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DIVISION OF I N T E R N A T I O N A L F I N A N C E BOARD O F G O V E R N O R S F E D E R A L R E S E R V E SYSTEM H. 13 No. J u l y 1 , 196U 15U CAPITAL MARKET DEVELOPMENTS ABROAD I. lie I. United Kingdom Nine C h a r t s on F i n a n c i a l Developments Abroad Uniljed Kingdom; Money and C a p i t a l Markets i n May and June 196U j '• ^ ; B r j i t i s h f i n a n c i a l markets were s t e a d y i n May, b u t t h e r e was a g e n e r a l i n c r e a s e i n J i n t e r e s t r a t e s . i n J u n e , when s t e r l i n g was under p r e s s u r e * The s p o t pound, which was f i r m i n May, f e l l c o n t i n u o u s l y i n J u n e , and t h e 3-month f o r w a r d d i s c o u n t n a r r o w e d , The a r b i t r a g e d i f f e r e n t i a l widened b u t , e v i d e n t l y b e c a u s e of u n c e r t a i n t i e s , no f u n d s flowed„ Government bond p r i c e s began t o edge downward i n t h i s p e r i o d , s e n d i n g y i e l d s up by 5 t o 18 p o i n t s between May 29 and June 2 6 . (See Table 1«) I n t h e money m a r k e t , t h e T r e a s u r y b i l l , r a t e r o s e between mid-May and June 26 „ Funds withdrawn f r o m t h e T r e a s u r y b i l l market and t h e Government bond market were p l a c e d i n more h i g h l y l i q u i d a s s e t s , such a s 2 - d a y l o c a l a u t h o r i t y d e p o s i t s * In c o n t r a s t with these developments, stock p r i c e s d e c l i n e d i n May and made a p a r t i a l r e c o v e r y i n J u n e . Table 1 . ' United Kingdoms S e l e c t e d F i n a n c i a l I n d i c a t o r s ,196k ~~ ( I n p e r c e n t p e r annum) May 1 MONEY MARKET (3-mo, y i e l d s ) Treasury b i l l tender Local a u t h o r i t i e s d e p o s i t s (covered) Euro-dollar deposits COVERED ARBITRAGE ( f a v o r UoKc.) ~ U,Ko/UoSe T r e a s u r y b i l l s ( A p r i l 1 0 , 1962-100) I n d u s t r i a l stocks Long-term Government bonds May 29 June 26 Changes: May 1 May 29June 26 May 29 U«30 a/L.39 U»U6. +0,09 +0.07 k.2k Uel9 a/^o26 |/U.25 A. 51 U.38 +0.02 +0,06 -0.03 a/<)»06 +0,Ul +0,09 +0.35 116,92 105.02 111*U2 105,05 113.32 ioU.52 -5.50 +0.03 +1,90 - 0.53 4 0 . 2 5 +0.13 GOVERNMENT BOND YIELDS b / +0,18 -0.05 32 1967 5.08 1,90 L.95 -0.03 +0,12 5% 1971 5,36 5,39 5.L8 +0,08 5-1/2% .2008-12 6,10 6,10 6*18 +0.05 3-1/2% War Loan 6.17 6.22 6,17 EXCHANGE RATES Spot (U.S., c e n t s ) -0*31 280,00 279,10 -0.59 279«69 5 0,02 0.25 3-month f o r w a r d d i s c o u n t -0,76 ~0o7U -0*U9 P r e v i o u s Thursdays» a / June 1 f i g u r e s , New York market c l o s e d May 29« y OFFICIAL USE ONLY ( D e c o n t r o l l e d a f t e r s i x months) OFFICIAL USE ONLY The p r e s s u r e a g a i n s t s t e r l i n g developed i n connection w i t h t h e withdrawal of funds from London by f o r e i g n commercial banks t o meet l i q u i d i t y p r e s s u r e s i n t h e i r markets• The r e l a t e d s e l l i n g of spot exchange was matched by some forward p u r c h a s e s , and the 3-months forward d i s c o u n t moved down from 0,76 t o 0.U9 per cent per annum between June 1 and June 26. The spot pound f e l l t o 279.10 c e n t s from 279.95 c e n t s i n t h i s p e r i o d , and t h e covered d i f f e r e n t i a l i n f a v o r of the U.K. Treasury b i l l r o s e t o O.lpL p e r c e n t p e r annum. The s e n s i t i v i t y of t h e f o r e i g n exchange market i s r e l a t e d t o the p e r s i s t e n t adverse t r a d e d e f i c i t experienced i n t h e f i r s t f i v e months of I96U. Imports have l e v e l l e d o f f ; b u t e x p o r t s , a f t e r r i s i n g s h a r