Philippine Markets: 13 May 2011

13 May 2011

USD/PhP: 43.125 + 0.015 PSEi: 4292.11 - 19.90
USD/JPY: 80.52 PFINC: 943.62 - 6.36
EUR/USD: 1.4326 BDO: 55.55 - 0.45
GBP/USD: 1.6296 BPI: 57.30 - 1.20
PDSTF3M: 1.8373 MBT: 67.65 + 0.65
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary market rates moved up by an average of 19 basis points week on week as interest rates started to normalize after BSP increased benchmark rate by 25 basis points. Interest rates have been abnormally low especially on the short end of the curve as demand for government securities remained strong due to ample market liquidity. Monetary authorities remain wary of inflation as high commodity prices still persist. Market participants continue to expect inflation may still test the 5.00 percent levels in the 3Q11. Thus, the BSP may still have room for another hike in its policy rates at its next policy meeting in June.

Present market fundamentals continue to support a rising interest rate scenario in the medium term. While sideways to upward movements are still the dominant theme in the the near-term.

Philippine Equities Outlook

Local stocks gained 1.73 percent week on week as positive first quarter income results continued to lift the market. However, volatility in the global equity markets capped the market's gains, as local investors fear that further volatility in the global markets may worsen.

Chartwise, the market's inability to break above the 4,350 levels suggest a retest of the 4,150 - 4,170 levels. If bargain hunting activities emerge at these levels, a return move towards the 4,350 levels may be in the cards. However, failure for the market to contain itself within the 4,150-4,170 levels could call for futher losses towards the 3,970 -4,000 levels.

Philippine Peso Outlook

The local currency lost 0.10 percent week-on-week to 43.125 as the dollar continued to gain ground against major currencies as markets. Negative sentiments on the Euro land debt crisis and the correction in commodity prices helped support the rising grenback in the near-term.

Chartwise, the week’s close at 43.125 continued to reflect the oversold condition of the greenback in the global markets. This week's movements continued to support a near-term bottom at 42.63 (02 May 2011). Expect a test of the 43.30 -43.50 levels in the near-term.. Any pullback, if any is limited towards the 42.95 - 43.05 levels.

BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001