Week in review:
Stocks opened the week lower on profit-taking and uncertainty concerning French objections to the Hoover debt moratorium plan. However, no liquidation was in evidence as volume declined from day to day, reaching a low of 1.3M Thursday. Improved prospects for the Hoover plan gave rise to better feeling later in the week, but “market interests were largely on the sidelines” awaiting definite news. Oil stocks rose on better sentiment concerning industry outlook.
Application of rails for a 15% freight rate increase may take longer than anticipated to be decided, though it's still expected they eventually will be granted some increase; it now appears the ICC won't rush to a decision and it's unlikely any increase could become effective before year-end.
Steel production continued seasonal decline to below the low of last Dec. (excepting the Christmas week), and further decline was predicted. However, sentiment is “definitely better” and producers expect slow improvement to start at end of this month. Scrap markets showed some improvement; finished prices were steady, with Dow steel products average showing first advance since Jan.
Bonds were “highly irregular,” particularly in the foreign list, fluctuating along with perceived progress of the French-US negotiations on the Hoover plan. However, German govts. rallied considerably toward the weekend, indicating confidence of a satisfactory settlement. South American bonds again fluctated widely. Offering of Taiwan Electric Power bonds guaranteed by Japanese govt. was successful. Trading in US govts. was unusually dull but prices were firm. Domestic corporate list featured encouraging rally in the industrial list, which had been relatively weak this year; oil company bonds were particularly strong; some lower-grade rails rose very sharply. Public utility bonds were firm in spite of heavy new issues. Municipal bonds continued gradual downtrend of past several weeks; Dow average of 20 long-term state and city bonds was at yield of 3.86% vs. 3.81% a week ago and 3.73% on May 29.
German capital flight continued, though on a smaller scale; marks fluctuated slightly, but the Reichsbank has thus far been able to prevent any serious decline. Bank of England unexpectedly postponed rate cut. Spanish pesetas fell sharply; although the Republic was secure after the June 28 elections, a serious rift between Republicans and Socialists was seen making stabilization unlikely. Argentine pesos improved, continuing rally since mid-June; attributed to improved trade position; first 5 months showed 20M gold peso surplus vs. 28M deficit a year ago.
“Outstanding development” in credit situation was continuation of aggressive new Fed. Reserve policy to expand outstanding credit by purchase of govt. bonds; Reserve banks bought $45M in week ended July 1, bringing 2-week total to $65M. So far result has varied by location. Member banks outside NY City reduced indebtedness to Fed. Reserve by $47M to “nominal figure” of $150.2M. On the other hand, NY City member banks increased loans and investments $223M, including $93M increase in business loans, the third consecutive week of increasing business loans. “Whether the expansion really indicates the return of confidence by borrowers and lenders remains to be seen, but the indications point that way.”
Grain prices broke sharply in midweek, on reports of better weather and higher crop estimates, though effect was mitigated by reports of further drought damage to spring wheat in Western Canada and the US Northwest; Canadian Premier Bennett said nation was threatened by worst natural disaster in its history. Farm Board announcement that it wouldn't sell over 5M bushels a month from its surplus was greeted with “disappointment in a few quarters” though it had little visible influence on prices. Cotton fell through most of the week before recovering some of its loss late; price movements appeared to be following stocks and the progress of negotiations in Paris rather than crop or trade news. Copper prices rose to 9 cents early in the week, but showed weak tone later.