p l y between November 1963 and February 196L, d i d not i n c r e a s e between February and May. C r e d i t expansion c o n t i n u e s , although bank l e n d i n g i n the t h r e e months ending May 196U i n c r e a s e d by only o n e - t h i r d as much as i n t h e p r e v i o u s t h r e e month p e r i o d . However, i n s t a l m e n t c r e d i t , m a i n l y t o f i n a n c e automobile p u r c h a s e s , i n c r e a s e d through A p r i l . In the f i r s t f i v e months of 196k new c a p i t a l i s s u e s were 75 p e r c e n t above t h e comparable p e r i o d of 1963. D o l l a r denominated bonds continued t o be issued i n London, and t o t a l l e d $50 m i l l i o n i n May and June. Money m a r k e t . Conditions were r e l a t i v e l y t i g h t i n May and June, and f r e q u e n t Bank of England a s s i s t a n c e was r e q u i r e d . The Treasury b i l l t e n d e r r a t e inched up from Iu30 per cent t o U.U7 per c e n t between May 15 and June 26, a f t e r remaining unchanged f o r 11 weeks f o l l o w i n g t h e February 27 Bank r a t e i n c r e a s e . The market r a t e l i k e w i s e advanced, moving from i f . 2 5 p e r cent t o U»35 p e r c e n t i n t h i s p e r i o d , (see Table 10 and Charts 3 and } In the l o c a l a u t h o r i t i e s market, t h e y i e l d on 3-months d e p o s i t s remained c l o s e t o 5 per c e n t throughout May and June. (See Table 10 and Chart 3 . ) Howe v e r , y i e l d s on 2-day d e p o s i t s f e l l from U»75 p e r c e n t t o lu50 p e r c e n t between June 8 and 22, as domestic i n v e s t o r s sought o u t l e t s f o r f u n d s which t h e y would otherwise have p l a c e d i n T r e a s u r y b i l l s or i n government bonds. Local a u t h o r i t y mortgage b u s i n e s s has been confined g e n e r a l l y t o s h o r t m a t u r i t i e s , loans repayable on one month's n o t i c e a f t e r a term of eleven months were i n demand, and t h e i r y i e l d was s t e a d y a t 5-3/U p e r c e n t i n May and June. Mortgage b u s i n e s s was l i t t l e a f f e c t e d by the g e n e r a l 1/8 per c e n t i n c r e a s e i n P u b l i c Works Loan Board l e n d i n g charges e f f e c t i v e on May 1 5 . The FWLB mortgage charges now range from 5 - 1 A per cent f o r loans maturing i n l e s s t h a n 5 y e a r s t o 6 per c e n t f o r l o a n s maturing i n 30 y e a r s or l o n g e r . E u r o - d o l l a r r a t e s have advanced from I u l 9 p e r cent t o U»38 p e r c e n t f o r 3-month d e p o s i t s between May 1 and June 12 and remained a t t h a t l e v e l f o r the r e s t of the month. (See Table 10 and Chart 5<>) R e p o r t e d l y , f o r e i g n e r s have been s h i f t i n g f u n d s out of s t e r l i n g a s s e t s i n t o E u r o - d o l l a r s t o t a k e advantage of t h e s e higher y i e l d s . The Bank of England has p u b l i s h e d f i g u r e s on E u r o - d o l l a r d e p o s i t s and loans i n t h e June i s s u e of i t s Q u a r t e r l y B u l l e t i n . At the end of March 196U E u r o - d o l l a r d e p o s i t s t o t a l l e d £1,107 m i l l i o n and loans £1,005 m i l l i o n . Deposits OFFICIAL USE ONLY OFFICIAL USE ONLY - 3 - and l o a n s i n o t h e r c u r r e n c i e s ( m a i n l y Swiss f r a n c s and German marks) were a b o u t £200 m i l l i o n e a c h , S w i t z e r l a n d h e l d about 20 p e r c e n t of t h e d e p o s i t s 5 t h e U n i t e d S t a t e s and Canada a b o u t 10 p e r c e n t each® About o n e - t h i r d of t h e l o a n s were t o U.S. f i r m s , w i t h I t a l y and Japan r a n k i n g a s t h e second and t h i r d l a r g e s t borrowers 0 A r b i t r a g e y i e l d s p r e a d s 0 In e a r l y June a covered d i f f e r e n t i a l developed i n f a v o r of t h e U.K. over t n e U 0 S 0 T r e a s u r y b i l l , m a i n l y because t h e f o r w a r d d i s c o u n t on 3-months s t e r l i n g n a r r o w e d . The d i f f e r e n t i a l reached 0 . 