Philippine Markets: 31 May 2011

31 May 2011

USD/PhP: 43.28 (As of 12:00pm) PSEi: 4,2244.64 - 50.60
USD/JPY: 81.15 PFINC: 945.17 - 4.93
EUR/USD: 1.4374 BDO: 58.50 +0.70
GBP/USD: 1.6545 BPI: 55.65 - 1.35
PDSTF3M: 2.6923 MBT: 69.00 - 0.35
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippines Seeks More Information on FX Forwards, Tetangco Says
By Clarissa Batino

The Philippine central bank seeks to have a clearer picture
of the non-deliverable forward transactions “while maintaining a liberal policy framework,”
Governor Amando Tetangco said in a mobile phone message.

“We want to better understand the NDF market in terms of size, direction
and timing of transactions,” Tetangco said today. the central bank had
issued a memo requiring banks to submit a daily report on their peso forwards transactions.

BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 31 MAY 2011

Slower 4.9% Q1 GDP growth not alarming, say experts By: Christine O. Avendaño, Doris C. Dumlao, Ronnel W. Domingo Philippine Daily Inquirer LOWER THAN EXPECTED BUT NOT ALARMING. Workers are seen at a construction site in Manila on Monday. The Philippines said economic growth slowed to 4.9 percent in the three months to March as it was hit by a drop in global trade and less spending on infrastructure. AFP PHOTO/NOEL CELIS The slower growth of the country’s economy should not alarm investors as the Philippines just happens to be returning to its normal growth pattern after an extraordinary 2010, an economist at British banking giant HSBC said. HSBC economist Sherman Chan, in a commentary released shortly after the government announced the country’s first-quarter growth figure, also said that with private consumption remaining buoyant, inflation would not likely cool anytime soon. According to the economist, solid household demand suggested that underlying inflationary pressures were unlikely to recede anytime soon. “With inflation already in the upper half of the central bank’s target band and is set to breach the upper bound within the next two months, the [Bangko Sentral ng Pilipinas] will maintain its hawkish stance,” Chan said. She projected the BSP would continue its interest rate increases and end the year with the overnight borrowing rate at 5 percent. The 4.9-percent gross domestic product growth posted in the first quarter fell short of the market’s expectation of at least 5.1 percent. Still, it was above HSBC’s forecast of 4.8 percent for the period. HSBC is expecting further moderation in growth this second quarter, noting that household consumption would likely lose a bit of steam. In Malacañang, President Aquino remained optimistic that the economy’s growth would pick up despite the disappointing first-quarter growth figure. Speaking to reporters in the Palace, the President noted that the country did not fare badly despite the political unrest now affecting oil-producing countries in the Middle East and North Africa, as well as the string of disasters in Japan, the Philippines’ biggest trading partner and source of foreign assistance. Aquino said he remained optimistic over the country’s full-year prospects. In the second quarter, the government will again pump-prime the economy now that oil prices in the market have started to stabilize, Aquino said. “We believe our (growth) numbers will improve,” President Aquino said a few hours after economic officials announced the economy’s growth figure. Data from the National Statistics Office showed that the country posted a trade deficit of $3.368 billion in the first quarter, more than double the $1.441 billion recorded in the same period of 2010. “The wider trade balance is largely a function of a sharp jump in intermediate goods—imports—which implies a rise in inventories rather than booming consumption,” said UBS economist Edward Teather.

