r p r i s e s i n they began r 0 f i s s f u r t h e r ' i n e a r l y F e b r u a r y , i y November and mid-February,, i n f a c t , t h e r i s e s :eni- per amum! :• lr C-,1, 0 v,.' Wsr Loan's Occscr = • 0,38 Eurc«de l i a r d e p o s i t r a t e s IT. Loc.dv'o d e c l i n e d from t h e mid-December peak of L,62 p e r c e n t t o ii*00 per ir. e a r l y F e o r u a r y . (See T a b l e 9 . ) F l o t a t i o n of U»S» d o l l a r bonds i n lender.- cc tinned. on a l a r g e s c a l e s $iiO m i l l i o n i n December f $ j : : m;. .. l i c r i n J a n u a r y and a f u r t h e r $2? m i l l i o n i n t h e f i r s t half- of F e b r u a r y = Sr-ma jobber?,- who had p l a n n e d '<:-c f i n a n c e t h e i r p u r c h a s e s of t h e l o a n with f u n d s a c q u i r e d f-om tie. i n v e s t m e n t d o l l a r market^ were allowed t o a c q u i r e t h e f u n d - a t t h e o f f : ..a, cpot r a t e i n o r d e r t o r e l i e v e t h e p r e s s u r e cn t h e investment d o l l a r are which had r e a c h e d a peak premium of 1? ~ ; c p e r cent- cn January •!:. ^ Credit has continued e . x r a . l i n t h e ,^=1 few months i n order t o f i n a n c e t h e g e n e r a l e x p a n s i o n rf " c a r e s s 6/ The c o n t i n u e d increase i n p e r s o n a l , c o n s u m p t i o n e x p ^ c d i u r E i has r e s u l t e d i n b o t h an i n c r e a s e i n i n s t a l l m e n t c r e d i t and an 1.0v.eas* ;r. bank advan:e= r e i n d i v i d u a l s . The a v a i l a b l e f i g u r e s a p p e a r re - 0 . ^ ; - a r e p r r t s t h a t tne ccmmezoial banks i n B r i t a i n a r e expanding . c a n s t o f i n a c r e " onsumpt ion e x p e n d i t u r e s ''mostly s e c u r e d by 11 en? •:n consumer Q t r a b . e ? . ; at. a. mere r a p i d r a t e t h a n s t o r e s and f i n a n c e c o m p a n i e s ^ OFFICIAL USE ONLY - 3 - Money market. In January the money market t i g h t e n e d as the Exchequer an t o develop a n e t cash s u r p l u s on account of s e a s o n a l t a x revenues e The k of England attempted t o provide r e l i e f by purchasing T r e a s u r y b i l l s i n market, and so t h e d i s c o u n t houses had to borrow a small amount only on day ( J a n u a r y If?) between January 2 through February 7 . In s p i t e of t h e Bank's e f f o r t s , however, i n the l a t t e r p a r t of January and i n t h e f i r s t h a l f of February t h e d i s c o u n t houses had t o pay as much as 3-3/U p e r c e n t f o r d a y t o - d a y l o a n s from the c l e a r i n g banks, whereas e a r l i e r i n January even marginal f u n d s could be obtained f o r l e s s than 3 p e r cent# T h e r e f o r e , i n t h e Treasury b i l l t e n d e r of January 31, t h e d i s c o u n t houses lowered t h e i r b i d , f o r c i n g the t e n d e r r a t e up t o 3.76 per c e n t . The t e n d e r r a t e remained a t t h i s l e v e l i n the a u c t i o n s of February 7 and lU; t h i s was s u b s e q u e n t l y r e f l e c t e d i n t h e market r a t e s , (See Table 9 and Charts 3 and 5>.) On F e b r u a r y 8 , t h e d i s c o u