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DIVISION O F I N T E R N A T I O N A L BOARD OF G O V E R N O R S F E D E R A L RESERVE SYSTEM H. 13 No. 91 January 18 5 1963 MARKET DEVELOPMENTS ABROAD France Nine Charts on Financial Markets Abroad Io Frances Money and Capital Markets 9 Fourth Quarter, 1962 Easy conditions prevailed i n the Paris money market throughout the quarter5, and long-term bond p r i c e s resumed t h e i r downward trend i n November and December o Although stock p r i c e s f e l l to a 1962 low and gold p r i c e s to a f i v e - y e a r high i n l a t e October as a r e s u l t of the Cuban c r i s i s and of domestic p o l i t i c a l controversies, f i n a n c i a l markets i n Paris quickly recovered a f t e r the Gaullist e l e c t i o n v i c t o r i e s i n l a t e November* By l a t e December, prices in the French stock and gold markets had returned t o l a t e September levels„ France's balance of payments surplus, which has permitted a rapid r i s e i n bank c r e d i t during the course of 1962 with scarcely any expansion of Bank of France c r e d i t to the money market, was the p r i n c i p a l f a c t o r cont r i b u t i n g to easy c r e d i t a v a i l a b i l i t i e s and declining money-market and bond r a t e s l a s t y e a r . The importance of the payments surplus as a source of bank reserves can be seen i n the changes i n selected Bank of France accounts during 1962 (in b i l l i o n of f r a n c s ) : Total Jan. U, 1962 to Dec. 20 t o Jan. h t o Oct. u to Dec. 20 Jan. 3 (1963) Oct. h Jan. 3a 1963 Factors reducing reserves Increase in note c i r c u l a t i o n 1.7 U.l 2.7 Decrease i n c r e d i t to Treasury, adjusted a / 0.6 1.2 0.1 0.5 Total 272 O 3 53 0 Factors increasing reserves Increase in8 Foreign a s s e t s , adjusted^'/ Rediscounts and advances Holdings of money-market paper Total 5.7 -leU 0.6 0 i»i 0.2 -O06 0l7 0.1 2.1 -0.U 6,9 0.9 4 a / Adjusted f o r repayments (scheduled and advance) of external public debt t o t a l l i n g 3-3 b i l l i o n francs between January k s 1962 am January 3, 1963» OFFICIAL IBE ONLY DECONTROLLED AFTER SIX MONTHS OFFICIAL USE ONLY During the year, the reserves created by the external payments surplus were s u f f i c i e n t to o f f s e t the contractive e f f e c t s on reserves of the larger note c i r c u l a t i o n and Treasury c r e d i t repayments» Easier c r e d i t a v a i l a b i l i t i e s i n f i n a n c i a l markets brought moneymarket r a t e s since l a s t August to the lowest point reached since 1956, and have contributed to declines of 20 to 30 basis points i n bond yields during the course of the y e a r . The main impact of the favorable p o l i t i c a l developments i n November apparently i s to be found i n the r e s t o r a t i o n by the yearend of the conditions prevailing i n f i n a n c i a l markets a t the end of the t h i r d quartero External payments developments continued to be favorable during the f o u r t h quarter» In p a r t i c u l a r , a pick-up i n exports i n October brought the trade accounts i n t o balance i n October and November compared with a $30 mill ion monthly average import d e f i c i t i n the t h i r d quarter 0 At the same time, reserve accruals, adjusted f o r s p e c i a l o f f i c i a l t r a n s a c t i o n s , amounted to $197 m i l l i o n . With another $117 million debt prepayment to the United S t a t e s , French prepayments t o t a l l e d $588 million i n 1962 or about U5 per cent of the $1.3 b i l l i o n balance of payments surplus i n 19620 On January 1, 1963 the "franc" again became the French monetary unite I t replaces, a t a 1 to 1 r a