INTEREST RATE differentials between the United States and emerging markets that boost risk appetite and capital inflows can complicate monetary policy, Philippine central bank governor Amando M. Tetangco Jr. said on Tuesday.
The Philippines is Southeast Asia’s best-performing stock market this year, rising nearly 34% to record highs, boosted by foreign inflows which have helped drive the peso to two-year highs against the dollar. Foreign portfolio fund flows also hit a 15-month high in August.
"We are mindful of the impact of the interest differentials being in favor of EMEs [emerging market economies] on global risk appetite and capital flows, as this could complicate monetary policy going forward," Mr. Tetangco said via text to reporters after the US Federal Reserve held interest rates near zero.
Meralco bills to rise P0.0314/kWh in Oct.
REGULATORS HAVE allowed the Manila Electric Co. (Meralco) to get back P3.371 billion in costs for power obtained from the spot market in 2006 and 2007, in a move that will raise power bills by P0.0314 per kilowatt-hour (kWh) starting next month.
The Energy Regulatory Commission (ERC) previously disallowed Meralco from charging the amount, requiring the utility to buy no more than 10% of its power requirements from the Wholesale Electricity Spot Market (WESM), where prices are often higher than those of direct supply contracts.
In the decision dated Aug. 16, which was released only yesterday, the ERC reversed itself and noted that WESM rules only require utilities to get "at least" 10% of the their power requirements from the spot market, meaning there should be no cap.
The conflict stemmed from a provision in the Electric Power Industry Reform Act of 2001 that utilities cannot obtain more than 90% of their power requirements from bilateral contracts in order to reflect the true cost of power.
The "disallowed" portion of Meralco’s WESM purchases from August 2006 to May 2007 amounted to P2.7 billion, but the amount to be recovered was raised to reflect interest, ERC Executive Director Francis Saturnino C. Juan said in a phone interview.
Meralco had argued before the ERC that WESM costs are pass-on charges and should automatically charged to consumers, and that putting caps on WESM purchases would undermine the aim of opening up the power sector.
U.S. Stocks Fall on Technology, Banking Profit Outlook
U.S. stocks fell, dragging the Standard & Poor’s 500 Index to its biggest decline in two weeks, as a weakening earnings outlook for technology and financial companies overshadowed speculation the Federal Reserve will take steps to bolster the economy.
Adobe Systems Inc. tumbled 19 percent after estimating sales that missed analysts’ projections. PMC-Sierra Inc. dropped 6 percent as the chipmaker reduced its third-quarter revenue forecast. Microsoft Corp. sank 2.2 percent after announcing a dividend increase that was smaller than some analysts expected. Morgan Stanley and Goldman Sachs Group Inc. lost at least 2.2 percent, pacing a slump in financial shares, as Deutsche Bank AG cut its earnings estimates for the banks.
The S&P 500 slid 0.5 percent, the most since Sept. 7, to 1,134.28 at 4 p.m. in New York, a day after the Federal Reserve said it’s willing to ease monetary policy further to spur growth. The Dow Jones Industrial Average fell 21.72 points, or 0.2 percent, to 10,739.31.
“We’re navigating the slow-growth economy and trying to avoid pitfalls,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “The Fed will do whatever it can to avoid a double-dip recession, but it can’t keep on buying debt forever. This is a ‘reflation’ story of weaker dollar, higher commodities prices and lower interest rates. This is not an environment that suggests a huge rally for stocks.”
The S&P 500 has surged 11 percent from this year’s low on July 2 as concern eased that U.S. unemployment and less spending from indebted European nations would stall the global economic recovery. The gauge has gained 1.7 percent so far this year, leaving it 6.8 percent below its peak for 2010.
Treasury 10-Year Notes Rise for Fourth Day on Bets Fed Will Buy More Debt
Treasury 10-year notes rose for a fourth day in the longest stretch of gains since June as traders speculated that the Federal Reserve is preparing to increase purchases of U.S. debt.
The yield on the two-year note touched a record low for a second day after the Fed said yesterday it’s “prepared to provide additional accommodation if needed to support the economic recovery.” The central bank bought $2.07 billion of Treasuries maturing from March 2013 to April 2014 today as part of its effort to keep borrowing costs low.
“There is an underlying bid in the market as the bull trend in Treasuries remains intact,” said Martin Mitchell, head government bond trader in Baltimore at Stifel Nicolaus & Co., a brokerage firm. “The Fed has tipped their hand that they are likely to initiate a larger-scale asset-purchase program in the future. If the Fed becomes a larger buyer, the Treasury market can only go higher.”
The benchmark 10-year note yield dropped 2 basis points, or 0.02 percentage point, to 2.56 percent at 4:04 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 gained 5/32, or $1.56 per $1,000 face amount, to 100 19/32.
The 10-year note yield touched 2.50 percent, the lowest level since Sept. 1. The last time the yield fell for four days in a row was on June 30. The 2-year yield climbed 1 basis point to 0.43 percent after dropping earlier to a record 0.41 percent. The 30-year bond yield fell 4 basis points to 3.74 percent.
Crude Oil Declines After Report Shows Unexpected Increase in Inventories
Crude oil declined for a second day after an Energy Department report showed that U.S. oil and gasoline inventories unexpectedly increased.
Crude supplies rose 970,000 barrels to 358.3 million last week, 13 percent above the five-year average, the department said today. Inventories were forecast to fall 1.75 million barrels, according to a Bloomberg News survey. Gasoline stockpiles also climbed.
“Those unexpected builds have taken the wind out of our sails,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The report reminded us of the large supply overhang.”
Crude oil for November delivery fell 26 cents, or 0.4 percent, to $74.71 a barrel on the New York Mercantile Exchange, the contract’s lowest settlement since Aug. 31. Futures have gained 4.4 percent in the past year.
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher
(632) 858-3001
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