THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Thursday, January 13, 2011

Morning Brief: 13 January 2011


Food crisis feared in ’11 due to tight supply
By Ronnel Domingo
Philippine Daily Inquirer

MANILA, Philippines—Weather shocks as well as supply and demand uncertainties may trigger another full-blown Asian food crisis this year and push up Philippine consumer prices by 1.5 percentage points, according to financial services firm Credit Suisse.

Taking off from National Statistics Office (NSO) data, this would mean that the inflation rate may jump to about 4.5 percent by the middle of the year, from 3 percent year-on-year in December.

In a nine-page report on Asian inflation, Credit Suisse said a repeat of the crisis seen in most of Asia in 2007 and 2008 “cannot be ruled out.”

“In the worst case scenario, we assume that the UN Food and Agriculture Organization food price index rises by a further 30 percent from [present],” the company said.

The report, penned by Santitharn Santhirathai and Wu Ku Lung, noted that non-Japan Asia’s (NJA) food price inflation in November 2010 was at its highest level in the past decade, except for 2007-08 when global food prices spiked to extraordinary heights.

“As such, it is no wonder that food price inflation is among the top concerns on investors’ minds,” the paper added.

“Recent flooding in rice exporting economies … and food inflation problems in China have led many investors and analysts to wonder whether the NJA economies are heading towards another food price crisis, similar to the one in 2007-08,” Credit Suisse said.

Credit Suisse said it expects grain prices to rise by another 13 percent to 14 percent in 2011 from levels seen in the fourth quarter of 2010, which would translate into about an 8-percent to 9-percent increase in NJA food prices in local currency terms.

The firm added that, based on this scenario, food inflation in Asia outside Japan might rise to about 15 percent by mid-2011, translating to an additional 1.5 percentage points to inflation rates.

According to the NSO, the inflation rate for food alone—which accounts for about half of the overall inflation rate—remained at 2 percent in December.


2010 exports target topped
Goal exceeded in November despite growth slowdown

MERCHANDISE EXPORTS growth was at its slowest so far for 2010 last November but the month’s results were enough to top the full-year target, fueling optimism for 2011.

Outbound shipments rose by 11.2% in November to $4.14 billion from a year ago, the government reported yesterday. This brought aggregate merchandise exports for the 11 months to $47.22 billion, up by 34.5% from last year’s $35.12 billion and surpassing the government’s 2010 target of $43.1 billion or a 15% growth.

Month on month, exports declined by 13.4% from October’s $4.78 billion, data from the National Statistics Office (NSO) showed. Exports had grown by 27.4% the previous month. The November growth rate, however, was faster than the 5.8% recorded in the same month last year.

Experts said the slowdown was expected due to seasonal trends. University of Asia and the Pacific (UA&P) economist Peter Lee U said, "November to December is the peak sales season [overseas], so most products have been exported from here before that period."

Amid the continued growth, the government said it would review targets for 2011 once full-year economic data for 2010 become available.

In a telephone interview, National Economic and Development Authority (NEDA) Deputy Director-General Augusto B. Santos said, "Our performance is good despite the perceptively weak global economic recovery [last year]."

"Given the good showing, it (exports growth) may exceed 15% for 2011; in that case we may have to review the macroeconomic targets of the government," he added.

Myrna Clara B. Asuncion, acting director for policy and planning at the NEDA, said the 13% export growth target for 2011 could be revised when fourth-quarter data come in next month.

Industry officials, for their part, said growth would be modest in 2011.

Sergio R. Ortiz-Luis, Jr. , Philippine Exporters Confederation, Inc. (Philexport) president and Export Development Council (EDC) vice-chairman, said in a telephone interview: "We have been saying that chances are high that growth targets will be exceeded. We are already levelling up to pre-crisis levels, where we hit our highest numbers."

"This (the November exports data) is a preview of what we will have in 2011, which is a more modest growth of around 11%," he added.

Arthur S. Young of the Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) said in a separate telephone interview: "We do expect that we are well within the 30% range."

Both the SEIPI and Philexport maintained their 2010 growth targets at 25-30% and 20%-25%, respectively.

Asked for a growth forecast for 2011, Mr. Young said: "It’s a little premature to arrive at a concrete number. But we believe growth for 2011 is at around 10%, as we are back to seasonal trends."