t i o , the "new franc" which was introduced a t the beginning of I960 a t the r a t i o of 1 "new franc" per 100 of the pre-I960 f r a n c s (now called "old francs")* Money market<, Because of the high l i q u i d i t y of the French banking systym, the Paris money market continued to e x h i b i t in the period under the review the extremely easy conditions tiiat had prevailed in August and September „ Since August 1962, the market has been e a s i e r than a t any time since 1956„ Money r a t e s did not f a l l f u r t h e r i n t h e l a s t q u a r t e r , but they held a t levels below those which had ruled e i t h e r in the f i r s t seven months of the year or i n the preceding f i v e years. (See Table l o ) Day-to-day money r a t e s against p r i v a t e paper were almost continuously a t 3-3/8 or 3-1/2 per cento These r a t e s f l u c t u a t e d close to the Bank of France basic rediscount r a t e of 3-1/2 per cent because, during the period under review, banks were not obliged t o rediscount short-term paper a t the H-l/2 or 6 per cent penalty r a t e s applicable to rediscounts of such paper above the ceilings s e t by the monetaiy a u t h o r i t i e s 0 (Under present conditions s money market r a t e s cannot f a l l s i g n i f i c a n t l y below the rediscount r a t e 9 because banks are s t i l l rediscounting within the c e i l i n g s *) The end of the year brought some tightening of the market because of a currency drain and window dressing, making necessary increased recourse t o Bank of France accommodation. But these f a c t o r s caused l i t t l e d i f f i c u l t y f o r the banks in December 1962» The r a t e against private paper rose to U-l/2 per cent f o r a few hours on December 31, but f e l l to 3-1/2 per cent by the end of the day® OFFICIAL USE ONLY = 3 = OFFICIAL USE ONLY Table 1* France: Short-terra I n t e r e s t Rates, 1956-1963 Range or average range average 5.0 - U.5 5 - UoO 0 - 3.5 1962-Jano Apr. July Aug, Sept o 31 15 29 13 DeCo 31 1963 - Jan. Day-to-day Money Private Treasury paper bills 3.0 UoO - 5 „ o 1956 1957 1958 1959 1960 1961 Date •"1962 Oct. Nov. Nov. Dec. Bank of France basic r e discount r a t e 3 3.5 3.5 3.3 3.5 •3.5 3.5 3.5 3.5 -3.19: 5.35 6.1*9 U.07 3.12 3.5U 3.57 U.08 3o6U ' 3.65 3.51 3.93 3.U5 3-oUo 3.6U 3.38 3.23 3.66 3.U6 3.U8 3.22 3.38 3.3B 3.38 3.38 3.5 3.50 3.38 - 3.50 3.50 3.38 - 3 . 5 0 3.50 - U.50 n.a. 3.5 3.38 - 3.38 3.5 3.5 3.50 Bond marketo The downward trend of long-term bond y i e l d s resumed in the l a s t two months of 1962. Yields had moved downward through August 9 a f t e r which there occurred some r i s e i n September and October 0 (See Table 2 . ) The renewed declines i n November-December drove y i e l d s on rentes and corporates below the August l e v e l s , and a t the end of the year y i e l d s on these issues were 20 to 25 basis p o i n t s below a year e a r l i e r . Although y i e l d s on public sector bonds did not f a l l to the August lows, a t the end of 1962 these y i e l d s were 30 basis points under the end-196l l e v e l . // The downtrend i n long-term y i e l d s r e f l e c t s the rapid increase i n money supply which occurred i n 1962, the absence, through September, of any increase over 1961 in new bond f l o t a t i o n s , and reductions of about l/U of 1 per cent l a s t April i n r a t e s on medium-term Treasury " b i l l s " sold t o the public . Bond y i e l d s seemingly were unaffected by e i t h e r the sharp swings in stock prices or the s e r i e s of c r i s e s which pervaded the French p o l i t i c a l arena throughout l a s t year. I t i s also noteworthy t h a t the continuing erosion of the i n t e r n a l purchasing power of the f r a n c did not turn investors against bonds s u f f i c i e n t l y to prevent bond p r i c e s from r i s i n g * OFFICIAL USE ONLY O F F I C I A L USE ONLY Table 2. 