Oro Chamber Election Results

Congratulations to the re-elected Trustees:

Jeffrey Ang - Services Sector

Eduardo Alaba - Business Support Organizations Sector

Efren Uy - Trade and Commerce Sector

And the newly elected Trustee:

Atty. Zoilo Antonio Velez - Agri, Fisheries and Mining Sector

Philippines Markets: 28 October 2010

28 October 2010

USD/PhP: 43.102 - 0.158 PSEi: 4260.69 - 24.38
USD/JPY: 81.33 PFINC: 984.65 - 3.89
EUR/USD: 1.3824 BDO: 60.75 - 0.20
GBP/USD: 1.5786 BPI: 58.00 + 0.55
PDSTF3M: 3.8308 MBT: 78.00 - 1.25
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary money market rates moved sideways ahead of the release of October inflation figure next week. Expectations for inflation ranged between 2.5 - 3.5 percent. This continues to support low interest rate environment. Continue to see rates to move sideways to down in the week ahead.

Philippine Peso Outlook

The local currency rose for the fourth straight month fueled by a weaker dollar against most major currencies particularly against the Euro. Other factors that supported the currency's strength is the flow of remittances from Filipinos working overseas and the portfolio flows to the local stock market.

Chartwise, the currency is hovering near an important support range, the 42.80- 43.00 levels. Should these levels hold in the near-term, expect a minor bounce back to 43.50-43.70 levels. However, should the said levels fail to contain, a break below the 42.80 levels could call for further tests towards the 42.25 - 42.50 levels.

Philippine Equties Outlook

Local shares moved sideways this week after it registered a new high last week at 4299.08. Expectations of better 3Q corporate earnings and stable inflation figures continue to prompt investors to accumulate stocks. Profit-taking activities by some investors caused the market to fall off from the week's high.

Chartwise, the market appears to encountering some resistance at the 4,300 levels. This is supported by the bear divergence in the price chart and the Relative Strength Index. This implies the market is ripe for a correction and could retest the 4,200 levels first before it attempts to 4,300-4,500 level towards the end of the year. Immediate support and resistance is 4,200 and 4,250 levels, respectively


RESEARCH DESK ANNOUNCEMENT
Please be advised that there will be no Morning Brief and Philippine Markets tomorrow. We will resume sending on November 2.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 28 October 2010

Inflation could fall to as low as 2.6% this month, BSP says INFLATION could settle lower in October, the Bangko Sentral ng Pilipinas (BSP) yesterday said, as oil price increases and higher water rates are being offset by a stronger peso and cheaper electricity. "The BSP forecasts October inflation to fall within the range of 2.6% to 3.5%," BSP Governor Amando M. Tetangco, Jr. said in a text message to reporters. Inflation slowed to 3.5% in September from 4% a month earlier, bringing the average for the year so far to 4.1%, within the BSP’s 3.5-5.5% target for 2010. The central bank has forecast full-year inflation to hit 3.8%. The rise in consumer prices, said Mr. Tetangco, is expected to remain manageable. "Based on this forecast, average inflation during the policy horizon is expected to be well-behaved, barring surprises particularly in terms of global adjustments," he said. The central bank, however, will continue to be watchful of developments and will adjust policy needed, Mr. Tetangco said. Gov’t to reconsider ‘operational’ 2011 GDP growth goal GROWTH TARGETS for 2011 will be reviewed but economic managers are likely to keep the "conservative" outlook used in next year’s budget, officials yesterday said. "We will review our operational targets after the release of third quarter growth [data for 2010] but most likely we will maintain our 5% growth goal [for] next year," Finance Assistant Secretary Ma. Teresa S. Habitan said. Economic results for July to September will be released next month. Ms. Habitan is a member of the Executive Technical Board that advises the Development and Budget Coordination Committee (DBCC), the interagency body that sets the country’s macroeconomic targets. While next year’s gross domestic product growth goal has been pegged at 7-8%, the P1.645-trillion budget for 2011 assumes a lower 5% target. "The 7-8% is an aspiration. And the effect of PPP (public-private partnerships) to the economy will most likely not come next year but later on," Ms. Habitan said. Budget Secretary Florencio B. Abad, the DBCC chairman, said: "We are still at 5%. That 7-8% is assuming that PPP will contribute to the economy. But again, it’s not entirely dependent on that since investments may also come in other forms than PPP."