n t houses r e c e i v e d only 9 p e r c e n t of t h e a l l o t m e n t , b e l i e v e d to be t h e s m a l l e s t a l l o c a t i o n s i n c e 1939. Aside from the s e a s o n a l high c o s t of borrowing from t h e banks, t h e main reason why the d i s c o u n t houses lowered t h e i r bid was t h a t t h e y d i d n o t a n t i c i p a t e much demand f o r b i l l s from the London c l e a r i n g banks, owing t o the t i g h t n e s s of c r e d i t . Preceding t h e January 31 t e n d e r , t h e m a r k e t ' s bid had been h e l d c o n s t a n t i n s i x s u c c e s s i v e auctions• In t h e l o c a l a u t h o r i t i e s f u n d s market, s h o r t - t e r m r a t e s f e l l s h a r p l y e a r l y i n January a s the s t r o n g demand f o r f u n d s m a n i f e s t i n December e a s e d . (See Table 9 0 Towards the end of the end of January, r a t e s were s l i g h t l y up and remained f i r m i n the f i r s t two weeks of F e b r u a r y , perhaps i n response t o the r i s e i n t h e Treasury b i l l r a t e . (See Table 9 . ) Local a u t h o r i t i e s ' s h o r t - t e r m r a t e s were f u r t h e r s t r e n g t h e n e d as f u n d s were s h i f t e d from London into the Paris Euro-sterling market. L i t t l e money was a v a i l a b l e f o r l o c a l a u t h o r i t y mortgages i n January, owing t o the high y i e l d s a v a i l a b l e i n the g i l t - e d g e d market. However, i n the f i r s t week of F e b r u a r y , money was a v a i l a b l e f o r 5 t o lfa-year mortgages a t 5 - 7 / 8 p e r c e n t (1/8 h i g h e r than the FWLB mortgage r a t e s ) . I n t e r e s t r a t e s o f f e r e d by b u i l d i n g s o c i e t i e s w i l l not be reduced i n the n e x t t h r e e months, according t o t h e chairman of t h e Building S o c i e t i e s A s s o c i a t i o n i n a p r e s s conference on January 23. I n t e r e s t d i f f e r e n t i a l s between New York and London s h o r t - t e r m money market a s s e t s widened s u f f i c i e n t l y t o cause some concern i n London. (See Table 2 . ) The covered Treasury b i l l d i f f e r e n t i a l widened t o 2^-30 b a s i s p o i n t s i n f a v o r of New York i n t h e l a t t e r p a r t of January and e a r l y February because of t h e wider forward d i s c o u n t on s t e r l i n g . However, the d i f f e r e n t i a l between Eurod o l l a r d e p o s i t s i n London and n e g o t i a b l e c e r t i f i c a t e s of time d e p o s i t i n New York d e c l i n e d i n January a f t e r E u r o - d o l l a r r a t e s f e l l from s e a s o n a l end-year l e v e l s . (See Table 9 and Chart 1 . ) The d i f f e r e n t i a l between London Eurod o l l a r d e p o s i t s and covered l o c a l a u t h o r i t i e s d e p o s i t s remained i n s i g n i f i c a n t . OFFICIAL USE ONLY OFFICIAL USE ONLY Table 2, cent p e r annum) 19 6 3 Nov, Dec. 29 1 9 6 k January 10 17 ~ ! T ~ 31 Feb, 7 3.92 3.88 3,88 3,9a 3,8a a,00 a,00 3.75 3,96 3.85 3,97 3.85 3,9a 3,90 .09 -,22 .09 .12 *12 -.23 :09 ,08 .13 -.18 ,2a ,13 -,29 ,16 -,06 £ 3 3.82 U.12 3,86 