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