U.S. Stocks Fall After Durable Goods Report; Sprint Declines U.S. stocks tumbled, snapping a five-day gain for the Standard & Poor’s 500 Index, as investors speculated that the Federal Reserve’s efforts to shore up the economy will be gradual. Alcoa Inc. and Exxon Mobil Corp. each dropped 1.3 percent after metal and oil prices declined as the U.S. dollar rose to a one-week high against the euro. Sprint Nextel Corp. slumped 9.9 percent after posting a wider-than-estimated loss. Broadcom Corp. jumped 12 percent as quarterly revenue beat analysts’ predictions. The S&P 500 slid 0.3 percent to 1,182.45 as of 4 p.m. in New York. Futures extended losses before the open of exchanges after the Commerce Department reported that orders for U.S. non- military capital equipment excluding airplanes dropped in September. The Dow Jones Industrial Average lost 43.18 points, or 0.4 percent, to 11,126.28. Treasury 10-Year Note in Longest Slide Since 2008 on Fed Purchases Outlook Treasury 10-year notes dropped for a sixth day, the longest streak in two years, as a report showing new-home sales rose more than forecast added to speculation a Federal Reserve program to boost the economy may be gradual. Thirty-year yields climbed for a second day while two-year yields were little changed amid speculation signs of growth will allow the Fed to buy fewer securities than some traders estimated in a tactic known as quantitative easing. Pacific Investment Management Co.’s Bill Gross said a renewal of asset purchases will likely signify the end of a 30-year bull market in bonds. The U.S. sold $35 billion of five-year notes today. “The market is consumed with QE,” said John Spinello, chief technical strategist in New York at Jefferies Group Inc., one of 18 primary dealers that trade with the Fed. “There are indications that the marketplace is disappointed at the fact that it’s more than likely not going to be a huge initial undertaking and no one knows the amount.” The yield on the 10-year note increased eight basis points, or 0.08 percentage point, to 2.72 percent at 4:59 p.m. in New York, according to BGCantor Market Data. It touched 2.73 percent, the highest level since Sept. 20. The yield was up 37 basis points to 3.96 percent after its last six-day string of increases, which ended Oct. 30, 2008. The 2.625 percent security due in August 2020 dropped 21/32, or $6.56 per $1,000 face amount, to 99 5/32. The 30-year bond yield climbed as much as seven basis points to 4.06 percent, the highest level since Aug. 6, while the two-year note yield added two basis points to 0.41 percent.

Oil Trades Near $82 After U.S. Capital Goods Orders Decline, Dollar Gains Oil traded near $82 a barrel after U.S. orders for capital goods declined and the dollar rose against the euro, curbing investor demand for raw materials. Futures fell for the first time in three days yesterday after bookings for non-military equipment slipped 0.6 percent in September. The greenback climbed on speculation the Federal Reserve will buy less debt than some traders previously estimated. A government report showed that U.S. crude supplies surged five times more than was projected last week. “The economy doesn’t appear to be heading back into recession, but it clearly isn’t showing any robustness,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The key is what the Federal Reserve will do to shore up the economy and what this will mean for the dollar,” he said. The December contract was at $81.98 a barrel, up 4 cents, in electronic trading on the New York Mercantile Exchange at 9:05 a.m. Sydney time. Yesterday it dropped 61 cents, or 0.7 percent, to settle at $81.94. Prices are up 3.3 percent this 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

Philippines Markets: 27 October 2010

27 October 2010

USD/PhP: 43.26 + 0.15 PSEi: 4285.07 + 5.54
USD/JPY: 81.95 PFINC: 988.54 + 20.06
EUR/USD: 1.3801 BDO: 60.95 + 0.95
GBP/USD: 1.5770 BPI: 57.45 + 0.85
PDSTF3M: 3.8923 MBT: 79.25 + 3.50
Prices as of 4:00pm Source: Bloomberg, Reuters


RP stocks rebound
By Doris Dumlao

MANILA, Philippines – (UPDATE) Local stocks bounced mildly on Wednesday after succumbing to bouts of profit-taking since last week, likewise riding on firm trading across the region.

The main-share Philippine Stock Exchange index closed 5.54 points or 0.13 percent higher at 4,285.07.

The day's gains were led by the financial counter, which rose by two percent on expectations of further monetary easing through bond-buying by the US Federal Reserve. The industrial counter likewise firmed up during the session.

The holding firms, property, services and mining/oil counters, on the other hand, continued to trade in the red.

Despite the overall index gain, decliners outnumbered advancers 73-68 while 39 stocks were unchanged. Value turnover amounted to P5.5 billion.

