Morning Brief: 5 May 2011

Employers buck wage hike, offer allowances STIPENDS instead of outright pay increases should be considered by wage boards as current economic conditions could soon improve, the head of an employers’ group yesterday said. "Let us not apply a permanent solution to a very temporary problem because the pricing problem now is volatile and temporary, it can improve in a few months’ time," said Edgardo G. Lacson, president of the Employers’ Confederation of the Philippines (ECoP) at the sidelines of the organization’s annual conference. His comments came as central bank Deputy Governor Diwa C. Guinigundo reiterated warnings against substantial increases, saying "a further rate adjustment may be considered" if minimum wages are adjusted by more than P25 per day. The Monetary Board meets today to discuss policy and analysts expect a follow-up to last month’s 25-basis-point rate hike given rising inflation and looming wage hikes. Mr. Lacson said the ECoP would be submitting a position paper to the Metro Manila wage board tomorrow, the last day for filing proposals before a May 9 deliberation on the Trade Union Congress of the Philippines’ (TUCP) petition for a P75 increase. He said the grant of subsidies and allowances for clothing, transportation, food and medicine would be a "realistic" compromise as these can be withdrawn when the economic situation gets better. Employers are also considering the Federation of Filipino-Chinese Chamber of Commerce and Industry, Inc.’s proposal of a P13.35 adjustment but even this will result to job losses, Mr. Lacson claimed. He argued that there was "no supervening event" justifying an immediate wage hike, noting that the wage board’s declaring "extraordinary" fuel price increases as a catalyst should have also been the argument in 2008 when global crude prices hit record highs. "We have to reconcile [the] definition of a supervening event," he said. Labor Secretary Rosalinda D. Baldoz, who spoke at yesterday’s ECoP conference, said the Metro Manila wage board would "surely consider the temporary nature of the supervening condition in adjusting wages." Sought for comment, TUCP Chairman Ernesto T. Herrera said his group would welcome an allowance "so long as it will be on top of the wage increase." University of the Philippines economist Benjamin E. Diokno, for his part, said he was in favor of "temporary, voluntary and non-binding" forms of assistance. "The advantage to employers is that these benefits won’t translate into additional contribution to SSS (Social Security Service), Pag-ibig (Home Development Mutual Fund), PhilHealth (Philippine Health Insurance) and long-term cost in terms of separation and retirement benefits," Mr. Diokno said. "The wage boards should resist the pressure to increase minimum wages. The mild inflation rates do not justify it." Emergency cost of living allowances were ordered by the Metro Manila wage board in 2001 (P30/day) and 2004 (P20/day) but were later integrated into the minimum wage in 2007 along with a P12/day pay hike. Direct wage adjustments in the National Capital Region have not gone higher than 2000’s P26.50/day. Last year’s increase of P22 raised daily minimum wages in the metropolis to a range of P367-404. -- from reports by N. M. Gonzales and A. S. O. Alegado

