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Wednesday, October 20, 2010

Philippines Markets: 20 October 2010



20 October 2010

USD/PhP: 43.375 - 0.025 PSEi: 4191.96 + 0.84
USD/JPY: 81.26 PFINC: 944.61 + 2.45
EUR/USD: 1.3814 BDO: 59.95 unch
GBP/USD: 1.5737 BPI: 56.00 unch
PDSTF3M: 3.7854 MBT: 71.00 + 1.00
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippines Readying Series of Currency Liberalization Measures
By Karl Lester M. Yap
Oct. 20 (Bloomberg) -- The Philippine central bank is
“preparing a series of foreign exchange liberalization
measures,” Deputy Governor Diwa Guinigundo said in a mobile-
phone text message today.
Policy makers are “not taxing capital flows,” he said.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

Morning Brief: 20 October 2010



New outlook upgrade for RP

2010-2011 GDP growth forecasts raised by World Bank

THE WORLD BANK yesterday became the latest institution to raise its outlook for the Philippines, estimating 2010 and 2011 growth to hit 6.2% and 5.0%, respectively, from the 4.4% and 4% forecast in a June report.

It extended the 5.0% prognosis to 2012 and said that while growth would moderate from the strong 2010 first-half result of 7.9%, a new government and a global recovery offered the country "a window of opportunity to embark on structural reforms to improve its development outcomes."

The revised forecasts came as the Washington-based lender also hiked its 2010 East Asia outlook to 8.9% from 8.7%, citing a recovery in trade and private consumption. The 2011 forecast for the region, however, was lowered to 7.8% from 8.0%.

The Bank’s new 2010 Philippine projection just tops the government’s 5.0-6.0% target. It follows the International Monetary Fund’s announcement earlier this month of a 7% outlook, up from 6% previously, and is identical to the Asian Development Bank’s estimate of 6.2%, raised from 5%, released in September.

The 2011 forecast, meanwhile, is lower than the government’s target of 7.0-8.0%.

Socioeconomic Planning Secretary Cayetano W. Paderanga, in a text message, said the adjustment to the 2010 goal was in line with government expectations.

"We hope this optimism will carry us forward as the administration moves on [with] its policies and programs," he told BusinessWorld.

Near-term growth prospects, the World Bank said in its Philippines update, "are favorable." But it said strong first-half growth would ease given the withdrawal of stimulus measures and a moderation in global growth.

"Assuming no material downward revision on first-half GDP (gross domestic product), growth is projected to slow from 6.2% in 2010 to 5% in both 2011 and 2012," it said.

"Sustained structural reforms will be needed, however, to increase the medium-term potential growth rate to more than 4-5%," it added.

The Philippines is faced with the task of ensuring that growth translates to reduced poverty, officials said.

"The challenge remains in the inclusive side of growth... there is still a lot to be done to fight hunger and poverty in the Philippines," World Bank Country Director Bert Hofman told a briefing.

U.S. Stocks Tumble on Mortgage Concerns, Apple Outlook

U.S. stocks tumbled, dragging benchmark indexes to their biggest drop since August, amid concern banks will be forced to buy back soured mortgages and after Apple Inc. forecast profit that missed analyst estimates.

Bank of America Corp. slid 4.5 percent after people familiar with the matter said Pacific Investment Management Co., BlackRock Inc.and the Federal Reserve Bank of New York seek to make it repurchase loans packaged into $47 billion of bonds. Apple retreated 2.7 percent. International Business Machines Corp. lost 3.4 percent following a decline in new contracts. Exxon Mobil Corp. led energy companies lower as oil slipped.

The S&P 500 Index lost 1.6 percent to 1,165.90 at 4 p.m. in New York, the biggest slide since Aug. 19. The Dow Jones Industrial Average fell 165.07 points, or 1.5 percent, to 10,978.62, while the Nasdaq-100 Index, of which Apple makes up 21 percent, dropped 1.6 percent to 2,069.73.


Treasury Two-Year Yields Hold Near Week Low on Fed Before Housing Report

Treasury two-year note yields were near the lowest level in a week on the prospects of more quantitative easing by the Federal Reserve before a report forecast to show U.S. housing starts fell in September.

The cost of hedging against losses on U.S. government debt dropped to the lowest in two months as investors bet the Fed will increase purchases Treasuries at its Nov. 2-3 meeting to spur the economy. Fed Chairman Ben S. Bernanke said last week that additional monetary stimulus may be warranted because inflation is too low and unemployment is too high.

“Everyone is focused on the next Fed meeting,” said Michael Rottmann, head of fixed-income research at UniCredit SpA in Munich. “Data before then may add to speculation about the size of QE, but we won’t know until they tell us what they’re thinking.”

The yield on the 2-year note fell less than one basis point, or 0.01 percentage point, to 0.36 percent at 7:19 a.m. in New York, according to BGCantor Market Data. The price of the 0.375 percent security maturing in September 2012 increased less than 1/32, or 31 cents per $1,000 face amount, to 100 1/32.

The 2-year yield dropped earlier to 0.35 percent, the lowest level since Oct. 12, when it touched the record low of 0.3270 percent. The benchmark 10-year note yield was little changed at 2.51 percent. The yield slid five basis points yesterday in the biggest decrease since Oct. 6.


Oil Below $80 After Tumbling Most in Eight Months on China Rate Increase

Oil traded near a three-week low after China raised benchmark interest rates, potentially crimping demand in the world’s biggest energy-using country, and as a report showed higher U.S. crude supplies.

Futures dropped 4.3 percent yesterday, the biggest drop in eight months, on the first increase in China’s key lending and deposit rates since 2007 after an acceleration in inflation to the fastest pace in 22 months. Inventories of crude climbed 2.3 million barrels last week, according to the industry-funded American Petroleum Institute.

“Tightening of Chinese monetary policy is weighing on crude oil and the entire commodity space,” said Jason Schenker, the president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Increased lending rates and deposit requirements will reduce available liquidity in the market and could engender slower growth, adversely affecting demand.”

The November contract, which expires today, was at $79.48 a barrel, down 1 cent, in electronic trading on the New York Mercantile Exchange at 9:14 a.m. Sydney time. Yesterday it slipped $3.59 to $79.49, the biggest decline since Feb. 4. The more-actively traded December contract was at $80, down 16 cents. Prices are up 0.2 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
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