L,25 3.86 U«12 3.92 Hc00 3.92 3,88 a.12 U.10 k.bo a,08 a.20 a.00 3.96 3.75 YIELD SPREADS (Favor U.K.) . Treasury b i l l s (3-month) Uncovered x .m Covered . -.05 Euro-# - N.Y. C/D .30 Euro-# - Local A u t h o r i t y (covered) — ,11 -.05 ,76 .15 ,10 -/ia .33 ,08 ,09 -,26 .09 - rOlt TIME DEPOSITS (3-month) U.S. d o l l a r : a/b/ N.Y. - Cert f . d e p o s i t London - Euro-$ S t e r l i n g (covered) Local a u t h o r i t i e s Finance Mouses a7 b/ c/ -15 Previous Wednesdays. . " " Secondary market o f f e r i n g r a t e s f o r n e g o t i a b l e time c e r t i f i c a t e s of d e p o s i t s . U.S. and U.K. b i l l r a t e s a r e shown i n Table 9 , See a l s o Chart 3 . G i l t - e d g e d market. Yields on most Government s e c u r i t i e s r o s e by a few b a s i s p o i n t s i n January as the market was g e n e r a l l y weak, (See Table 10 •and Chart 6 , ) The announcement on January 9 of a 10-year £15 m i l l i o n New Zealand Government loan weakened the g i l t - e d g e d market. At t h e end of the month the market was weakened f u r t h e r when t h e London County Council f l o a t e d a £30 m i l l i o n loan d u r i n g the same week t h a t £10 m i l l i o n of new i n d u s t r i a l bonds were i s s u e d : t h e u n d e r w r i t e r s had t o r e t a i n 75 p e r c e n t of t h e L.C,C. issue. On February 19, t h e Treasury o f f e r e d a 16-year (1978-80) £l±00 m i l l i o n 5 - l / a p e r c e n t f u n d i n g l o a n , mainly t o r e p l a c e the e x i s t i n g medium-term cap stock (a 5 p e r cent Exchequer s t o c k 1976-78), In order t o make t h i s i s s u e a t t r a c t i v e t o f o r e i g n i n v e s t o r s , income t a x w i l l not be withheld from bonds owned by n o n r e s i d e n t s . Also, b e a r e r bonds w i l l be made a v a i l a b l e a f t e r A p r i l 20 i n denominations as small as £100, $60 m i l l i o n of d o l l a r denominated loans were f l o a t e d i n London between January 1 and February II4, as compared $50 m i l l i o n i n December, a l o n e , (See Table 3 . ) The. u n d e r w r i t e r s of t h e s e loans have shown some concern about a t t r a c t i n g s h o r t - t e r m E u r o - d o l l a r f u n d s . A l a r g e p o r t i o n of the Norges Kommunalbank l o a n , f o r example, was placed d i r e c t l y with i n s t i t u t i o n a l i n v e s t o r s i n B r i t a i n and on the Continent who a l r e a d y possessed d o l l a r b a l a n c e s obtained from p r e v i o u s s a l e s of d o l l a r s e c u r i t i e s . However, the i s s u e of t h e s e loans a p p a r e n t l y has been p a r t i a l l y r e s p o n s i b l e f o r the s t e a d y i n c r e a s e i n the investment d o l l a r premiun from 8 per OFFICIAL USE ONLY OFFICIAL USE ONLY - s - c e n t i n mid-October t o 13-7/8 per c e n t on January 2 8 , The Bank of England r e p o r t e d l y p e r m i t t e d j o b b e r s t o f i n a n c e $0.75 m i l l i o n of t h e i r p u r c h a s e s of t h e C i t y of Oslo loan a t t h e c u r r e n t s p o t r a t e i n order t o t a k e some s t r a i n o f f t h