Market Notes
By CUSTOS E new year optimism in the stock markets
evaporated this week. After thirteen sessions of rising prices this was only to be expected. By and large industrial equity shares are not particularly cheap in view of the coming fall in profits. Most of them are on a price/earnings ratio- of around 15, which must be regarded as relatively high. A share today does not begin to look cheap unless its price/earnings ratio is around 10 or below. The main exception to the lower trend this week was the gold share market which always reacts boldly to rumours of a possible rise in the price of gold. The fact that the French finance minister will raise the question of an increase in the world price of gold at the International Monetary Con- ference in London in ten days' time does not, of course, mean that anything will come of it. There is still strong American opposition. However on the Paris bullion market gold rose to a five-year peak and the 20-franc gold Napoleon to 50.4 francs.
Bank shares did not respond to the year's banking results, which were generally depres- sing, but there was some improvement in discount shares on the first reports of higher profits. There is no doubt that if this is to be a year of declining Bank rate the discount houses stand more to gain than the banks. The gilt-edged market in the meantime has quietened down. The cut in Bank rate in Germany from 5 per cent to 4+ per cent and the sharp fall in our Treasury bill rate to 6.45 per cent failed to have any stimulating effect on the market. The Govern- ment broker seemed to be discouraging market expectations of an early fall in Bank rate. The effect of high interest rates in Britain is, of course, to draw in 'hot' money to London. This will strengthen sterling and provide the basis for the next rise in the gilt-edged market.
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