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Thursday, March 24, 2011

Philippine Markets: 24 March 2011


24 March 2011

USD/PhP: 43.42 + 0.05 PSEi: 3841.54 - 13.98
USD/JPY: 80.903 PFINC: 863.10 - 0.75
EUR/USD: 1.4080 BDO: 49.85 - 0.15
GBP/USD: 1.6230 BPI: 53.70 unch
PDSTF3M: 1.4985 MBT: 62.10 + 0.1
Prices as of 12:00pm Source: Bloomberg, Reuters


Philippine Central Bank Raises Key Rate to 4.25% From 4.00%

The Philippine central bank raised its benchmark interest rate
to 4.25 percent, it said in Manila today. The decision to boost
borrowing costs by 0.25 percentage point from a record low was
expected by 10 of 15 economists surveyed by Bloomberg News.


BDO UNIBANK INC.


Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

Morning Brief: 24 March 2011

Banks to exercise ‘restraint’ in offshore forex trades


Philippine commercial banks have agreed to exercise “voluntary restraint” in offshore foreign-exchange trades that cause volatility in the peso-dollar exchange rate and complicate monetary management.

Banking sources told the Inquirer that the Bangko Sentral ng Pilipinas (BSP) recently called the attention of the commercial banking sector as it noticed that some players might be over-engaging in foreign exchange non-deliverable forwards (NDFs). Whether for their own account or acting on behalf of some big local corporations, some banks were suspected of over-buying NDFs from offshore markets and selling them locally, thereby negating the BSP’s efforts to temper the volatility of the peso against the dollar.

Aurelio Montinola III, president of the Bankers Association of the Philippines, said the banks were now cooperating with regulators to address such concerns on excessive NDF trades.

“There has been some internal discussion within BAP. I think the best way to say is there’s a voluntary restraint to keep [NDFs] at existing levels,” said Montinola, who is also president of the Bank of the Philippine Islands.

A foreign exchange forward contract refers to an agreement to buy or sell foreign exchange at a specified price but for delivery and payment in the future. In the case of NDFs, only the price differential is settled upon maturity.

Banking sources said the BSP recently noticed an unusual surge in NDF trades by some banks in offshore markets like Singapore, Hong Kong and London. These trades are putting a lot of pressure for the peso to appreciate rapidly, which in turn is seen as detrimental to the BSP’s efforts to temper volatility. Whenever the local currency is appreciating too fast against the dollar, exporters and households supported by overseas Filipino workers are hit hardest.

This, in turn, prevents the BSP from siphoning off excess cash in the system through foreign exchange swaps, which are used to lock up excess foreign exchange that monetary authorities did not want to book outright as part of the country’s gross international reserves, said a bank treasurer who spoke on condition of anonymity.








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U.S. Stocks Gain, Erasing Early Drop, as Commodity Shares Rally

U.S. stocks rose, paring yesterday’s drop, as higher metal prices lifted commodity producers and Wells Fargo & Co. said government data showing a record low pace in new-home sales will likely be revised higher.

Freeport-McMoRan Copper & Gold Inc. (FCX) rose 5 percent, while Alcoa Inc. (AA) added 3 percent, as copper paced gains in commodities amid a surge in stockpile orders for the metal. Walt Disney Co. (DIS) added 1.9 percent as investors re-elected Apple Inc. Chief Executive Officer Steve Jobs to the board of the entertainment company. Jabil Circuit Inc. (JBL) jumped 11 percent for the top gain in the Standard & Poor’s 500 Index after the electronics manufacturer’s earnings forecast topped analysts’ estimates.

The S&P 500 rose 0.3 percent to 1,297.54 at 4 p.m. in New York after slumping as much as 0.8 percent. TheDow Jones Industrial Average climbed 67.39 points, or 0.6 percent, to 12,086.02. Crude oil advanced 0.7 percent to $105.75 a barrel.
“Investors are looking for some good news,” said Richard Sichel, who oversees $1.5 billion as chief investment officer at Philadelphia Trust Co. “Earlier today, we had the disappointing home sales data adding up to all the international uncertainties out there. Later, you have the Wells Fargo statement attributed to turning the market around. What people need to understand is that we can have a pickup in different parts of the economy and housing will fully rebound later. There’s growth in this country and elsewhere. There is economic momentum.”

Immediate Solution
The S&P 500 fell yesterday, halting a three-day rally, as oil rose amid fighting in Libya and concern grew that Europe won’t find an immediate solution to its debt crisis. Bonds of Europe’s most-indebted countries sank.

The Portuguese parliament today rejected the government’s deficit-cutting plan in a vote that raises the chances of a bailout and which Prime Minister Jose Socrates has said threatens to push the country toward early elections. Lawmakers backed resolutions against the government’s stability and growth program, Jaime Gama, the parliament’s president, said in Lisbon.

Stocks extended losses in the first hour of trading after purchases of new U.S. homes unexpectedly declined in February to the slowest pace on record and prices dropped to the lowest level since December 2003. Sales decreased 16.9 percent to a 250,000 annual pace, figures from the Commerce Department showed. Economists surveyed by Bloomberg News projected a gain to a 290,000 rate, according to the median estimate. The median price fell 8.9 percent from the same month in 2010.