e investment d o l l a r market. Table 3» . U.S. D o l l a r Loans Floated i n London Month Borrower Coupon Maturity Value ($ mns.) 1966 1988 198 k 20,0 5.0 1S.0 December December December Government of Belgium Canon Camera Co. (Japan) Takeda Chemical (Japan) 5 - W 6 - 1 Ai% 6% January January January Norges Kommunalbank Government.of A u s t r i a Wolfson Clore Mayer Corp. ( I s r a e l ) C i t y of Oslo Copenhagen Telephone Co. 5-3/W 6% 197U-8U 1979-81 10.0 18.0 6-1/2% S-3/W 5-3/W 1983-88 1979 198U S.o 15.0 12.0 February February Stock m a r k e t . The 18 month r i s e i n s t o c k p r i c e s broke i n January. The F i n a n c i a l Times I n d u s t r i a l common s t o c k p r i c e index f e l l from 3^2.U on January 3 t o 329.2 on January 2h. (See Table 10 and Chart 7 . ) The market had d i s c o u n t e d expected p r o f i t s i n the near f u t u r e and, t h e r e f o r e , was v u l n e r a b l e t o t h e p o l i t i c a l and economic shocks r e c e i v e d i n January. The f i r s t b e a r i s h day i n January followed t h e f a i l u r e of employers and the T.U.C. t o r e a c h an agreement a t the N.E.D.C. meeting on an i n t e r i m d e c l a r a t i o n on incomes p o l i c y . Labor u n r e s t i n t h e s t e e l i n d u s t r y and the p o l i t i c a l c o n t r o v e r s y over t h e ending of r e s a l e p r i c e maintenance led t o f u r t h e r weak- ness i n the market. The market a l s o reached t o a speech by Mr. Wilson t h a t a new Labour Government would impose a more e f f e c t i v e c a p i t a l g a i n s t a x and would t a x d i s t r i b u t e d p r o f i t s a t a h i g h e r r a t e than u n d i s t r i b u t e d p r o f i t s . In the f i r s t week of F e b r u a r y , the market s t e a d i e d . London c l e a r i n g banks. C r e d i t extended to t h e p u b l i c s e c t o r expanded i n January i n an amount r oughly e q u a l t o t h a t extended t o t h e p r i v a t e s e c t o r i n January, b u t t h e t o t a l expansion of c r e d i t was c o n s i d e r a b l y l e s s than i n January 1963. (See Table U.) Advances, o t h e r than t o n a t i o n a l i z e d i n d u s t r i e s , f e l l below t h e l e v e l s u s t a i n e d i n t h e f o u r t h q u a r t e r of 1962 a s f a r as can be determined from a p r o v i s i o n a l s e a s o n a l l y a d j u s t e d f i g u r e . The banks' l i q u i d i t y p o s i t i o n i s r o u g h l y the same as i t was a y e a r ago, f o u r percentage p o i n t s above the customary minimum, which was reduced o f f i c i a l l y l a s t October from 30 p e r cent t o 28 per c e n t . OFFICIAL USE ONLY - 6 ~ OFFICIAL USE ONLY Table lu NET DEPOSITS 1 United Kingdom: London Clearing Banks Net Deposits and S e l e c t e d Assets ( I n m i l l i o n s of pounds) , Changes % 1952 196U Outstanding 1963 Jan, Sept, Cbt. Nov, Dec. Jan. Jan. 15, +127 +33 +11U +9l +5U +5U 7,097 SELECTED ASSETS Claims on t h e Public Sector Government bonds Treasury b i l l s and loans t o t h e Discount Market Loans t o n a t i o n a l i z e d industries Total h -13 +115 "+BII Claims on