2 5 p e r c e n t p e r annum on June 12 and r o s e t o OeUlper c e n t on June 2 6 . (See T a b l e 2 and C h a r t 1 . ) There were no r e p o r t s of f u n d s s h i f t i n g i n t o London, a s t h e c l o s i n g of t h e f o r w a r d d i s c o u n t on s t e r l i n g r e p r e s e n t e d p a r t of a s p e c u l a t i v e movement a g a i n s t t h e pound. Table 2 . U . K . / U . S . S h o r t - t e r m Money Market Y i e l d s and Y i e l d Spreads ( i n p e r c e n t p e r annum) ™~" 1 9 6 k May TIME DEPOSITS (3-month) U.S. d o l l a r s . . N.Y. - C e r t f . d e p o s i t J\L£' London - Euro-# S t e r l i n g (covered) Local a u t h o r i t i e s F i n a n c e Houses YIELD SPREADS (Favor U.K.) T r e a s u r y b i l l s (3-month) c / Uncovered Covered Euro-4 - N.Y. C/D a / Euro-# - Local A u t h o r i t y (covered) ¥ ]>/ c/ June 1 1 8 15 22 3.80 U.19 3.80 U.25 3.81 U.25 3.85 U.19 3.85 U.25 U.2U 12 19 3.85 U.31 3.85 U.38 3.85 U.38 U.37 U.10 U.Uo U.25 U.U3 U.25 J L U.2U U.23 U.21 U.26 U . 2 0 . U.20 U.20 U.20 U.20 .69 ".07 .39 .80 .03 oUU .80 .80 .01 .06 .21 .Uo »3U .U6 .86 .25 -53 .86 .28 .39 .05 .01 •=o02 .02 .01 0O6 .02 .05 .73 -.03 .87 .53 P r e v i o u s 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 c e r t i f i c a t e s of time 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 T a b l e 1 1 . See a l s o C h a r t s 1 and 3 , V i r t u a l l y no covered d i f f e r e n t i a l between E u r o - d o l l a r d e p o s i t s and l o c a l a u t h o r i t y d e p o s i t s has e x i s t e d from t h e end of A p r i l t h r o u g h m i d - J u n e . However, t h e d i f f e r e n t i a l between E u r o - d o l l a r d e p o s i t s and prime 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 i n New York widened f r o m 0.U0 p e r c e n t p e r annum on May 22 t o 0 . 5 3 p e r c e n t p e r annum by June 12 a s . t h e C/D r a t e remained a t 3 . 8 5 p e r c e n t w h i l e t h e E u r o - d o l l a r r a t e was i n c r e a s i n g . Bond m a r k e t . The market f o r government bonds weakened f r o m A p r i l 15 t h r o u g h t h e f i r s t week of May f o l l o w i n g t h e p r e s e n t a t i o n of t h e 196U-65 b u d g e t s r e p o r t e d l y b e c a u s e of i n v e s t o r r e a c t i o n t o t h e p r o j e c t e d i n c r e a s e i n t h e Governm e n t ' s borrowing r e q u i r e m e n t s . Between mid~April and e a r l y May I d n g - t e r m r a t e s OFFICIAL USE ONLY OFFICIAL USE ONLY - 4 = moved up f r o m around 6<,00 p e r c e n t t o a range of 6 , 1 0 t o 6 . 2 0 p e r c e n t — t h e l e v e l p r e v a i l i n g j u s t b e f o r e t h e F e b r u a r y 27 Bank r a t e i n c r e a s e . (See Table 11 and C h a r t 6 . ) Bond p r i c e s became f i r m f o r a week, b u t t h e y began t o f a l l c o n t i n u o u s l y f o l l o w i n g t h e announcement i n mid-May of t h e l a r g e A p r i l t r a d e d e f i c i t . Bond p r i c e s were d e p r e s s e d f u r t h e r i n June when s t e r l i n g weakened. The y i e l d on t h e 3 - 1 / 2 p e r c e n t War Loan r e a c h e d 6 . 