196l-end December 1962-end of Month January February March April May June July August September 1962 - date Oct. 12 26 H O T . 16 30 Dec, lit -.28 - K - France: Long-term gond Yields, 1961-62 —f Treasury"" Redeemable bonds Public Sector Corporate lw35 5*75 6.30 5«0$ 4.49 4.56 4.49 4.48 4.52 4.53 It .63 U.22 4.19 5.74 5.80 5.74 5.68 5.74 5.56 5.1.8 5.36 5.50 6.25 6.38 6.36 6.30 5.19 5.01 5.12 5.14 5.Ht 6.10 5.09 It .90 lt.96 n.a. 4.19 n.a. 4.14 n.a. n.a. 5.53 5.51* 5.47 5.44 5.49 5.46 6.12 6.15 6.12 6.12 6.06 6.05 5.00 5.00 5.01 4.97 4.93 4.86 6.1(2 6.23 6.11 6.15 5% p e r p e t u a l rente 5.06 a / All groups exclude indexed or p a r t i c i p a t i n g bonds. ~~ ~~ Stock market. Prices of French stocks were subject to wide f l u c tuations in the fourth quarter of 1962, as a consequence of p o l i t i c a l developments on both the national and i n t e r n a t i o n a l scenes. These swings l e f t prices a t the end of December a t the same l e v e l as had prevailed three months before. The impasse between President de Gaulle and the old Parliament which developed a t the beginning of October sent stock p r i c e s down more than 6 per cent between September 28 and October 19, and the eruption of the Cuban c r i s i s r e s u l t e d i n a f u r t h e r f a l l of 2-1/2 per cent between October 19 and October 23. (See Table 3») The easing of i n t e r n a t i o n a l tensions brought some recovery, but the bleak outlook f o r the Gaullist p a r t i e s a f t e r the indecisive referendum of October 28 was r e f l e c t e d i n a renewed weakening, and a new low f o r the year was established on November 9 . Prices surged upward i n l a t e November following the unexpected triumpth of the Gaullist p a r t i e s a t the p o l l s in the two-round elections on November 18 and 2f>; the index rose nearly 13 per cent between November 16 and 26o But p r o f i t taking i n the next few days erased p a r t of t h i s gain. In December the market was i r r e g u l a r . On December 28 the comprehensive weeklyindex was a t the September 28 l e v e l . OFFICIAL USE ONLY OFFICIAL USE ONLY Frances Stock Price Indexes , (December 29, 1 9 6 1 '= 1 0 0 ) Table 3„ Weekly index B b / High T I p r T 2 7 ) Low (Novo 9 ) Sept., 2 8 Octo 1 9 Nov., Dec, - 5 • D a i l y index e / High (Apr. 2 ) Low (Oct. 2 3 ) Oct. 1 9 LLU08 96o3 103.6 97.0 98.5 96.3 98.6 1 0 7 oU 105.3 105.3 103.1 102 09 103.6 26 9 16 23 30 7 1U 21 28 1962 £ / Nov. Dec. 23 26 ; 9 16 19 23 26 27 30 28 113.9 8 9 oO 91.1 89.0 93.9 90.8 9 2 oU 95.1 102.3 lOUeO 100.3 98.9 97.1 a / Composite indexes exclusive of shares of f o r e i g n companies. %/ Covers a l l French shares l i s t e d on P a r i s Boruse. c / Based on sample of about 5>0 per cent i n terms of market v a l u e . New i s sues o Although the t h i r d - q u a r t e r d e c l i n e i n n e t new s e c u r i t y i s s u e s was l a r g e l y s e a s o n a l , f l o t a t i o n s f e l l below the y e a r - e a r l i e r l e v e l f o r the second successive quarter» (See Table U o ) In both the second and t h i r d q u a r t e r s , new i s s u e s were off about 9 per c e n t . Because they had been up sharply i n the f i r s t q u a r t e r , f o r the nine months January-September t h e r e was s t i l l a U . 