the P r i v a t e Sector Advances ( n e t ) Other b / Total + U6 -Ui - 13 +12 + 33 "-32 — SEASONALLY ADJUSTED Advances ( n e t ) Deposits ( n e t ) + 20 + 2 +22 +31 LIQUIDITY RATIO 3L.6 32.1 + 28 +19 +21 +25 + h +11 1,17U + 91 +78 +37 +28 +30 +30 - 1,58? +19 - 7 +77 . +L6 - 5 +29 + 8 +H9 73 27535 +1U +ni + 5 + 2 + 7 +38 +12 ^0 3,935 6U3 U757B +23 +72 . +39 +8U +30 -Z+13 + 5 n.a, 32.3 32.2 32.7 - 1 - 8 32.7 a7 To t h e t h i r d Wednesday of the month, except i n December when t h e change i s t o the second Wednesday. b / Includes commercial b i l l s , c a l l l o a n s o t h e r than t o the d i s c o u n t market, and o t h e r i n v e s t m e n t s . c / E s t i m a t e . Source: F i n a n c i a l S t a t i s t i c s . - I n s t a l l m e n t c r e d i t . New c r e d i t extended i n December changed no more than s e a s o n a l l y , according t o The Board of Trade, s h a r p l y upwards f o r household goods shops and s h a r p l y downwards f o r f i n a n c e houses» However, t h e r e was a n e t i n c r e a s e i n c r e d i t o u t s t a n d i n g of £7 m i l l i o n , (See Table 5«) Table 5« United Kingdom; I n s t a l l m e n t C r e d i t (end of p e r i o d ) 1963 Oct, 1961 1962 j'ear. Nov, New C r e d i t Extended, Index of value (1957=100) - Household goods shops 12U 139 1U5 131 1U0 Finance houses 96 9k 129 175 157 C r e d i t Outstanding (£ mns.) Household goods shops + 9 +22 -16 + l + 5 Finance houses + 8 + h + 3 -k9 +U5 Total T? T3 ^7 OFFICIAL USE ONLY Outstanding Dec , Dec,31IU5 129 +11 h + 7 - 3l|0 6lU 9% OFFICIAL USE ONLY -.7 - Foreign exchange m a r k e t s . The s p o t r a t e f l u c t u a t e d w i t h i n a narrow range from the f i r s t of the y e a r through February l i t , remaining between $2,797 and $ 2 , 7 8 8 . (See Table 9 and Chart 8 . ) The d i s c o u n t on three-months forward s t e r l i n g , however, widened s t e a d i l y from 0.2U p e r cent per annum on January 3 t o 0 , 0 p e r c e n t per annum on February l l u (See Table 9 and Chart 9*) In r e c e n t weeks, a t t e n t i o n has been focused on the investment d o l l a r premium, which has r i s e n from 8 per c e n t i n mid-October t o as high as 13 p e r c e n t a t the end of January. As was mentioned e a r l i e r , p a r t of the reason f o r t h i s r i s e was t h e a t t e m p t of B r i t i s h r e s i d e n t s t o purchase some of the d o l l a r s e c u r i t i e s c u r r e n t l y being f l o a t e d i n London. However, t h i s i s j u s t one of t h e s e v e r a l p r e s s u r e s being e x e r t e d on t h e r a t e . Of g r e a t e s t s i g n i f i cance i s the drying up of t h e supply by making t h e s e funds a v a i l a b l e f o r d i r e c t investment a b r o a d . These funds a r e never r e p a i d t o the p o o l , whereas f u n d s acquired f o r t h e pruchase of f o r e i g n s e c u r i t i e s e v e n t u a l l y a r e r e t u r n ed when the s e c u r i t i e s mature or are l i q u i d a t e d . Foreign t r a d e . Exports i n 1963 experienced one of the l a r g e s t y e a r - t o - y e a r i n c r e a s e s s i n