2 9 p e r c e n t on June 18o However, t h e market r e c o v e r e d toward t h e end of t h e month, b r i n g i n g l o n g - t e r m y i e l d s down s e v e r a l p o i n t s . War Loan y i e l d f e l l t o 6 , 2 2 p e r c e n t on June 2 6 , The L i v e r p o o l C o r p o r a t i o n f l o a t e d a £10 m i l l i o n 5 - 3 A p e r c e n t bond i s s u e i n mid-May a t 9 7 . I t was f u l l y s u b s c r i b e d and was t r a d e d a t o n l y a s l i g h t d i s c o u n t . The Government of Jamaica £ 3 , 2 m i l l i o n 6 - 3 / U p e r c e n t 197U-76 l o a n , which was o f f e r e d a t 9 6 - 1 / 2 was a l s o s u c c e s s f u l . D o l l a r denominated l o a n s . Three l a r g e d o l l a r bond i s s u e s , t o t a l l i n g ,,/S^O m i l l i o n , were f l o a t e d i n London i n May and t h e f i r s t h a l f of J u n e , On May U, t h e J u t l a n d Telephone Co, of Denmark o f f e r e d $ 1 0 , 0 m i l l i o n of 5-3/U p e r c e n t 2 0 - y e a r b o n d s . On May 11 , t h e Kingdom of Norway p u t out a $25 m i l l i o n 5 - 1 / 2 p e r c e n t 2 0 - y e a r i s s u e . Then, i n t h e f i r s t week of June, Toyo Rayon ( J a p a n ) p l a c e d p r i v a t e l y $15 m i l l i o n of 6=1/1*. p e r c e n t c o n v e r t i b l e b o n d s . Their e f f e c t i v e gross redemption y i e l d 9 taking i n t o account the c u r r e n t i n v e s t ment d o l l a r premium, was e s t i m a t e d a t 5=1/2 p e r c e n t , A £U million external account sterling loan is being planned by the City of Turin. Subscriptions will be sought in external account sterling, but bondholders will have the option of receiving interest and principal payments in German marks. Also in the planning stage is a $25 million bond issue by an Italian holding company, the Istituto per la Ricostruzione Industriale, Purchasers will have a 10-year option to buy stock in a subsidiary holding company* Finsider, at a price close to that prevailing at the time of the bond issue. Stock market. Stock p r i c e s , which had advanced s h a r p l y f o l l o w i n g t h e b u d g e t message, weakened a t t h e end of A p r i l and d e c l i n e d t h r o u g h e a r l y J u n e . The p r i c e i n d e x f e l l f r o m 1 1 6 , 9 i n t h e l a s t week of A p r i l t o 1 1 0 , 5 on June (See Table 1 1 and Chart 7 , ) While p o l i t i c a l u n c e r t a i n t i e s c o n t i n u e d t o have p e r h a p s t h e major a d v e r s e e f f e c t on i n v e s t o r s , t h e market was a l s o d e p r e s s e d by t h e poor A p r i l t r a d e r e t u r n s and by evidence of i n f l a t i o n a r y developments d u r i n g May. I t was f e l t t h a t t h i s combination of e v e n t s would r e q u i r e govern-* ment a c t i o n t o slow down t h e growth of domestic demand. News of f a v o r a b l e corporate p r o f i t s did l i t t l e t o stimulate the market, as i t i s widely believed t h a t t h e y had a l r e a d y been a n t i c i p a t e d by t h e r i s e i n s t o c k p r i c e s i n 1963, I n t h e two weeks ending June 1 9 , s t o c k p r i c e s r e c o v e r e d some of t h e l o s s e s s u s t a i n e d i n May. However, t h e y l e v e l l e d o f f i n t h e f o l l o w i n g week and on June 2 5 t h e i n d e x s t o o d a t 1 1 3 o 3 » some t h r e e p o i n t s below t h e e n d - A p r i l figure. Bank l e n d i n g c . Bank f i n a n c i n g of b o t h t h e p u b l i c and t h e p r i v a t e s e c t o r s of t h e B r i t i s h economy expanded l e s s i n t h e second q u a r t e r of 196U t h a n i n t h e comparable p e r i o d of l a s t y e a r , London c l e a r i n g bank f i n a n c i n g of t h e g o v e r n m e n t ' s c a s h d e f i c i t (Exchequer f i n a n c e ) amounted t o only £50 m i l l i o n i n t h i s p e r i o d as. c o n t r a s t e d w i t h £91 m i l