6 per cent i n c r e a s e over 1961. Table Uo France 2 Net S e c u r i t y Issues,, 1961=62 a / (In m i l l i o n s of f r a n c s ) 19 6 1 II Treasury P r i v a t e firms? Stocks Bonds Participations b/ Other bonds 0/ Total li ' J S L I 19 6 2 II 8U2 30U 73 1,279 800 393 51 1,357 702 521 50 11 878 236 90 1,919 1,031 UUo 61 8U0 725 151 60 2UU 2,U98 2,601 1,28U 3,123 2,372 1,181 b i l l s 0 3 / National e n t e r p r i s e s , p u b l i c and semi-public s a v i n g s - c o l l e c t i n g i n s t i t u t i o n s , and l o c a l public bodies 0 III OFFICIAL USE ONLY OFFICIAL IBB ONLY - 6 - T h i r d - q u a r t e r i s s u e s were e s p e c i a l l y low f o r p r i v a t e f i r m s , and were 17 p e r cent under a year previous • As a r e s u l t , f o r the f i r s t nine months the volume of p r i v a t e f i r m s 1 i s s u e s r a n only 2.U per cent over January-September 1961. This was due t o a 32 per cent f a l l i n corporate • bond i s s u e s ; stock f l o t a t i o n s rose 12 per cent., Because of the much lower volume of corporate bond i s s u e s , t o t a l bond i s s u e s i n the f i r s t nine months of 1962 were s l i g h t l y below t h e i r l e v e l i n t h e same period of 1961, d e s p i t e the e x i s t e n c e of lower bond y i e l d s i n 1962. Gold market. Gold p r i c e s were a l s o s e n s i t i v e t o p o l i t i c a l developments i n the period under review. The opening of the r e c e n t domestic p o l i t i c a l drama caused the p r i c e of the Napoleon to jump from NF I4.O.9O on September 28 t o NF Ul.70 on October 8 . (See Table 5>.) A f t e r a decline i n the n e x t few days, the Cuban c r i s i s s e n t the p r i c e t o NF U3.50 on October 2It, the h i g h e s t p r i c e i n f i v e y e a r s . The easing of i n t e r n a t i o n a l t e n s i o n s brought a r e t r e a t , and the G a u l l i s t e l e c t i o n v i c t o r i e s i n l a t e November caused a f u r t h e r f a l l t o around the NF U0.f>0 l e v e l . Quotations were l i t t l e changed i n December, and t h e December 28 p r i c e of NF U0.70 was s l i g h t l y under the p r i c e three months e a r l i e r . Table 5 . 1960-average 1961-average 1962-Monthly averages: January February March April May June July August September P r i c e of Napoleon Gold Coin, 1960-62 ( I n new f r a n c s ) 36.62 39.30 U2.73 UO.63 UO.Ul 39.60 39.71 39.98 U0.l5 UO.81 Ul.07 1962-Selected d a t e s September 28 October 8 18 2k 2$ November 16 23 December 28 U0.90 Ll.70 11.20 U3.50 Ul.UO Ul.80 kO.50 140.70 Foreign t r a d e . October saw a sudden r e v e r s a l of t h e t h i r d - q u a r t e r d e t e r i o r a t i o n i n the French t r a d e balance, b u t i n November the balance again worsened. I n October, s e a s o n a l l y - a d j u s t e d exports rose 11 per cent over the September l e v e l , while imports dropped k per c e n t . (See Table 6 . ) In November, exports f e l l 6 per cent and imports rose 2 p e r c e n t . For October-November, trade was v i r t u a l l y balanced, i n c o n t r a s t with the s i z e a b l e t h i r d - q u a r t e r d e f i c i t , because of a g r e a t e r i n c r e a s e i n exports than i n i m p o r t s . But the balance i n October-November a l s o c o n t r a s t s with surpluses i n January-June. Compared with the year p r e v i o u s , t r a d e with f o r e i g n c o u n t r i e s shows imports i n October-November up 19 per cent and exports up 16 per c e n t . On trade with the overseas f r a n c a r e a , imports were down 3 per cent and exports down 15 per c e n t . OFFICIAL USE ONLY OFFICIAL USE ONLY Table 60 Frances Foreign Trade 9 1961=62 (In millions of d o l l a r s | monthly average or month) Total t r a d e , seasonally-adjusted 1961 - year Qtr„ I II III IV Exports 602 58H . 