c e World War I I . (See Table 6 . ) The expansion i n value was 8 p e r c e n t ; t h e growth i n volume $ p e r c e n t . The r a t e of growth slowed down i n the l a s t h a l f of t h e y e a r , although t h e r e was a sharp r i s e i n December e x p o r t s . The main f e a t u r e of imports i n 1963 was t h e r a p i d i n c r e a s e of i n d u s t r i a l m a t e r i a l s imports a f t e r t h e second q u a r t e r . Consequently the t r a d e d e f i c i t i n c r e a s e d s t e a d i l y during the y e a r , r i s i n g by 35 p e r cent from the f o u r t h q u a r t e r of 1962 t o the f o u r t h q u a r t e r of 1963. I n ' J a n u a r y , however, customs d a t a show a sharp f a l l i n e x p o r t s . Imports a l s o r o s e s u b s t a n t i a l l y , owing t o t h e continued i n c r e a s e i n i n d u s t r i a l m a t e r i a l s imports and t o imports of s h e e t s t e e l as a consequence of t h e s t r i k e i n The S t e e l Company of Wales, L t d , An average of the December 1963 and the January 196k f i g u r e s shows a very s u b s t a n t i a l d e t e r i o r a t i o n i n the "visible balance". Gold and f o r e i g n exchange r e s e r v e s . Reserves r o s e by $17 m i l l i o n i n January! (See Table 7 0 This i s considered t o be v e r y small i n view of t h e f a c t t h a t t h e c u r r e n t account of the balance of payments i s s e a s o n a l l y s t r o n g i n the f i r s t q u a r t e r of t h e year and t h a t the net e a r n i n g s of overseas s t e r l i n g a r e a c o u n t r i e s from n o n - s t e r l i n g c o u n t r i e s a r e r e p o r t e d t o be continuing. B u l l i o n m a r k e t . The London gold market was q u i e t from January 2 through mid-February with the e x c e p t i o n of the week of January 13-17, when demand v a r i e d from moderate t o heavy. Following t h a t week, when t h e f i x i n g p r i c e r o s e t o $35*091 per f i n e ounce on January 16, t h e f i x i n g p r i c e f e l l g r a d u a l l y t o $35*076 by February l h . (See Table 8 . ) OFFICIAL USE ONLY OFFICIAL USE ONLY Table 6 . United Kingdoms Foreign Trade ( m i l l i o n s of pounds; s e a s o n a l l y ad j u s ted 5 monthly averages) 196U 1st %r. 2nd Qtr. 3rd Qbr. Uth Qtr, I4.O2 3U0 13 375 327 12 ^35 395 335 13 U12 3L6' 13 -53 U22 318 13 %5l UU9 3UU 12 -97 UU2 361 12 "39 U57 326 11 -120 h + 7 - 2 - 9 -11 -L2 -13 -72 Imports, c . i . f . Exports, f . o . b . Re-exports, f . o . b , Trade Balance V i s i b l e balance Dec,: a / J a n . Dec* 1962 1963 "fear fear 37U 316 13 —^ - 6 - a / An average of t h e December 1963 and t h e January 196U export f i g u r e s a r e shown, owing t o the wide f l u c t u a t i o n s i n e x p o r t s d a t a i n t h e s e two months«. b / The customsreturns a r e a d j u s t e d f o r v a l u a t i o n and coverage ( f o r example £ t h e r e v a l u a t i o n of imports from a c . i . f . t o an f . o . b « b a s i s ) t o make them more c l o s e l y comparable w i t h the balance of payments e s t i m a t e s . Table 7 . United Kingdom; Reserve P o s i t i o n ~~ ( I n m i l l i o n s of U.S. d o l l a r s ) A, B. Gold and c o n v e r t i b l e currencies Less: C e n t r a l bank l o a n s L e s s : U.S. opns. i n s t e r l i n g iy Adjusted Reserves 1st Qtr. Changes: 1963 2nd 3rd Qtr, Qtr, + 8 +250 -101 -250 + 33 %2# + 18 -18 +131 T3B Drawing r i g h t s on IMF Total z - x -275 +22 Dec. 196L Outstanding Jan, Jan , 3-$ 19 6U -78 -115 +17 2,67U — 8 +123 Uth Qtr. n«a 0 -=W — +33 -78 n9a 0 n.a. Tir - - n,a. -115 +17 w 5,113 a / As p u b l i s h e d i n # i e f e d e r a l Reserve B u l l e t i n 3 September 1963, pp 0 1219-20, b/ As of December 3 l \ 1963. OFFICIAL USE ONLY OFFICIAL USE ONLY (In U.S. d o l l a r s p e r f i n e November 29 35.078 December December ^ 6 32.085 January 13 35.081 20 35.08k ~ 27 35.077 3 35.072 10 35.069 17 35.087 ounce) January February 2k 35.08k 31. 35.078 7 35.078 1U 35.076 European and B r i t i s h Commonwealth S e c t i o n . II . Nine Charts on F i n a n c i a l Markets Abroad Chart 1 - I n t e r n a t i o n a l Money Market Yields f o r U.S. Dollar Investors Chart 2 - I n t e r e s t A r b i t r a g e , United States/Canada Chart 3 - I n t e r e s t A r b i t r a g e , New York/London Chart h - I n t e r e s t A r b i t r a g e f o r German Commercial Banks Chart 5 - S h o r t - t e r m I n t e r e s t Rates Chart 6 - Long-term Bond Y i e l d s Chart 7 - I n d u s t r i a l Stock I n d i c e s Chart 8 - Spot Exchange R a t e s - Major Currencies Against U.S. D o l l a r Chart 9 - 3-month Forward Exchange R a t e s OFFICIAL USE ONLY Tgble 9. United Kingdoms T r e a s u r y B i l l Y i e l d s and Exchange B a t e s 3-a.o, T r e a s u r y b i l l a r b i t r a g e c a l c u l a t i o n U% U.S. D i f f e r 3-mo, In favor ence pound U.K. b i l l 1963 , High. Low 1963 Nov. 15 22 29 13 20 27 1964 Jan. 3 10 17 24 31 Feb. 7 14 2/ • 3.58 3:31 3.32 2.85 .26 .46 .03 -1,.08 3.61 3. 61 3. 61 3.64 3.61 3.61 3.61 3.52 3.48 3.47 3.49 3.49 3.51 3. 50 .09 , 13 . 14 . 15 12 10 11 . 22 , 21 3. 61 3.61 3. 61 3.61 3.61 3.64 3.64 3.51 3.52 3.52 3.49 3.48 3.49 3. 50 10 09 09 12 13 15 14 4,62 3,56 4.88 4,06 . 13 .08 .05 .04 .02 .06 .05 279.80 279.79 279.%) 279.65 279. 67 279.65 279.64 4,12 4,12 4, 12 4.44 4,62 4. 62 4,25 4.25 4.25 4.31 4. 31 4.38 4.88 4.56 . 14 . 26 . 22 , 23 , 18 ,29 31 279.73 279.87 279.g7 279.79 279.77 279. 78 279.74 4.12 4.00 4.00 4.00 4. 12 4.00 4.00 4.44 4.31 4. 31 4.31 4.38 4.38 4.38 , 19 , 14 , 16 16 -, C e r t i f i e d N._ Y. noon buying r a t e . Table 10. United Kingdom: l - W - 196k 1963 High Low 1963 Nov . 14 21 28 Dec . ' 5 12 19 24 1964 Jan . 2 9 16 23 30 ; Feb,, 6 13 b/ 280.59 279.59 - . Spot London d e p o s i t r a t e s pound U.S. Local (U.S. dollar authority c e n t s ) - / (3-mo.) - +.23 - .62 •¥> 24 35 31 35 31 44 45 - -10 - S e l e c t e d C a p i t a l Market Y i e l d s U.K. Government bond y i e l d s 2-1/2% 3-1/2% 31 5 - W 1965-75 2008-12 War Loan Consols Share yield Yield gap Share prices 347:7 283. 3 4.05 3.56 5.44 4. 76 6.00 5.45 6.12 5.68 5.98 5.39 5.42 4,58 3.73 3.76 3.66 3.69 3.80 3. 77 3.81 5.14 5. 26 5.16 5.27 5. 31 5.33 5.33 5.74 5. 75 5.81 5. 91 5.95 5. 