l i o n i n t h e y e a r b e f o r e , (See Table 3 , ) OFFICIAL USE ONLY •=* 5> - OFFICIAL USE ONLY However, as the budget d e f i c i t f o r the f i s c a l y e a r which began A p r i l 1 i s expected t o i n c r e a s e t o £791 m i l l i o n from £178 m i l l i o n , i t i s p o s s i b l e t h a t t h i s p a t t e r n may be reversed i n f u t u r e months® Table 3@ London Clearing Banksg L i a b i l i t i e s t o and Claims on t h e ~~ P u b l i c and P r i v a t e Sectors A p r i l 19&1 through June 196U a / ( I n m i l l i o n s of pounds) " 196t 1962 Claims on P u b l i c Sector Bonds Treasury b i l l s and loans t o t h e d i s c o u n t market =90 T o t a l claims on public sector Claims on P r i v a t e Sector Advances (net] Other T o t a l claims on private sector -7 +137 —U2 =32 +18 -131 +32 +12 +123 + 6 -30 +91 U + 11 - 8 -28 ~k3 + 17 +$8 +U53 + 38 +385 +90 + 7 +L91 +M7 +97 Exchequer f i n a n c e Loans t o n a t i o n a l i z e d industries C h a n g e s g 1962- 1 9 6 > April-June 1963 196U 1963 196U +m Outstanding A p r i l 15) 1964 1,092 2,327 -27 U8 +23 +76 ± 7 a,193 713 U,o906 y e a r s are f i s c a l y e a r s b e g i n n i n g ^ p r i l " T 7 Bank lending t o the p r i v a t e s e c t o r has a l s o slowed down. In the tnrOe^ month p e r i o d March through Mays bank, advances (seasonally a d j u s t e d J i n c r e a s e d by on £35 m i l l i o n , as c o n t r a s t e d with i n c r e a s e s of £150 m i l l i o n and £130 miJLlion i n the two previous three-month periods» (See Table l u ) The bulk of the i n c r e a s e i n bank lending has been used t o f i n a n c e personal consumption e i t h e r d i r e c t l y through "personal and professional; .xsns" or i n d i r e c t l y through loans t o h i r e purchase f i n a n c e houses <, In the year ending May 196k a loans t o these groups of borrowers t o g e t h e r with loans t o o t h e r f i n a n c i a l i n s t i t u t i o n s expanded by lU per cent and accounted f o r about, t w o - t h i r d s of the t o t a l growth i n lending« Bank loans t o manufacturing i n d u s t r y , on t h e o t h e r hand 5 i n c r e a s e d by only 3 per cent and accounted f o r l i t t l e more than one-tenth of t h e i n c r e a s e i n t o t a l bank lending 0 New issueso Manufacturing i n d u s t r y 3 along with other c o r p o r a t e borrowers s r a i s e d £283*5 m i l l i o n through new securities i s s u e s i n -the f i r s t f i v e months of 196ks> about 70 per cent more than i n the comparable p e r i o d of 1963, (See Table So) The flow of new corporate i s s u e s 3 however 9 has d e c l i n e d between March and May0 OFFICIAL USE ONLY OFFICIAL USE ONLY Table U. - 6 - United Kingdom: Bank Loans C l a s s i f i e d by Borrower s 1963-614. ( I n m i l l i o n s of poundsj s e a s o n a l l y a d j u s t e d ) Change i n q u a r t e r ending % 1 9 6 3 Manufacturing industry 1 9 6 IP May Nov. Feb. Majr +17 + 8 + 3 +10 1,278 +11 +U8 +18 651 30 + 9 + 5 ~519 Majr Aug^ +16 1961i Hire purchase f i n a n c e companies and o t h e r f i n a n c i a l institutions +3U +18 Retail trade + 8 + 7 + P e r s o n a l and professional +U3 +Uo +3U +35 +23 Other +16 +12 +67 135 -21 1,188 +117 +9U +150 +130 _ +35 it,912 Total Source: . - 976 B r i t i s h Bankers A s s o c i a t i o n Table 5» ~~ United Kingdoms C a p i t a l I s s u e s and Redemptions ( I n m i l l i o n s of pounds) ~ Jan-May 1953 196U 1963 U.K. borrowers 1 / P u b l i c companies Local a u t h o r i t i e s Overseas borrowers Commonwealth Other c o u n t r i e s * Total of which Gross i s s u e s Gross redemptions 166.2 U29.U 92.5 15*8 0.7 21.6 j- 13 »° 32.3 ia-8 f April May 67.2 7.9 53.9 11.7 U8.9 li-5 -3*6 7.7 79^ (6U6.9) (108.5) (226.9) ( 26.1) 17 Excluding government s e c u r i t i e s . Source: Bank of England. 