Source: www.inquirer.net

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 27 October 2010

August imports surge 22% to $4.41B The country’s import bill grew 22 percent year on year to $4.41 billion in August, increasing for the 10th straight month, the National Statistics Office said Tuesday. Total external trade—the combined value of outbound and inbound goods—in the eight months to August reached $68.3 billion, an increase of 31.3 percent from last year. The trade balance remained in favor of the rest of the world, with the Philippines posting a deficit of $2.34 billion, although this was better than the $4.01-billion gap recorded in the same period of 2009. Compared with July imports valued at $4.68 billion, shipments in August represented a decrease of 5.7 percent. A strong inflow of goods from abroad, which indicated a similar movement in exports, is considered a good sign for a country like the Philippines, which relies heavily on foreign supplies of electronics inputs for its biggest source of export revenues. NSO documents showed that electronic products accounted for 37.3 percent of total imports in August, with the value rising 27.2 percent year on year to $1.64 billion. Semiconductor devices and parts made up 30.4 percent of all electronics shipments, racking up $1.34 billion in bills. The operation of modern electronic devices such as computers, cell phones, transistors, solar panels, diodes and integrated circuits depend on semiconductor materials. Silicon is widely used in the production of commercial semiconductors. Electronics imports in August increased by 0.7 percent from $1.63 billion in July. August shipments of mineral fuels, lubricants and related materials—the second-biggest subgroup in terms of value—also rose 0.7 percent to $634.75 million. Transport equipment, the country’s third-largest import for the month, increased by 0.4 percent to $216.26 million. Fourth were industrial machinery and equipment, payments for which jumped 43.7 percent to $189.33 million. In fifth place were cereals, which rose 67.9 percent to $152.48 million. Cebu Pacific stock offering raises P23.3B Investors snapped up shares of Gokongwei-led Cebu Air Inc. on its stock trading debut Tuesday as the Cebu Pacific airline operator made global history for a share offering worth at least $539 million, the biggest stock deal by a budget carrier. Shares of Cebu Air—the biggest in the Philippines in terms of passengers carried and the third-largest budget carrier in Asia—rose 6.4 percent to P133 each from the IPO price of P125. It was the day’s most actively traded stock at the Philippine Stock Exchange where it ended its first day of trading with a market capitalization of P76.6 billion. The company, which started trading under the ticker “CEB,” raised P23.3 billion from the sale of primary and secondary shares prior to the exercise of the option given to its underwriters to sell up to P3.49 billion worth of additional shares. This was so far the biggest stock offering size seen at the PSE in five years. Citing wire data, Cebu Air said its IPO had topped IPOs previously held by other budget carriers across the globe such as Ryan Air ($159.6 million), Air Asia ($220.32 million) and Tiger Airways ($175.94 million). “As expected, the shares sizzled as the IPO was well received. Cebu Air managed to fly past by the day’s negative sentiment in the market,” said Astro del Castillo, managing director at local fund management firm First Grade Holdings. Explaining the market’s strong appetite for the shares, he said: “It’s the only airline that’s really listed in the market and is profitable.” The carrier sold 186.6 million shares, or 30.4 percent of its outstanding stock, of which 70 percent was taken up by foreign investors and the rest by local investors. The shares, mostly secondary shares sold by parent firm JG Summit Holdings Inc., were transferred to public hands via special block sales at the local bourse. Citigroup Global Markets Ltd., Deutsche Bank AG Hong Kong branch and J.P. Morgan Securities Ltd. acted as joint global coordinators, book runners and international lead managers for this offering, while ATR KimEng Capital Partners Inc. was the domestic underwriter. Including the over-allotment shares, Cebu Air could sell shares worth a total of P26.8 billion, making it the second-biggest IPO in local stock market history. The over-allotment option covering 27.99 million shares has yet to be finalized but there were buyers already lined up to take up the shares, said Cebu Air senior vice president BJ Sebastian. Sebastian added that Cebu Air has yet to declare employee stock option plans under the offering.