93 5.93 5.83 5.84 5.85 5.95 5. 95 5.99 5.98 5.71 5.68 5. 70 5.79 5. 76 5.84 5.83 4,61 4. 66 4,61 4.63 4.59 4. 60 4,56 1.10 1.02 1.09 1.16 1. 17 1.24 1,27 342, 6 339.5 343.5 341. 9 345.6 344.2 347.7 3.78 3; 73 3.79 3. 74 3.80 3:87 3.82 5.28 5 . 30 5.22 5.22 5.26 5.13 5.29 5.88 5.88 5. 93 5. 90 5.93 5. 92 5. 95 5.95 6.00 5.96 5.99 6.00 6.03 6.05 5. 77 5.86 5.81 5.85 5.86 5.88 5,91 4. 52 4,63 4.77 4,81 4.87 4,87 4.79 1. 25 1.23 1.04 1.04 1.01 1.01 1.12 351.0 343.8 333.9 331.8 329.4 329.3 335.9 D i f f e r e n c e between y i e l d on 2 - 1 / 2 p e r c e n t Consols and s h a r e y i e l d # — -- _Chort _1 INTERNATIONAL MONEY 3-MONTH EURO-DOLLAR Wednatdoy liguras MARKET DEPOSIT YIELDS FOR U.S. VS. CERTIFICATE | DOLLAR OF INVESTORS DEPOSIT P»f tent p YIELDS EUBO-DOliAB DEPOSIT - - A V-A-z L \n 1 C E R T I F I C A T E 0 1F D E P O S I T rV 1 1 1 DIFFERENTIAL: EURO-DOLLAR OVER U.S. CERTIFICATE OF DEPOSIT - 1 NEW 1 YORK fiidey fignrts I i 1 1 OFFER RATES ON 1 1 SELECTED TREASURY ' I 1 I 3-MONTH " BILLS- F u l l y 1 1 INVESTMENTS ' Hedged CANADA COMMERCIAL PAPER.Fully Hedged j C A N A D I AN F I N A N C E C O M P A N Y U.S. FINANCE COMPANY 1964 1 1 1 INTEREST A R B I T R A G E , •! Thui.doy f i g i 3-MONTH TREASURY UNITED STATES / CANADA BILL R A T E S RATE D I F F E R E N T I A L A N D FORWARD CANADIAN DOLLAR S P R E A D IN F A V O R OF C A N A D A f 'vv \ J r A/ r RATE i i ] DIFFERENTIAL i WITH i—-T—i—n—™i FORWARD EXCHANGE NET I N C E N T I V E IN F A V O R OF C A N A D A J I. i. 1.. 1 i. i i. Li l . L . Li r COVER + .LJj.i ! J -L.1. 1 1 I I LLUL 1 1 1 - INTEREST ARBITRAGE, Fridoy NEW Y O R K / L O N D O N figures 3-MONTH RATE Pi TREASURY DIFFERENTIAL BILL AND RATES 3-MONTH FORWARD STERLING ~ S P R E A D IN FAVOR Of LONDON RATE DIFFERENTIAL 1961 WITH FORWARD 1962 EXCHANGE COVER 1963 1964 INTEREST A R B I T R A G E FOR 3-MONTH TREASURY GERMAN BILLS, INTERBANK E U R O - D O LTXR' D E P P S I T R A T ES - COMMERCIAL B A N K S " LENDING """ RATE A N D T Vv-J GERMAN TREASURY B I U S RATE_Dlf FERENTIAL AND FORWARD DEUTSCHE MARK F O R W A R D RATE D I S C O U N T ( - ) RATE D I F F E R E N T I A L WITH NET I N C E N T I V E : FORWARD EXCHANGE COVER IN F A V O R OF F R A N K F U R T ( + I INTERBANK LOAN R A T E / \ J ! chc- i | • SHORT-TERM INTEREST ( R A T E S * CANADA /VVvv/kAlC X / - ' "X" 3- month treaiurv bill [and Switzerland (3 monih deposit rate) "I",3-month role for U 5. dollar deposits in (Average rale on bank loom n n d dive ou ni tY~l .ndon LONG-TERM BOND YIELDS SWITZERLAND " " 1962 1963 19 64 INDUSTRIAL '" , STOCK- INDICES .. ' . i9S8 =ioo Rotio nole ' 400 jimn 150 1962 1963 New series Swiss Bonk Corporation >n d u sir .a I % t oc k index Japan: index of 22 5 industrial and other stocks traded on l he Tokyo e*ch tinge SPOT E X C H A N G E ! RATES - M A J O R CURRENCIES AGAINST U.S. DOLLAR Above FRENCH FRANC .DUTCH GUtlD'f R CANADIAN D O l l A R f V M S por • •3-MONTH FORWARD ifridoy l i e " 1 AGAINST AGAJNST U.S. EXCHANGE RATE DOLLARS POUND STERLING - LONDON PREMIUM + DISCOUNT AGAINST POUND STERLING - LONDON "PREMIUM + BELGIAN FRANC f R A Hi DISCOUNT I ' • w
@FedFRASER