605 619 602 Imports C o i o f 0 #7 5U9 #2 #18 599 Balance +U5 +35 +53 +71 + 3 620 603 609 606 671 633 576 587 6# 672 6k8 659 +a +16 -30 -66 +23 -26 1962 - Qtr 0 I II III September October November Trade by a r e a , unadjusted Foreign countries Exports Imports Coiofo Balance Franc area Exports Imports C o i . f . Balance 19 6 1 Octo-Novo ill *r_ II U26 125 +1 U5o U5o U26 391 +35 166 129 +37 157 136 +21 138 10U +3U == 19 6 2 Oct 0-=Nov 0 III 1 II U7U U51 +23 187 U71 +16 U96 U79 +17 UU9 U57 - 8 550 537 +13 163 119 +a 1U2 138 + h 110 1U7 -37 100 11U -lit 138 115 +23 I n t e r n a t i o n a l reserves 0 Reserve gains continued to be large i n the f o u r t h q u a r t e r , and a t the end of December France made another debt p r e payment of $ll6o6 million to the United States„ O f f i c i a l gold and f o r e i g n exchange holdings increased $86 million i n October and $103 million i n Novemberj there were no known special transactions i n these months„ Seasonal f a c t o r s kept these increases below the l e v e l of reserve accruals during the summer0 In D e c e m b e r o f f i c i a l reserves f e l l $109 million s but would have r i s e n $8 million i n the absence of the debt prepayment<> Two other transactions which contributed to the drop in a c t u a l reserve holdings i n December were (1) $2508 million of scheduled debt repayments to the United S t a t e s p and (2) $23 million of prepayments by the Simca automobile company on a $31<>5 million loan obtained i n 1961 from a group of Swiss bankso The December debt prepayment brought to $588 million the t o t a l of advance debt repayments by France in 1962 or about per cent of the $1»3 b i l l i o n French balance-of-payments surplus i n 1962o Europe and B r i t i s h Commonwealth Section,, OFFICIAL USE ONLY INTEREST ARBITRAGE, Thursday figures THREE-MONTH UNITED TREASURY STATES / BILL R A T E S vv[i' RATE DIFFERENTIAL A N D CAN AD A FORWARD s vv^v CANADIAN DOLLAR S P R E A D IN F A V O R O F C A N A D A + RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER N E T I N C E N T I V E IN F A V O R O F C A N A D A + uL! LJ. 2 1959 1960 1961 1962 INTEREST Friday ARBITRAGE, RATE Y O R K / L O N D O N figures 3-MONTH ' NEW Per c e n t TREASURY DIFFERENTIAL "3-MONTH BILL RATES AND FORWARD | STERLING — V - ^ i RATE DIFFERENTIAL •^FORWARD WITH EXCHANGE COVER ±11 per annum INTEREST ARBITRAGE FOR GERMAN COMMERCIAL BANKS Friday figures 3-MONTH Per cent per annum TREASURY - EURO-DOLLAR RATE DEPOSIT DIFFERENTIAL / RATE BILLS, DIFFERENTIAL r WITH LENDING RATE AND RATES AND v INTERBANK FORWARD v - DEUTSCHE MARK Y FORWARD IN F A V O R EXCHANGE COVER OF FRANKFURT ( + ) INTERIANR LOAN RATE TREASURY l l l l S I960 1961 1962 INTEREST ARBITRAGE, FRANKFURT / LONDON F r i d a y ^[g^ures 3-MOjNTH Per ( < n l p e r a n n u m TREASURY-BILLS INTERBANK LENDING AND RATES \ A GERMAN INTERBANK"!/* RATE D I F F E R E N T I A L A N D | - 3 - M O N T H FORWARD STERLING — RATE DIFFERENTIAL J WITH FORWARD GERMAN TREASURY EXCHANGE BILLS COVER S S I960 1961 1962 ^0M-A' SHORT-TERM •* INTEREST RATES /r\ / i CANADA 1961 3-month treasury bill rates for all countries except Japan (3 month interbank deposit rate) and Switzerland (3 month deposit role) "I" 3 month rate lor U S dollar deposits in London , LONG-TIIM BOND YIELDS / V - ' 1958 1959 \ CANAIA VV\ I N D U S T R I A L STOCK I N D I C E S * JAPAN 1961 SPOT EXCHANGE BATES - M A J O R CURRENCIES A G A I N S T U.K. U.S. DOLLAR ^ # STietING r " A b o v • par Abqv e par ITALIAN LIRA mo 1962 ( 3-MONTH : I , FORWARD AGAINST U. S. AGAINST POUND EXCHANGE RATES Per c e n t r DOLLARS STERLING - LONDON IIV\. J AGAiNST POUND STERLING FRENCH - LONDON FRANC / » per annum
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