"We expect a slow start in the first quarter and things to pick in the second to third quarter of 2011," he added.

Mr. Ortiz-Luis said the EDC had set an export growth target of 11% for 2011.

Electronics grew by 8.5% and remained the country’s top export earner in November, generating $2.33 billion in sales or 56.4% of the total. Growth was driven by semiconductor sales which went up by 19.6% to $1.72 billion in November.

Apparel and clothing accessories, which accounted for just 3.3% of the total, followed with $138.20 billion in sales, up by 2.4%. The biggest gainers were gold, which went up by 208.5%; petroleum, 176.1%; and coconut oil, 118.5%. Exports of woodcraft and furniture grew by more than half to $134.22 million.

According to the NEDA’s Ms. Asuncion, the main growth drivers in November were "upward shipments for manufactured goods, primarily semiconductors, and petroleum products."

Experts expect rising world demand for electronics and semiconductors to continue supporting the country’s exports industry.

"The outlook for exports... is good because of bright prospects for electronics," UA&P economist Cid L. Terosa said. "Exports will be one of the main drivers of the economy aside from remittances," he added.

Mr. U said the "world economy is growing," enhancing the prospects of the country’s export industry.

Japan was the top export destination for the month with revenues amounting to $668.27 million, up by 7.72% from a year earlier. China came in second with $652.76 million, up by nearly 180%, followed by the United States with $488.62 million.


U.S. Stocks Climb on Banks Upgrade, Europe's Effort to Resolve Debt Crisis

U.S. stocks rose, sending benchmark indexes to the highest since August 2008, as Wells Fargo & Co. raised its rating for large banks on prospects for higher dividends and amid speculation Europe will step up measures to control its crisis.

Bank of America Corp. and Citigroup Inc. gained at least 2 percent. JPMorgan Chase & Co. added 2.6 percent after Chief Executive Officer Jamie Dimon told CNBC that he would like to boost the company’s dividend. Canada’s Consolidated Thompson Iron Mines Ltd. soared 33 percent after Cliffs Natural Resources Inc. agreed to buy the company for about C$4.9 billion ($4.95 billion). Nvidia Corp. jumped 15 percent after Oppenheimer & Co. predicted a “good year” for the industry’s earnings.

The Standard & Poor’s 500 Index rose 0.9 percent to 1,285.96 at 4 p.m. in New York, the highest since Aug. 28, 2008. The Dow Jones Industrial Average increased 83.56 points, or 0.7 percent, to 11,755.44.


Treasury 10-Year Note Pares Loss as Demand Rises at $21 Billion Auction

Treasuries pared declines after the government’s sale of $21 billion in 10-year notes drew the strongest demand since September from a group of investors that includes foreign central banks.

Government securities had slumped earlier on speculation European officials are stepping up efforts to solve the region’s debt crisis, damping demand for the refuge appeal of U.S. debt. Indirect bidders, a class of buyers that includes central banks, bought 53.6 percent of the notes today, compared with an average of 44.5 percent in the last 10 sales. The Federal Reserve said it would buy $112 billion of debt during the next four weeks under the next round of its quantitative easing program.

“Yields are better than they have been,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of 18 primary dealers that trade Treasuries with the Federal Reserve. “The foreign bid has come back to some degree.”

The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.37 percent at 5:05 p.m. in New York, according to BGCantor Market Data. It touched as high as 3.41 percent.



Oil Rises to 27-Month High After U.S. Supplies Decline, Equities Increase

Oil climbed to a 27-month high after supplies dropped more than forecast and the Standard & Poor’s 500 Index increased on signals European officials are stepping up efforts to solve the debt crisis.

Futures increased 0.8 percent after the Energy Department said stockpiles fell 2.15 million barrels to 333.1 million last week, the lowest level since February. Inventories were forecast to decrease by 1.4 million barrels, according to a Bloomberg News survey. The S&P 500 rose above its highest close since August 2008 as European leaders consider aid for Portugal.

“It was a big drop in crude-oil stocks, but not out of bounds of expectations,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester Massachusetts. “Portugal is likely to see a rescue package, and that’s cause for relief. The European financial crisis has been a major concern for the past year.”

Crude oil for February delivery climbed 75 cents to $91.86 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 3, 2008. Futures are up 14 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
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