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Thursday, October 21, 2010

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
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