OPTIMISTIC MOOD

Nelson Evening Mail, Volume LXIV, 12 January 1931, Page 6

OPTIMISTIC MOOD

LONDON STOCK EXCHANGE COMMERCIAL SUMMARY (United Pres* Association—By Electric Telegraph—Copyright) LONDON, 10th January. The Stock Exchange started the New Year in an optimistic mood thanks to the reduction in, the French bank rate, and there was a fair amount of activity in most markets, but this week there has been a reaction due to a number of causes, the chief of which is a heavy increase in the unemployment figures, high negotiations between the French and British Treasuries, labour troubles in South Wales and Lancashire, and unfavourable developments in Australia, anpther adverse factor being the publication of reports of the “Big live banks, showing reduced profits, though they maintained the usual dividends except Lloyds, which is paying 15 per cent, instead of 16 2-3. Although the position is hot exactly promising some Stock Exchange members are inclined to take a somewhat brighter view of the future. One firm of dealers reviewing 1930 deals arid the factors which swayed the markets, arid causes of misfortunes im Australia and other countries, says that owing to a steep, decline in commodity prices the world became much poorer, but summing up the prospects ot 1931 the review shows a cautious hopefulness, saying that there is reason to believe, broadly speaking,■ that commodity prices have touched bottom. H this proves correct it will be reflected, in the conditions of the wheat producing countries. Another firm writes taking a reasonably long view. Capital appreciation is sound and investments are likely to be much greater than any further depreciation- T „ ,The “Financial News and othei papers devote considerable space to the Australian exchange position. ihe “Economist” regards the Bank of New Smith Wales decision to break away from pegging on the whole a healthy development, adding now that a more nearly true exchange rate has been established normal economic forces should come into play. Imports into Australia will be checked as they ought to be. Australian, wheat and wool growers will obtain a new advantage in the world fi rackets. This should help to move Aus tialia’s wheat and wool and their sale should eventually provide Australia with sudicient additional foreign exchange to permit of the modification of the present svstem of rigorous rationing in time to bring the exchange rate nearer again to parity. The “Statist” devoted two columns to discussing the situation, concluding that a wider discount of the Australian pound will tend to stimulate exports and restrict imports. Thus it should exert a favourable influence on Australia’s balance of external payments, but this stimulus to the export trade must weaken 'the urge to restore an equilibrium in the balance of trade by the much sounder process of ’-educing the costs of production. The discount on Australian curency does not reflect the inflation of that currency, but rather the refusal to deflato m conformity with the recent world trend of prices and costa Jhe link tying the Australian pound to gold will thus be severed. This is net only borne out by the abnormal discount at which currency is quoted on the exchange markets, but finds additional confirmation in the fact that a special

bonus is being paid on the part of' gold produced. The important thing to bear in mind is that severing this link greatly facilitates any rash experiments in ihe'direction of currency inflation, such as have been so persistently advocated by tire more extremist wing of the party now inppo r er in Australia. Against this danger Australia will have to guard more strongly than ever. It is to be hoped that she will not merely avoid that danger, but will refuse to allow the devaluation of currency to accomplish a task that should be tackled through a courageous policy of retrenchment. The ‘Economist’s” index of commodity prices issued yesterday is particularly interesting as showing that wholesale prices as measured by that index have now reverted roughly to the point at which the> stood in 1913.