283.5 March OFFICIAL USE ONLY (398.3) ( U0.7) (92.1) (12.9) UoU I 7.2J ITS (79.3) ( 2.1) 2.3 WTF (65.6) (9.9) OFFICIAL USE ONLY - 7 - Instalment c r e d i t . New c r e d i t extended by f i n a n c e houses rose r a p i d l y i n March and A p r i l , mainly t o f i n a n c e automobile purchases» (See Table 6 . ) The f l u c t u a t i o n s i n new department s t o r e c r e d i t were almost e n t i r e l y seasonal* according t o the Board of Trade. However, the gradual d e c l i n e i n 196k of department s t o r e c r e d i t outstanding r e f l e c t s the sluggishness of r e t a i l s a l e s . Table 6* " United Kingdom: Instalment Credit (end of p e r i o d ) Outstanding New Credit Extended, Index of value (1957=100) Department s t o r e s Finance houses Credit Outstanding (£ m i l l i o n s ) Department s t o r e s Finance houses Total 1963 Jan. Feb, 111* 110 17b 107 I8I1 105 209 110 236 — + 9 -k9 - >22 +U5 +17 - 2 +20 %57 - 1 +13 +15 - 1 ~uo - 1 k + 3 ^15 +IB 335 668 1,003 1962 139 9k 129 + teidi 5*5, 196k Foreign exchange market„ S t e r l i n g was under pressure in June as c o n t i n e n t i a l commercial banks withdrew funds from London in order t o counter p r e s s u r e s on t h e i r domestic l i q u i d i t y p o s i t i o n and, r e p o r t e d l y , f o r mid-year window d r e s s i n g purposes. The spot pound f e l l from 279»95 U.S. cents on May 22 t o 279*10 cents on June 26. (See Table 10 and Chart 8 . ) Some s t e r l i n g was repurchased forward, reducing the forward discount from 0.79 per cent per annum t o O.I4.9 per cent per annum between these two d a t e s . (See Table 10 and Chart 9 . ) The investment d o l l a r premium increased as the spot r a t e f e l l , advancing from 12.25 per cent on May 28 t o 13*50 per cent on June 12. I n s t i t u t i o n a l i n v e s t o r s are reported t o have made s u b s t a n t i a l purchases of U.S. s e c u r i t i e s because of the favorable prospects of the U.S. economy p o l i t i c a l u n c e r t a i n t i e s i n the United Kingdom and doubts about c o n t i n e n t a l markets. Foreign t r a d e , B r i t a i n ' s p e r s i s t e n t t r a d e d e f i c i t continued through A p r i l and May. Owing t o a 10 per cent f a l l in e x p o r t s , the t r a d e gap widened from £67 m i l l i o n f o r February-March t o £107 m i l l i o n i n A p r i l . In May exports f a i l e d t o recover t o more than the February l e v e l , and the trade d e f i c i t f o r t h i s month remained 70 per cent above the March-May 1963 monthly average. (See Table 7 . ) Imports have remained r e l a t i v e l y s t a b l e from February through May. While b a s i c m a t e r i a l s imports d e c l i n e d , there were increased imports of semi-manufactures and f i n i s h e d p r o d u c t s . OFFICIAL USE ONLY OFFICIAL USE ONLY Table 7» United Kingdom s Foreign Trade ( m i l l i o n s of poundsj s e a s o n a l l y a d j u s t e d 5 monthly averages) 1963 March S e p t . Dec. March Nov, .Feb e May Feb. March April Imports> C . i . f . 389 UlS U5o U50 U53 U51 L57 Exports, f.o,b» 337 3kh a / 3 5 2 360 369 373 337 Re-exports, f , o , b . 