U.S. Stocks Slump as Commodities Drive Third Straight S&P 500 Index Drop U.S. stocks fell, with commodity producers driving a third straight loss for the Standard & Poor’s 500 Index, as lower-than-estimated reports on service industries and job growth damped optimism in the economy. Caterpillar Inc. (CAT) and General Electric Co. (GE), among companies most-tied to the economy, fell at least 1.7 percent to lead declines in the Dow Jones Industrial Average. Freeport-McMoRan Copper & Gold Inc. (FCX) and Occidental Petroleum Corp. (OXY)dropped more than 2.4 percent as oil and metal prices sank. Las Vegas Sands Corp. (LVS), the U.S. casino company expanding in Asia, slumped 7.3 percent after reporting profit that missed estimates. The S&P 500 lost 0.7 percent to 1,347.32 at 4 p.m. in New York. The index has dropped every day since closing at the highest level since June 2008. The Dow average fell 83.93 points, or 0.7 percent, to 12,723.58 today. Oil for June delivery declined 1.6 percent to $109.24 a barrel in New York. “We’ve seen some tempering of economic statistics,” said Michael Mullaney, who manages $9.5 billion at Fiduciary Trust in Boston. “We’re going to see some sloppiness in the market until we get a clear indication on whether the sluggishness in economic activity is temporary. Employment growth is critical for the economy becoming self-sustaining.” The S&P 500 extended its drop since April 29 to 1.2 percent. Oil, metal and chemical companies have led the market’s slump. Silver futures have plunged 19 percent, the biggest three-day drop since 1983, as increases in Comex margins spurred investor sales. Oil has slumped 4.1 percent. Treasuries Rise After Report of Services Slump; Bill Rates Fall to Record Treasuries rose, pushing 10-year note yields to a six-week low, as private reports showed service industries in the U.S. expanded less than forecast in April and companies added fewer jobs last month than projected. Six-month bill rates reached a record low for a third consecutive day with the U.S. reducing sales of short-term securities as lawmakers negotiate an increase in the $14.3 trillion federal debt ceiling. The Treasury said it will auction $72 billion in 3-, 10- and 30-year debt next week even with the U.S. likely to exceed its borrowing capacity before or after Aug. 2. Federal Reserve Bank of Boston President Eric Rosengren said stimulus is necessary to spur the “anemic” economy. “The bond market reacted positively to the disappointing economic news,” said Gary Pollack, head of fixed-income trading at a Deutsche Bank AG Private Wealth Management group in New York that oversees $12 billion. “Investors are buying bonds, even at these low levels, as they anticipate weaker growth.” The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 3.22 percent at 5:19 p.m. in New York, according to Bloomberg Bond Trader data, after touching 3.2 percent, the least since March 17. The price of the 3.625 percent note maturing in February 2021 rose 1/4, or $2.50 per $1,000 face amount, to 103 3/8.

Crude Oil Falls in New York After U.S. Supplies Climb to a Six-Month High Crude oil dropped to a two-week low as a U.S. Energy Department report showed supplies surged and on signals that American economic growth is slowing. Oil fell 1.6 percent after the report showed stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October. Inventories were forecast to gain 2 million barrels, a Bloomberg News survey showed. Lower-than- forecast expansion in service industries and employment reduced optimism about the economic outlook. “The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.” Crude oil for June delivery fell $1.81 to $109.24 a barrel on the New York Mercantile Exchange, the lowest settlement since April 19. Prices are up 32 percent from a year ago.

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

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Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Philippine MArkets: 4 May 2011

04 May 2011

USD/PhP: 42.88 - 0.02 PSEi: 4298.21 - 21.16
USD/JPY: 81.02 PFINC: 964.83 + 6.02
EUR/USD: 1.4849 BDO: 57.45 + 1.35
GBP/USD: 1.6493 BPI: 58.50 - 0.10
PDSTF3M: 0.9292 MBT: 69.40 + 0.40
Prices as of 4:00pm Source: Bloomberg, Reuters



Philippines, Malaysia Will Weigh Rate Rises to Damp Prices
By Karl Lester M. Yap and Michael Munoz

May 4 (Bloomberg) -- The Philippine and Malaysian central
banks will consider raising interest rates as Asia fights
accelerating inflation stoked by surging oil and food prices.
Bangko Sentral ng Pilipinas will increase its benchmark
rate by a quarter of a percentage point to 4.5 percent tomorrow,
according to 12 of 16 economists surveyed by Bloomberg News.
Bank Negara Malaysia may end its rate-rise pause the same day
with a quarter-point advance to 3 percent, seven of 16
economists said in another Bloomberg survey, the highest number
expecting an advance since the last boost in July 2010.
India raised rates yesterday for the ninth time since mid-
March last year as economic growth in Asia fuels inflation and
forces officials to tighten monetary policy. Indonesia will
tomorrow probably report a 6.56 percent rise in first-quarter
gross domestic product from a year earlier, another Bloomberg
survey showed.
“With external food and fuel prices showing little signs
of deceleration, regional policy makers face an uphill battle in
containing inflationary expectations,” said Radhika Rao, an
economist at Forecast Pte in Singapore.
Indonesia’s central bank said April 28 it will provide
“more room” for rupiah appreciation to pare import costs. The
currency has risen about 5.1 percent this year against the
dollar, the most in Asia, according to data compiled by
Bloomberg.
Malaysia’s ringgit has jumped 2.9 percent while the
Philippine peso has risen 1.7 percent over the period. Most
Asian currencies have climbed in 2011, partly because of foreign
capital inflows seeking higher yields.