Most U.S. Stocks Retreat as Kimberly-Clark, U.S. Steel Fall Most U.S. stocks fell, led by consumer-staples companies, as results that disappointed investors at companies from Kimberly-Clark Corp. to U.S. Steel Corp. overshadowed higher-than-estimated consumer confidence. Kimberly-Clark Corp., the maker of Huggies diapers and Kleenex tissues, lost 5.8 percent as profit dropped amid higher costs for materials. U.S. Steel tumbled 3.4 percent after a surprise quarterly loss because of repair costs. International Business Machines Corp. climbed 0.6 percent after its board authorized buying back as much as $10 billion in shares. About eight stocks retreated for every seven that rose on U.S. exchanges. The Standard & Poor’s 500 Index was little changed at 1,185.64 at 4 p.m. in New York, with 273 companies declining. The Dow Jones Industrial Average rose 5.41 points, or less than 0.1 percent, to 11,169.46, with IBM contributing the most to the gain in the share price-weighted average. “We’ve had some modestly disappointing earnings reports from a couple of bellwether companies such as U.S. Steel,” said Dean Gulis, part of a group that manages $3 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “The earnings environment is a little less buoyant than it has been and people are using the opportunity to consolidate their positions after a strong run.” Treasury Inflation Bets Climb to Five-Month High on Prospects for Easing Treasury-market inflation bets rose to a five-month high as traders wagered that bond purchases by the Federal Reserve will spur consumer-price gains. The gap between yields on U.S. 10-year notes and equivalent Treasury Inflation Protected Securities, a gauge of price expectations called the breakeven rate, widened on investor bets the Fed will succeed in sparking inflation. Still, the government’s auction of $35 billion of two-year notes drew higher-than-average demand amid speculation the central bank’s efforts won’t bring the economy back to full speed quickly. “When the Fed tells you inflation is too low and they want it to go higher, you have to listen,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo & Co. in Milwaukee. “The TIPS market is taking them seriously.” The yield on benchmark 10-year securities increased eight basis points, or 0.08 percentage point, to 2.643 percent at 5:14 p.m. in New York, according to BGCantor Market Data. It touched 2.6448 percent, the highest level since Sept. 21. The 2.625 percent security due in August 2020 dropped 21/32, or $6.56 per $1,000 face amount, to 99 27/32. Two-year yields rose three basis points to 0.39 percent, versus the record low of 0.327 percent set Oct. 12. Thirty-year bond yields climbed as much as 10 basis points to 4.01 percent, the highest since Oct. 15. Treasuries overall have lost 0.02 percent this month, the first decline since March, according to a Bank of America Merrill Lynch index. The gap between rates on 10-year notes and TIPS was 2.18 percentage points after touching 2.19 percentage points, the widest since May 18. A $10 billion sale of five-year TIPS yesterday drew a yield of minus 0.55 percent, the first negative yield at a U.S. debt sale, as investors speculated they will have positive returns when inflation picks up.

Oil Declines as Forecast Gain in U.S. Inventories Signals Slowing Demand Crude oil declined for the first time in three days as the dollar rebounded against the yen and euro, reducing the appeal of raw materials as an investment. Oil fell as much as 0.9 percent as the U.S. currency rose from its lowest level in 15 years versus the yen on concern Japanese authorities will renew action to weaken their currency. An Energy Department report tomorrow will probably show crude- oil supplies climbed 1.25 million barrels last week, according to the median of 12 responses in a Bloomberg News survey. “The stronger dollar has put some pressure on the oil market,” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. The oil market and the strength of the euro have been very tightly correlated recently.’’ Crude oil for December delivery declined 58 cents, or 0.7 percent, to $81.94 a barrel at 9:14 a.m. on the New York Mercantile Exchange. Futures are up 4.1 percent from a year ago.

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

Morning Brief: 26 October 2010

Gov’t net borrowings up 188% in 9 months The government posted P309.5 billion in net borrowings in the first nine months of the year, up by 188 percent from P107.4 billion a year ago, the Bureau of the Treasury said. BTr data showed that the biggest contributors to the total debt incurred during the period were the P164.36 billion worth of offshore bonds issued, which were denominated in dollars, yen and peso. The government also issued a total of P119.8 billion in retail treasury bonds—a regular batch offered in April and another issuance in August that catered mainly to Filipinos overseas. From January to September, new government borrowings reached P672.24 billion, including P213.84 billion from foreign sources and P458.4 billion from domestic lenders. The nine-month gross borrowings were about 59.6 percent more than the year-ago figure of P421.11 billion, which covered P168.17 billion from abroad and P252.94 billion from local lenders. In the same period, the government paid some P362.73 billion in debts, including P110.66 billion in foreign loans and P252.07 billion in domestic debts. This brought the net borrowings to P309.5 billion. The total payment made in the nine months to September was about 15.6 percent more than the P313.73 billion paid in the same period last year, which covered P87.36 billion for overseas obligations and P226.37 billion for local loans. In September alone, net government borrowings hit P34.7 billion, which was 71.6 percent lower than the P122.53 billion last year. During the month, the government incurred P55.73 billion in new foreign loans, up 113 percent from P26.17 billion in the same month last year. The September inflow was largely from the issuance of peso-denominated global bonds worth P44.1 billion and a P11.04 billion food-crisis loan facility from the International Bank for Reconstruction and Development. Overseas development assistance tapped in the nine months to September fell by 18.5 percent to P49.48 billion from P60.71 billion a year ago. Further, new borrowings from domestic lenders in September reached P31.84 billion, down by three-quarters from P125.79 billion recorded in the same month of 2009. The decrease was partly due the net redemption of T-bills worth P34.26 billion. Also in September, the government shelled out P6.87 billion on payments of foreign loans, increasing by a fifth from P5.67 billion in the same month last year. It also paid P46 billion in domestic debts, nine and a half times the P4.8 billion settled a year ago. No FX inflow controls, Bangko Sentral vows The Bangko Sentral ng Pilipinas has reiterated it would not impose controls on foreign capital inflows unless other means to temper the sharp rise of the peso fails. So far, the BSP prefers liberalizing outflows of foreign capital as a means to soften the impact on the exchange rate of the surge in inflows, which come largely in the form of investmentsin the country’s stock market and other portfolio instruments. “Imposing controls should be considered as a last resort when everything else has been considered,” BSP Deputy Governor Diwa Guinigundo said in an e-mail to the Inquirer. Guinigundo said controlling the entry of foreign capital inflows, while it may achieve the short-term objective of arresting the rise of the peso, could have adverse repercussions over the long term. Capital controls could eventually lead to large outflows, which could dry up the economy’s resources, he said. “Controls prevent markets [from] functioning to achieve appropriate resource allocation and limit the potential of the economy,” the central bank official said. What the BSP is looking at to ease the appreciation of the peso, due to rising foreign capital inflows, is to raise the ceiling on the amount of foreign currency that may be brought out of the country without submitting documentary requirements to the BSP. Currently, the ceiling is set at $30,000 for payments for foreign services and $30 million for investments offshore. The rise in foreign capital inflows, which recently led the Philippine Stock Market Index to a record high, pushed the peso to hover in the 43-to-a-dollar level. Traders said the peso is likely to strengthen in the months ahead, to potentially hit the 42:$1 mark. Last year, the peso closed in the 45:$1 territory. Monetary authorities said the rise of the peso has its benefits, citing its ability to temper overall inflation and reduce dollar-denominated debts of the government and private firms. However, the appreciation of the peso has caused discomfort among exporters, who said the rising currency is making Philippine-made goods more expensive in dollar term and, therefore, less competitive. The BSP said it does not have a bias in favor of a strong or weak peso but that it tries to temper volatility, saying large fluctuations are disruptive to business.

