Market Notes
By CUSTOS
MHE last few days have seen a slight rally in I equities. But it is as well to be plain that this is no more than a technical upswing. There can be no question of a lasting improvement until Mr Wilson's deflation has been met and measured and until the dividend freeze is out of the way.
Bank shares are often well regarded in times such as these. It is a reasonable view, for the most important single determinant of bank profits is the level of Bank rate. The return to 7 per cent means that there is every chance that 1966 profits will equal those for 1965 in spite of the curbs on the expansion of advances. But the situation is far from clear-cut.
It is worth noting that the Government is look- ing at the banks from two angles. In the first place Mr Jay at the Board of Trade is deter- mined to press on with legislation to ensure dis- closure of banking profits. And secondly, bank charges have been referred to the Prices and Incomes Board. The most usual conclusion which is drawn from the impending disclosure of true banking profits is that share prices will jump when it is widely realised that banks earn much higher sums than they disclose at present. On the other hand it is just conceivable that the Govern- ment is preparing action which will do severe damage to bank profits when it has been shown that they can stand it. A decision to extend bank opening hours substantially would do just this.
Then there is the impact of the introduction of a national giro (it is scheduled for autumn 1968) to consider. Competing for interest-bearing deposits is one thing : losing interest-free current account business is quite a different and much more serious matter. On balance, therefore, it looks right to stay away from bank shares 'for the duration.'
Gilt-edged security prices have begun to pick up, too, over the past day or so. Perhaps they have been helped by a study from brokers De Zoete and Gorton which shows that at no time since 1731 have yields on government securities been higher than they are now. But there is no great prospect of fixed-interest yields dropping in the near future for the rise in overseas rates goes on and on.
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