1 3 " 1 2 1 2 1 3 J-3 J-2 Trade b a l a n c e , customs r e t u r n s —58 —86 -80 -39 -69 -65 -107 Majr k?o 370 -13 - 67 a? The January export f i g u r e i s not comparable to those f o r o t h e r months owing t o a change i n compilation p r o c e d u r e s . Source: U.K. y i Board of Trade» Gold and f o r e i g n exchange r e s e r v e s . In s p i t e of t h e l a r g e adverse t r a d e d e f i c i t i r f A p r i l and May, r e s e r v e s r o s e by about $$0 m i l l i o n i n each of t h e s e two months<> (See Table 8 *) However9 some i n t e r v e n t i o n i n t h e f o r e i g n exchange market has been r e p o r t e d i n June t o counter s p e c u l a t i v e p r e s s u r e on s t e r l i n g . ~ Table 8@ 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 ) ' C h a n g e s ; i 9 t a 1963 Jan, Feb, Mar, Apr, May A. Gold and c o n v e r t i b l e currencies -1^9 Drawing r i g h t s on IMF - 13 Total - b / -195 +17 ~U8 +3 +17 +3U « 2 ^32 +53 +53 +UP, . n.a. n.a.- May 3i• i , ?. a7 A p r i l 30, 5 / T o t a l i s reduced by $33 m i l l i o n t o t a k e i n t o account t h e i n c r e a s e i n r e s e r v e s r e s u l t i n g from U,S* o p e r a t i o n s i n s t e r l i n g , See» F e d e r a l Reserve B u l l e t i n , September 1963 and March 19&L= Source: Bank of England and I n t e r n a t i o n a l Monetary Fund, B u l l i o n market« The London gold market was q u i e t i n May and June, with only o c c a s i o n a l s t r o n g demands f o r gold» The f i x i n g p r i c e remained between $3$*080 and $35*085 per f i n e ounce between May 8 and 29, b u t i t f e l l t o $35,071 on June 5» During the remainder of June, t h e f i x i n g p r i c e r o s e g r a d u a l l y reaching $35*085 on June 26, (See Table 9») OFFICIAL USE ONLY ™ 9 ~ OFFICIAL USE ONLY According t o the F i n a n c i a l Times (May 30, 196U, p»3) the bulk of the $218 m i l l i o n of gold acquired by the United S t a t e s Exchange S t a b i l i z a t i o n Fund i n March and A p r i l c o n s i s t e d of gold d i s t r i b u t e d by the London gold p o o l . The F i n a n c i a l Times r e p o r t s t h a t » the U.S. i s believed t o acquired about h a l f of a l l the gold d i s t r i b u t e d by the London Gold Pool# • • • An unusually l a r g e p o r p o r t i o n of the w o r l d ' s gold supply i s being channeled i n t o the o f f i c i a l r e s e r v e s , with a corresponding d e c l i n e i n hoarding and s p e c u l a t i o n • " Table 9 , London Fixing P r i c e f o r Gold ~ ( i n U.S. d o l l a r s per f i n e ounce) April May Source: 3 10 17 2h 1 May 35.082 35.071 35.081 35.085 35.071 8 15 22 29 35.083 35.082 35.081 35.082 June 5 12 19 26 Bank of England. Europe and B r i t i s h Commonwealth Section» 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 UoS, Dollar I n v e s t o r s Chart 2 r 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 it - I n t e r e s t Arbitrage f o r German Commercial Banks Chart 5 - Short-term I n t e r e s t Rates Chart 6 - Long-term Bond Yields Chart 7 - I n d u s t r i a l Stock Indices Chart 8 - Spot Exchange Rates » Major Currencies Against U.S. D o l l a r Chart 9 - 3-month Forward Exchange Rates OFFICIAL USE ONLY 35.071 35.075 35.076 35.085 -10 Table 10. United Kingdoms 0 7 ~ 1963 High Low 196a March April May June 3.58 3.31 a.16 a.16 a.16 3 10 17 2a 1 8 15 22 1 5 12 19 26 f/ a.16 20 26 a.16 a.16 a.16 - a.16 a.25 a.25 a.25 a.32 a.32 a.32 a.35 Treasury b i l l arbitrage calculation U.S. D i f f e r 3-ao, In favor ence pound*/ UJC. b i l l 3.# 2.85 3.52 3.52 3.50 3.aa 3.a5 3.a3 3.k3 3.L7 3.a5 3.a5 3.a5 3.a5 3oU6 3.a6 3.a5 ,6k .66 .72 .71 .73 .73 .69 .80 .80 .80 .87 .86 .86 .90 1?63 High Low 196U March +.23 -.03 -1.08 -.71 -.71 -.77 — 0 76 -.76 -.79 -.7a -.66 -.60 -.57 -.07 -.07 -.11 279.81 + .28 +.ai -,a9 United Kingdom: 280.59 279.59 -.oa. -.76 - 0 76 -.77 5.02 a.38 5.aa a.76 19 S.oo 25 a.97 2 April L.95 9 L.95 16 5.00 23 a . 97 30 a . 