U.S. Stocks Climb as G-20 Meeting Fuels Fed Easing Speculation U.S. stocks rose, sending the Standard & Poor’s 500 Index to a fourth straight gain, after the Group of 20 nations pledged to avoid “competitive devaluation” of currencies and investors bet the Federal Reserve will announce further bond purchases next week. DuPont Co., Kraft Foods Inc. and Walt Disney Co. climbed more than 1.4 percent to lead gains in the largest U.S. companies. Citigroup Inc. rallied 2.4 percent as Goldman Sachs Group Inc. added the shares to its “conviction buy” list. CommScope Inc. surged 30 percent as a private equity firm considers a takeover. Office Depot Inc. gained 3.5 percent after saying earnings will beat estimates. The S&P 500 advanced 0.2 percent to 1,185.62 at 4 p.m. in New York, adding to three weeks of gains and climbing above its highest close since May 3. The Dow Jones Industrial Average rose 31.49 points, or 0.3 percent, to 11,164.05.

Oil Falls From One-Week High on Dollar Rebound, Forecast U.S. Supply Gain Crude oil rose for a second day as the dollar slumped to a 15-year low against the yen, bolstering the appeal of raw materials as an alternative investment. Oil climbed 1 percent as the U.S. currency dropped on skepticism the Group of 20 pledge to avoid devaluations can stem the dollar’s decline. Workers at three French oil refineries voted to return to work as a contested pension bill neared parliamentary approval. “Today’s move is dollar related,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We should continue to track the dollar this week and will also be keeping an eye on equities.” Crude oil for December delivery gained 83 cents to settle at $82.52 a barrel on the New York Mercantile Exchange. Futures are up 2.5 percent from a year ago.

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

MOA Between PCCI and DILG

Philippines Markets: 22 October 2010

22 October 2010

USD/PhP: 43.34 (as of 3:30pm) PSEi: 4286.87 + 37.82
USD/JPY: 81.13 PFINC: 960.41 + 8.85
EUR/USD: 1.3900 BDO: 60.00 unch
GBP/USD: 1.5698 BPI: 56.60 - 0.25
PDSTF3M: 3.7635 MBT: 74.00 + 2.45
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary money market rates moved sideways to down this week despite national government's report of another month of deficit amounting to 31.7 billion pesos. This brings the year to date deficit to 259.8 billion pesos during the first nine months of 2010. Continue to expect rates to move sideways.

Philippines Equities Outlook

Local shares continued to trek upward, rising 1.67 percent week on week to 4,286.87 despite a flash drop earlier on the trading week. Optimism on 3Q earnings continue to stir local and foreign investors to buy local shares.

Chartwise, the week's close at 4286.87 continues to support further rallies towards the 4,250-4,500 levels. Immediate support and resistance is seen at 4,150 and 4,250 levels, respectively.