‘Reality’
A gauge of homebuilders in S&P indexes added 0.5 percent, erasing an earlier decline of 0.9 percent. Wells Fargo analyst Carl Reichardt said the February home sales data may be revised up and didn’t reflect the market “reality” as bad weather hurt the market. PulteGroup Inc. climbed 3.6 percent to $7.40 after Goldman Sachs Group Inc. added the homebuilder’s shares to its “Conviction Buy” list.

“We need to get good reports that remind everyone that the global economy is still doing OK,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion. “News out of Europe raises concern that their crisis won’t go away anytime soon. In addition, you’ve got the Middle East burning and keeping energy prices elevated.”

A gauge of raw-materials producers gained 1.4 percent, the biggest gain among 10 S&P 500 industries. Freeport added 5 percent to $54.88. Alcoa rallied 3 percent to $16.95.

Copper Prices Jump

Copper climbed for a second day in New York as orders to draw metal from inventories jumped the most in 11 months, feeding speculation that demand will outpace supply in 2011.

Canceled warrants, as the orders are known, surged 45 percent, the most since April 21, to 15,525 metric tons, daily London Metal Exchange figures showed today. LME inventories of copper shrank for the first time in six sessions. Prices also gained as figures showed that euro-area industrial orders increased for a fourth month in January.
Walt Disney gained 1.9 percent to $42.24. Investors re- elected Apple’s Jobs to the board of the entertainment company, rejecting the views of proxy advisers who say health issues may impair his ability to serve. Jobs was re-elected with 12 other nominees at the shareholder meeting today in Salt Lake City, with 74 percent of the votes cast backing the group, according to a preliminary count. The Apple executive, absent from the meeting, owns 7.3 percent of Disney and is the largest shareholder.

Jabil Circuit Rallies
Jabil Circuit advanced 11 percent to $20.99. The St. Petersburg, Florida-based electronics manufacturer forecast third-quarter earnings excluding some items of at least 55 cents a share, beating the average analyst estimate of 53 cents in a Bloomberg survey.

Discover Financial Services (DFS) rose 5.4 percent to $23.44. The payments network whose stock has outperformed three larger rivals posted record profit and boosted its dividend. Earnings and sales beat the averages of analyst estimates compiled by Bloomberg.

AOL Inc. (AOL) rose 4.7 percent to $19.86. The Internet company that agreed to buy the Huffington Post was raised to a “buy” from “neutral” by UBS AG, which said advertising growth may accelerate in the second half of the year.

Bank of America Corp. (BAC) fell 1.7 percent to $13.65 after saying the Federal Reserve objected to its planned dividend increase. The lender “will continue to work with the Fed and intends to seek permission for a modest increase in its common dividend for the second half of 2011, through the submission of a revised comprehensive capital plan,” Bank of America said in a regulatory filing.

Capital Plans
Charlotte, North Carolina-based Bank of America is the only U.S. lender among the largest four that didn’t announce a higher payout after the Fed finished a review of the companies’ financial health and capital plans last week. Lenders including Bank of America, which had a 64-cent quarterly payout until 2008, slashed dividends during the financial crisis to conserve capital as loan losses piled up.

Adobe Corp. slumped 3.7 percent to $31.68. The largest maker of graphic-design programs forecast second-quarter profit of 47 to 54 cents a share, missing the 56-cent average of analysts’ projections compiled by Bloomberg.

The benchmark index for U.S. stock options fell for a fifth day, losing 35 percent for the biggest five-day slide since May, and declined below its level before the Japan earthquake as stocks rallied around the world. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 5.2 percent to 19.17. The index measures the cost of using options as insurance against declines in the S&P 500.

“All the signs are that the economy is not only stable, but it’s picking up momentum,” said Dan Veru, chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey, which oversees $3.8 billion. “All these problems are going to gradually diminish and that means we’re going to have gradually higher stock prices.”


Oil Falls From 30-Month High as U.S. Crude Stockpiles Gain Outweighs Libya

Oil fell from the highest since September 2008 in New York as U.S. crude inventories rose more than analysts forecast, overshadowing threats to supplies from the conflict in Libya and Middle East unrest.

Futures slipped as much as 0.4 percent after a government report showed crude stockpiles climbed by 2.13 million barrels to 352.8 million in the seven days ended March 18. Supplies were forecast to increase by 1.5 million barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.
U.S. crude inventories “grew more than expected, with stockpiles at Cushing heading towards record levels again, weighing on the outlook,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today.

Crude for May delivery traded declined as much as 43 cents to $105.32 a barrel in electronic trading on the New York Mercantile Exchange, and was at $105.43 at 11:07 a.m. Sydney time. Yesterday, the contract climbed 78 cents, or 0.7 percent, to $105.75, the highest since Sept. 26, 2008. Prices have advanced 31 percent in the past year.

Prices have advanced 15 percent this year as turmoil that toppled the leaders of Tunisia and Egypt extended to Yemen, Bahrain and Oman. Yesterday, Allied forces attacked Libyan leader Muammar Qaddafi’s troops and protesters clashed with government forces in Syria.
Brent oil for May settlement slipped 15 cents to end the session at $115.55 a barrel on the London-based ICE Futures Europe exchange yesterday.



Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

At the Philippine Economic Briefing - Mallberry Suites, CDO March 23, 2011

LEFT TO RIGHT:
Cagayan de Oro City Mayor Vicente "Dongkoy" Y. Emano
Vice President Jejomar "Jojo" C. Binay and
Oro Chamber Past Trustee Elmer B. Francisco

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