Finance
A Good Start.
So far as the City, at all events, is concerned, and especially so far as the Stock Markets are concerned, the year 1935 has made a good start. This is quite in accordance with general expectations, and already _ securities in most departments have aivanced since the beginning of the year; the only notable exception has been Brazilian Bonds which have fallen rather heavily on the delay in meeting January 1st coupons on some of the Brazilian Loans. The delay has been attributed to Brazil's difficulty in obtaining exchange to effect the remittances, while some of the cables concerning the maintenance of the service on the Brazilian debts have been of a rather disquieting character.
THE EUROPEAN OUTLOOK.
Apart; however, from the fall in Brazilian Bonds, everything in the Stock Markets has been couleur de rose, and while many factors have contributed, including the continued cheapness of money, first place must Undoubtedly be given to the app Arent improvement in the European political outlook. A further influence, and one to which I shall make a fuller reference next week, has been the wonderfully satisfactory profit statements by the leading joint stock banks, but undoubtedly the paramount influence, and one which seems to call for special comment, is the improvement in the European situation which it is hoped should result from the Rome Pact. It may be well, perhaps, to remember that we have not yet passed the date for the Saar plebiscite, but anxiety with regard to its outcome has undoubtedly been greatly lessened. However, there is still just sufficient uncertainty to inspire caution in the matter of Stock Exchange dealings, a caution which may conceivably be relaxed if in a few weeks' time it is found that as a result of the plebiscite the relations between Germany and France have been improved.
PROSPECTS OF A " Boom."
I have laid some emphasis upon this hoped-for improvement in the international political outlook, because I am inclined to think it may prove a decisive factor in determining the course of public securities during the next few months. And if the favourable developments ShouM be so pronounced as materially to relieve the fears of a disturbance of international peace which have so long haunted Europe, it would not be surprising if the present activity in the Stock Markets were to develop into something approaching a boom. In saying this it must not be supposed that I am neces- sarily suggesting that a boom would be desirable or would even be justified by the actual facts of the situation ; I am simply suggesting what seems to be a possibility and even a probability. '
THE INDUSTRIAL PROSPECTS.
Moreover, if financial and commercial activity should be stimulated by an improved political outlook, there is the further probability that business might then centre upon the more speculative securities, and not least, perhaps, upon the shares of industrial companies most likely to benefit by an improvement in general trade. Already, indeed, the strength of the market for Industrial shares has been a prominent feature of the Stock Exchange for some few weeks past, and during the next few weeks it would not be surprising if amongst new flotations of capital industrial issues were to figure quite largely. For the time being, and given a decisive favourable development in European affairs, it is probabte enough that the rise in prices will 'extend to all sections of markets, including British Government and kindred stocks. At the same time, if activity were to increase in the more speculative descriptions, and especially if trade itself were to expand more rapidly, it is conceivable that the peak in British Funds and other trustee securities might be reached in the not very distant future, and that is a possibility which holders of those securities will do well to keep in mind.
POINTS FOR CONSIDERATION.
But while I have written optimistically concerning the possible future course of markets in the event of a continued improvement in the European outlook, it may be well that optimism should be tempered with :a certain amount of caution. In the first place, the very fact that markets are sensitive to an improvement in the political outlook suggests that any throw-back in that direction might have a quickly disturbing effect, especially if in the meantime large speculative positions should have been created by the greater feeling of hope- fulness. Another consideration, also, which must be borne in mind, is the situation in the United States.
THE AMERICAN FACTOR.
In the City, at all events, President Roosevelt's latest Budget message to Congress has occasioned a good deal of uneasiness. Whatever may be the final outcome of Mr. Roosevelt's, 'experiment, it is beyond question that colossal and, indeed, unprecedented State expenditure during the past two years has, so fir, produced somewhat disappointing results. At the same time, it is evident that the expenditure is to be continued upon an even greater scale, with a consequent advance in the United States national debt to record heights. It is true that even if that debt reaches a total of over 34,000 million dollars within a year's tirne, that total will he somewhat smaller than our own internal debt, while America's population is very Much greater. It is also true that in the present Budget President Roosevelt has imposed no increase in taxation: Nevertheless, I cannot help thinking that the prospect of the growth in the debt and apprehensions of ultimate high taxation may, during the coming months, somewhat offset the possible effect .—even upon trade activity in the States—of the proposed increase in expenditure for relief works.. On the other hand, it can also be' admitted that if the lifting of the war clouds in Europe should give a. general stimulus to trade activity, that circumstance may in itself give considerable assistance to the situation in. America and may make it unnecessary fol. President Roosevelt to apply the whole of the artificial measures which at present it is proposed to employ to bring about greater prosperity. —ARTHUR W. KIDDY.
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