Philippine Peso Outlook

As of 3:30 pm, the local currency depreciated this week against the dollar as the dollar strengthened against major currencies particularly the Euro. The currency hit a low of 43.64 during the early part of the week but recovered as inflows buoyed the Philippine Peso.

Chartwise, expect the currency to range between 43.15-43.50 levels.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 22 October 2010

9-month budget deficit hits P259.8B The government incurred a budget deficit of P259.8 billion in the nine months to September, 5 percent lower than the P273.7-billion ceiling, Finance Secretary Cesar V. Purisima said Thursday. Purisima said, however, that overspending for the period was P22.3 billion, or 9.4-percent higher, than the deficit incurred in the same period in 2009. He said the government’s “over-performance” in terms of its fiscal position could be attributed to less spending—by P54.2 billion year on year—“partly on account of the savings in interest payments due to lower borrowing cost.” According to National Treasurer Roberto B. Tan, the government saved P11.4 billion in interest payments, shelling out only P244 billion during the period. The budget deficit for the first three quarters of the year represented about 80 percent of the projected full-year deficit ceiling of P325 billion. Purisima said the main revenue agencies boosted the government’s fiscal standing with collections reaching P894.7 billion, or 6.5 percent, higher than last year’s P839.8 billion. However, actual revenues were P40.4 billion short of the targeted P935.1 billion. The Bureau of Internal Revenue contributed P607.3 billion, up 9 percent from year-ago collections but 2.2 percent below its target. The Bureau of Customs chipped in P191.7 billion, up 15.5 percent year on year but down 9.1 percent against the target. The Bureau of the Treasury turned in P45.5 billion, which was 12.8 percent lower than the P52.2 billion earned last year. Expenditures for the first nine months reached P1.15 trillion, increasing by 7.2 percent from P1.03 trillion a year ago. “Let me reiterate that this administration remains focused on its good governance agenda with emphasis on tax enforcement and expenditure discipline,” Purisima said. “We will pursue our economic objectives of sustainable economic growth and poverty reduction within a sound fiscal framework.” In September alone, the deficit amounted to P31.7 billion, higher by 15.2 percent than the P27.5 billion incurred in the same month of 2009. Total revenues for the month reached P91.9 billion, a decrease of 8.7 percent from P100.7 billion. Of the total, the BIR chipped in P61 billion, which was 8.4 percent higher than the year-ago level of P56.2 billion. Customs contributed P20.2 billion, an increase of 10.8 percent from P18.3 billion, and the Treasury turned in P5.3 billion, short of last year’s P6 billion by 12 percent. Peso won’t hit P41:$1 this year -- Aquino THE PESO is unlikely to hit P41 per US dollar this year, President Benigno C. Aquino III yesterday said, noting central bank efforts to address capital inflows that are affecting exporters as well as families of overseas Filipino workers. "The P41 [per dollar rate], perhaps [will] not [happen] this year. The P43-44 level has a little bit of comfort," Mr. Aquino said in Cauayan, Isabela, yesterday after visiting areas affected by typhoon Juan. "[The] Bangko Sentral [ng Pilipinas] is doing its job well in trying to achieve some stability in terms of exchange rate." The President was commenting on an HSBC forecast that the currency could strengthen to as high as P41 per dollar by yearend. "That [a strong peso], of course, negatively impacts our exports sector which is rebounding already, contributing a lot to the national economy," Mr. Aquino said. He added that it "negatively impacts our remittances", referring to the reduced amounts migrant worker families would be getting. The peso has gained around 6% since the start of the year.