Asian Rate Increases

The Philippines would join India and Vietnam in raising
rates this month, after the South Asian nation boosted borrowing
costs by half a percentage point and the State Bank of Vietnam
lifted them for the second time in a month from May 1.
Philippine inflation held at a nine-month high of 4.3
percent in March. The central bank raised borrowing costs on
March 24 for the first time since August 2008, increasing the
overnight borrowing rate by a quarter point from 4 percent,
which was the lowest level since central bank data began in 1990.
Philippine gross domestic product expanded 7.3 percent in
2010, the biggest gain since 1976, boosted by business and
consumer spending. President Benigno Aquino is aiming for growth
of as much as 8 percent annually from 2011.

Accelerating Inflation

While the majority of economists predict Malaysia will
leave its overnight rate at 2.75 percent tomorrow, the country
that led Asia in raising borrowing costs last year will boost
the benchmark to 3.25 percent by year-end, the median estimate
in another Bloomberg survey shows.
“Most price pressures in Malaysia thus far have been cost-
push inflation, but with a tightening labour market and
increasing investment, robust private consumption will intensify
demand-pull pressure,” said Daniel Wilson, an analyst at
Australia & New Zealand Banking Group Ltd. in Singapore. “Under
these circumstances, the return to normalization will occur at a
faster pace.”
The nation’s consumer prices climbed 3 percent in March
from a year earlier, the fastest pace in 23 months, adding
pressure for tighter monetary policy.
The Malaysian central bank raised the statutory reserve
requirement ratio from April 1, and said in March that inflation
may accelerate to a range of 2.5 percent to 3.5 percent this
year from 1.7 percent in 2010. It also forecast GDP growth of as
much as 6 percent.

Indonesian Expansion

In Indonesia, Southeast Asia’s largest economy, GDP rose
more than 6.5 percent for the second straight quarter in the
three months through March, according to the median estimate in
Bloomberg’s survey of 13 economists. It climbed 6.89 percent in
the fourth quarter of 2010.
Bank Indonesia kept its benchmark rate at 6.75 percent in
April after raising it in February by a quarter point, which was
the first increase since October 2008.
“Core inflation may accelerate above 5 percent in August
and Bank Indonesia will try to curb inflation by raising the
interest rate a quarter point to 7 percent in September,” said
Juniman, an economist at PT Bank Internasional Indonesia in
Jakarta.
The annual pace of economic growth in Asian nations
including China, South Korea, Singapore, Taiwan and Vietnam
slowed in the first quarter compared with the equivalent pace in
the three months through December, while being sufficient to
propel the cost of living higher and bolster the case for
tighter monetary policy.

Growth Risk

Asia faces a “serious setback” from surging oil and food
prices that threaten to push millions into extreme poverty, the
Asian Development Bank said last week.
The region’s growth may be reduced by as much as 1.5
percentage points should the pace of gains in oil and food
prices seen so far this year persist for the rest of 2011, it
said.
Jollibee Foods Corp., the Philippines’ largest restaurant
operator, said profit growth in the first half of 2011 may slow
as raw-material prices and operating costs rise.
Crude oil prices have surged about 20 percent this year as
unrest in the Middle East and North Africa threatens supplies.
World food prices may rebound after declining in March from a
record level, the United Nations said last month.

BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001