95 May 7 a.95 Ik a.92 21 a.92 28 a.90 June h a.92 11 a.95 18 5.08 5.08 2£_ f i n a n c i a l Times] D i f f e r e n c e between 279.88 279.85 279.87 279.97 280.00 279.96 279.92 279.95 279.69 279.53 279.aa 279.a2 279.10 a.88 a.25 5.12 5.12 5.06 k,9k ko9k a.25 a.25 a.25 a.25 a.19 a.19 a.25 a.25 a.19 b/a.25 a.31 a.38 a.38 a. 38 a.06 a.9a 5.00 5.00 5.00 5.00 b/5.00 -5.03 5.00 5.00 5.00 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 3% 5-1/2? 3-1/2% 2-1/2% 1965-75 2008-12 "War Loan Consols 5.a5 279.82 a.62 3.56 —^ May 29 5% 1967 6.00 Spot London d e p o s i t r a t e s pound U.S» Local Zj J,S, , dollar authority c e n t s ) - ' (3-MO.) -062 -.05 —.03 -.03 -.07 +.03 +.01 +.06 +.21 +.25 -.76 C e r t i f i e d N. Y. noon Duying r a t e , Table 1 1 . J .26 .a6 .6a 6.12 5.68 5.98 5.39 Share yield a/ 5.06 a.13 117 o 2 95.6 6.06 5.a? 5,98 92 a.37 113.7 1.55 6.05 90 5.a3 5.95 1.52 a.38 113*3 5.88 5.a3 83 5.95 a.29 113.6 1.5a 6.02 5.a9 89 5.95 i.ae a.ai 113.a 6.00 6.12 00 116.2 ,71 a.29 5.55 6,10 6.19 oa 116.8 5.57 a.31 • 73 6.10 6.17 6.05 5.57 a.3i 7k 116.9 5.60 6.12 6.20 6.08 69 115 a.39 6.10 6.16 5.58 6.03 a.as 113 55 560 5.1? 6.08 6.1? a .6i 113. 2 a? 6.1u 6.od 5.61 6.19 a.69 Ill, 8 39 5.65 6.15 6.25 6.12 110, a a.73 39 6.20 5.65 6.27 6.12 a,68 111, 5 i.aa 6.20 5.69 6.29 6.13 i,a9 113 o 6,22 6.18 6,07 5.70 i.a2 113,3 A c t u a r i e s 500 Share Index ( A p r i l 1 0 , 1962=100) = Share prices are y i e l d on 2 • l / 2 p e r c e n t Consols and s h a r e y i e l d » - 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 av^. INTERNATIONAL MONEY 3-MONTH EURO-DOLLAR Wednesday figures MARKET YIELDS FOR U.S. DOLLAR DEPOSIT VS. CERTIFICATE OF INVESTORS DEPOSIT Per c e n t per a n n u m YIELDS U . S . C E R T I F I C A T E OF D E P O S I T DIFFERENTIAL: EURO-DOLLAR OVER U.S. CERTIFICATE OF DEPOSIT NEW YORK OFFER Friday Hgwf RATES O N SELECTED TREASURY 3-MONTH INVESTMENTS BILLS - F u l l / H e d g e d COMMERCIAL PAPER-Fully Hedged INTEREST Thundoy ARBITRAGE, UNITED STATES / CANADA figures 3-MONTH TREASURY BILL RATES UNITED STATES RATE DIFFERENTIAL AND FORWARD CANADIAN DOLLAR IN F A V O R O f C A N A D A + F O R W A R D RATE '1 RATE 1" "I DIFFERENT). /ITH FORWARD EXCHANGE 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 LL-L1J. i A. i i l l i I COVER + 1 JJ_J_LLL- INTEREST ARBITRAGE, NEW Y O R K / L O N D O N Friday figures 3-MONTH P, TREASURY BILL RATES U.K. IQCAl AUTHORITY DEPOSITS LONDON RATE DIFFERENTIAL AND 3-MONTH FORWARD STERLING SPREAD IN FAVOR Of LONDON RATE DIFFERENTIAL 1961 TH FORWARD 1962 EXCHANGE COVER 1963 1964 INTEREST ARBITRAGE FOR GERMAN COMMERCIAL BANKS Friday figures 3-MONTH Per TREASURY " EURO^DOTLAR BILLS, DEPOSIT INTERBANK LENDING RATES RATE I AND I LOAN RATI G E J M A N TREASURY BILLS RATE DIFFERENTIAL AND FORWARD DEUTSCHE MARK F O R W A R D RATE D I S C O U N T ( — ) T R E A S U R Y BILLS RATE DIFFERENTIAL WITH NET I N C E N T I V E : f FORWARD EXCHANGE COVER IN F A V O R O i f R A N K F U R T ( + ) | INTERBANK LOAN R A T E ( V A 1 -L_;I Cher. 5 S H O R T - T E R M INTEREST R A T E S * EUBO-DOUAB - LONDON k l A ^ L L J IJ—L1 L O N G - T E R M B O N D YIELDS V 1962 \ 1 INDUSTRIAL STOCK INDICES .i?s.«=iqo Ratio n o i . CANADA New tenet ** iopon mde* Swm B o n k C o r p o r a t i o n i n d u t i r m l M m It i i u i o of ? 2 5 m d u t l n n l a n d o t h e r U o t U n n d o d o n t h e T o k y o e x c h a n g e SPOT EXCHANGE RATES - M A J O R CURRENCIES AGAINST U.S. DOLLAR p.r Above par Below p a r Below p a r .!_ !.. 1 I .1. ; 3 - M O N T H FORWARD EXCHANGE RATE F r i day I i g u m AGAINST U.S. DOLLARS POUND STIRLING DISCOUNT- AGAINST POUND STERLING - LONDON PREMIUM +- AGAINST POUND STERLING - LONDON PREMIUM + , DISCOUNT ^
@FedFRASER