U.S. Stocks Rise on Corporate Earnings, Jobless Claims Data U.S. stocks rose, sending benchmark indexes higher for a second day, as better-than-estimated earnings from EBay Inc. to McDonald’s Corp. and a drop in jobless claims helped offset a slump in financial companies amid speculation that banks face more losses from bad mortgages. EBay, the owner of second-most visited e-commerce site, jumped 6 percent, while McDonald’s climbed 1.3 percent. Netflix Inc., the movie-rental service, surged 13 percent after raising subscriber projections. Bank of America Corp. slid 3.3 percent. Alcoa Inc. and Occidental Petroleum Corp. slumped at least 1.3 percent as commodities prices sank amid a rebound in the dollar. The Standard & Poor’s 500 Index advanced 0.2 percent to 1,180.26 at 4 p.m. in New York, after earlier declining as much as 0.6 percent. The Dow Jones Industrial Average rose 38.60 points, or 0.4 percent, to 11,146.57 and earlier topped the highest level on a closing basis since the week Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008. Treasuries Tumble as Investors Balk at Low Yields, Wait for Fed Decision Treasuries fell, pushing 30-year yields up for the first time in four days, as investors balked at low yields amid speculation about whether the Federal Reserve will buy debt to spur the economy and, if so, how much. Yields on the longest-maturity U.S. securities earlier matched the lowest level in a week after two Federal Reserve policy makers said yesterday another round of debt purchases by the central bank may not be needed, reducing concern inflation will balloon. St. Louis Fed President James Bullard proposed today that the central bank buy $100 billion in long-term Treasuries next month and consider more purchases later. “In terms of Treasuries, I wouldn’t touch them with a 10- foot pole, except maybe on the short side,” Steven Leuthold, whose Leuthold Core Investment Fund has beaten 88 percent of its rivals in the past five years, said in an interview with Betty Liu on “In the Loop” on Bloomberg Television. “Yields are so skimpy it makes no sense for people to be putting money in anything other than very, very short-term bonds.” The 30-year bond yield climbed seven basis points, or 0.07 percentage point, to 3.96 percent at 4:58 p.m. in New York, according to BGCantor Market Data. It earlier fell to 3.87 percent for a second day, the lowest level since Oct. 14, after reaching a 2010 high of 4.86 percent in April. The price of the 3.875 percent security maturing in August 2040 tumbled 1 1/4, or $12.50 per $1,000 face amount, to 98 1/2. The 10-year note yield rose seven basis points to 2.55 percent. Its high for the year, also in April, was 4.01 percent.

Oil Rebounds After U.S. Jobless Figures, Indicators Prompt Growth Optimism Oil rose in New York after U.S. jobless claims fell and a gauge of the economy’s prospects rose in September for a third month, signaling a recovery in fuel demand in the world’s biggest crude-consuming nation. Futures retraced some of yesterday’s 2.4 percent decline after the New York-based Conference Board’s index of leading economic indicators climbed 0.3 percent, matching the median forecast of 57 economists surveyed by Bloomberg News. Initial jobless claims dropped by 23,000 to 452,000 in the week ended Oct. 15, Labor Department figures showed. The December contract gained as much as 29 cents, or 0.4 percent, to $80.85 a barrel in electronic trading on the New York Mercantile Exchange, and was at $80.80 at 9:23 a.m. Sydney time. Yesterday it decreased $1.98 to $80.56. Prices are 0.5 percent lower for the week and down 0.5 percent this 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

Morning Brief: 21 October 2010

BSP forex losses hit P9.67B in 2009 The Bangko Sentral ng Pilipinas incurred heavy foreign-exchange losses in 2009 as it moved to prevent a steep appreciation of the peso. The latest unaudited financial statement of the BSP showed that the monetary agency’s foreign exchange losses reached P9.67 billion in 2009, a reversal of the P53-million gain recorded in 2008. The central bank loses in times of a rising peso as it can only temper a sharp appreciation by buying foreign exchange, which boosts demand for dollars and, in the process, weakens the local currency. Officials said the peso could have been stronger than it was in 2009 were it not for the central bank's intervention in the foreign exchange market. The record in 2009, however, was smaller than the P113.71 billion in losses recorded in 2007 when the peso appreciated more sharply against the greenback. The peso ended 2007 at 41.74 against the dollar. It closed lower at 48.09 in 2008, thus allowing the central bank to post foreign exchange gain. In 2009, the peso ended the year at 46.42, stronger than the previous year's finish. Despite the foreign-exchange losses incurred by the BSP in 2009, its overall financial position remained healthy, posting a net income of P13.13 billion for the year, up from P8.93 billion in 2008. The profit was boosted by the BSP’s offshore investments, specifically in US treasuries. Given the sharp rise of the peso this year, analysts expect the central bank to post a much bigger foreign-exchange loss. Bangko Sentral Governor Amando Tetangco Jr. would not comment on speculations that the monetary authority could post a considerable loss this year because of its heavier dollar buying to temper the rise of the peso, which now hovers in the 43-to-a-dollar territory. Tetangco earlier said, however, that the BSP must be gauged not based on its income or loss, but on its ability to perform its mandate, including keeping a relatively stable exchange rate and maintaining a tolerable level of increase in consumer prices. Growth goal to be revisited But Aquino says ‘caution’ to be exercised in considering changes FOLLOWING A SPATE of outlook upgrades by multilateral organizations, a review of the official 2010 growth target of 5.0-6.0% will be made but any change will likely not be drastic, President Benigno C. Aquino III yesterday indicated. "We will revisit but will exercise caution given developments in the world’s business and economic fronts," Mr. Aquino said in a text message when asked if revisions were timely following the World Bank’s raising its Philippine prognosis to 6.2% from 4.4% last Tuesday. He did not elaborate. Officials of the Development and Budget Coordination Committee (DBCC) -- which sets the country’s macroeconomic targets -- were not immediately available for comment. The president’s statements echoed that of DBCC chairman and Budget Secretary Florencio B. Abad, who last week said the panel "may consider revisions if ever a meeting will be held." Mr. Abad warned that the government wanted to keep its gross domestic product (GDP) growth estimates "conservative" and added that some "economic projections are now becoming overly optimistic." The previous Arroyo administration raised this year’s growth target from 2.6-3.6% to 5.0-6.0% -- adopted by the Aquino government -- after surprisingly strong first-quarter growth of 7.3%, a figure later revised to 7.8%. The pace accelerated slightly to 7.9% in the second quarter, prompting financial institutions, debt watchers and multilateral agencies to revise their projections. The International Monetary Fund (IMF) earlier this month raised its outlook to 7% from 6%, while the Asian Development Bank (ADB) in September announced a higher 2010 estimate of 6.2%, up from 5% previously. Commenting on Mr. Aquino’s statement, University of Asia and the Pacific economist Victor A. Abola said a review of the 2010 target was not needed. "I think it’s not necessary anymore. Work is always a variable. Manpower is needed for another recalculation and there’s only two months left to finish the year," he said in a telephone interview. "Revisiting the targets for next year is more important." The government has a 7-8% GDP growth target for 2011, higher than the World Bank’s 5%, IMF’s 4.5% and the ADB’s 4.6%. Mr. Abola expects 2010 growth to fall within 6.8-7%, easing to 6% in 2011.

U.S. Stocks Gain as Better-Than-Expected Results Boost Optimism U.S. stocks advanced, with benchmark indexes rallying the most in two weeks, on higher-than-estimated results at Boeing Co. and Yahoo! Inc. and speculation the Federal Reserve will inject more money into the economy. Boeing climbed 3.4 percent after also raising its full-year earnings projections. Yahoo! rose 2 percent after third-quarter profit beat analysts’ estimates. Freeport-McMoRan Copper & Gold Inc. added 2.8 percent, leading a measure of raw-materials producers to the biggest gain among 10 industries in the Standard & Poor’s 500 Index. The S&P 500 rose 1.1 percent to 1,178.17 at 4 p.m. in New York, maintaining gains after the Fed said in its Beige Book business survey that U.S. economic growth showed little sign of acceleration last month, fueling speculation it will boost purchases of government debt. The Dow Jones Industrial Average increased 129.35 points, or 1.2 percent, to 11,107.97. Treasury Bonds Advance as Beige Book Fails to Quell Speculation on Easing Treasury 30-year bonds rose as a Federal Reserve regional survey showing a “modest pace” in the economic recovery failed to quell speculation that policy makers will increase asset purchases to spur inflation and employment. Yields on the longest-maturity U.S. securities touched the lowest level since Oct. 14, reversing an earlier rise, as the dollar slid against most major currencies on bets the central bank will pump more money into the economy in a tactic called quantitative easing. Ninety percent of respondents to a Citigroup Inc. survey said they expected an easing announcement at the Fed’s Nov. 2-3 meeting. “The Beige Book was more upbeat, but the economy is still weak and there were no clues as to what asset purchases will look like,” said James Combias, New York-based head of Treasury trading at Mizuho Financial Group Inc., one of 18 primary dealers that trade with the Fed. “The market will have to wait to get more answers regarding QE. Until then, the market will stay bid and in a range.” The yield on the so-called long bond fell two basis points, or 0.02 percentage point, to 3.89 percent at 4:56 p.m. in New York, according to BGCantor Market Data. It slid as low as 3.87 percent. The 3.875 percent security due in August 2040 gained 13/32, or $4 per $1,000 face amount, to 99 22/32. The benchmark 10-year note yield was little changed at 2.48 percent after declining to 2.45 percent and earlier rising to 2.59 percent.

Oil Near $82 After Rising the Most in Five Weeks in N.Y. as Dollar Falls Oil for December traded near $82 a barrel in New York after the November contract rose the most in five weeks yesterday as the dollar fell and crude U.S. stockpiles gained less than forecast. November futures, which expired yesterday, jumped 2.9 percent after the Federal Reserve said the economy expanded at a “modest pace” in September and early October, sending the U.S. currency lower. A weaker greenback bolsters the appeal of raw materials to investors. The Energy Department said that crude supplies climbed less than half the projection in a Bloomberg News survey. “It’s all the dollar,” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago. The dollar will probably remain weak until after the Federal Reserve meeting and the congressional elections in November, he said. The December contract was at $82.56 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange at 9:31 a.m. Sydney time. Yesterday it rose $2.38, or 3 percent, to $82.54. Prices are up 4 percent this year. Oil for November delivery surged $2.28 to $81.77 at its final settlement, the biggest gain since Sept. 10.

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