European Stocks Are Little Changed; BASF, Vestas Advance, Greek Banks Drop By Alexis Xydias European stocks were little changed after four straight weeks of losses for the benchmark Stoxx Europe 600 Index, as chemical makers and renewable-energy companies gained while banks fell amid sovereign-debt concern. BASF SE (BAS), the world’s biggest maker of chemicals, rose 1 percent. Renewable Energy Corp. ASA and Vestas Wind Systems A/S climbed more than 2.5 percent as Germany set 2022 as the final date to close its nuclear reactors. Alpha Bank SA tumbled 9.1 percent in Athens as the International Monetary Fund reviewedGreece’s efforts toward meeting fiscal targets. The Stoxx 600 slipped less than 0.1 percent to 278.82 at the 4:30 p.m. close in London. Trading volume was lower than normal as U.K. and U.S. exchanges were closed for holidays. Speculation that Greece will restructure its debt and concern the outlook for other economies in the region is worsening has weighed on stocks since February. The Stoxx 600 has dropped 4.2 percent from this year’s high on Feb. 17, bringing its valuation to 11.1 times the estimated earnings of its companies, near the cheapest since April 2009. “The debt issues come up again and again, but a lot of people are getting used to these ongoing concerns,” said Peter Braendle, who helps manage $68 billion at Swisscanto Asset Management in Zurich. “We are fairly optimistic on European stocks because of valuations and we are increasing exposure in Europe compared to other markets.” ‘Death Sentence’ Greek Prime Minister George Papandreou said he’ll press ahead with new austerity measures after failing to win backing from the main opposition parties. An international panel of inspectors has concluded that the debt-laden country has missed all the fiscal targets agreed in its rescue plan, Der Spiegel reported May 29, without saying how it obtained the information. IMF talks with Greek officials to assess the nation’s fiscal achievements continue, Conny Lotze, a Washington-based IMF spokeswoman, said in an e-mail. A debt restructuring would be a “death sentence” and have a dramatic destabilizing impact on the euro region, European Central Bank executive board member Lorenzo Bini Smaghi told the Financial Times. “The Greek song is the same one and it’s taking longer than hoped for,” said Jacques Porta, a Paris-based fund manager at Ofi Patrimoine, who helps oversee about $425 million in stocks. “We’re not pessimists, and declines in stocks present buying opportunities, but given how things are, we prefer to hold and wait.” Benchmark Indexes National benchmark indexes declined in 10 of the 17 western European markets open today. France’s CAC 40 slipped 0.2 percent and the Swiss Market Index lost 0.3 percent, while Greece’s ASE sank 2 percent to the lowest since 1997. Trading in Euro Stoxx 50 futures today was less than a fifth of the average daily volume over the past 20 sessions, according to Bloomberg data. Goldman Sachs Group Inc. (GS) equity strategists cut their earnings and price forecasts for the Stoxx 600, citing lower economic growth worldwide and higher commodity prices. Earnings for companies in the European benchmark may increase by 14 percent this year, down from a previous estimate of 20 percent, the strategists wrote in a report dated May 27. The Stoxx 600 may trade at 280 in three months and 300 in six months, down from forecasts of 290 and 310, respectively. BASF rose 1 percent to 61.92 euros, leading a measure of chemical makers to the biggest gain among 19 industry groups in the Stoxx 600. REC, Vestas Alternative-energy companies rose as German Chancellor Angela Merkel’s coalition resolved their differences over the timing of an exit from nuclear power following Japan’s Fukushima disaster, the worst nuclear crisis since 1986. Renewable Energy Corp., a maker of solar-energy wafers, cells and modules, gained 3.7 percent to 12.99 kroner. Vestas, the largest wind-turbine manufacturer, climbed 2.7 percent to 151 kroner. Gamesa Corp. Tecnologica SA, Europe’s second-biggest wind-turbine maker, surged 5.2 percent to 6.52 euros and Enel Green Power SpA (EGPW), a unit of Italy’s largest energy company, rallied 4.8 percent to 1.92 euros. RWE AG (RWE) and EON AG, Germany’s largest power companies, retreated 1.7 percent to 40.31 euros and 2.3 percent to 19.56 euros, respectively. A tax on spent fuel rods will remain even as the shutdown proceeds, German Environment Minister Norbert Roettgen said. Alpha Bank, Greece’s third-biggest lender, slumped 9.1 percent to 2.91 euros, the lowest since June 1995. EFG Eurobank Ergasias SA (EUROB), the country’s second-largest bank, declined 6.2 percent to 2.87 euros. ‘Increasingly Difficult’ “So far the Greek crisis has remained within certain limits, but as the situation deteriorates, the risk increases of starting to see the effect broadening,” said Elwin de Groot, senior market economist at Rabobank in Utrecht,Netherlands. “The situation looks increasingly difficult.” Banco Comercial Portugues SA (BCP), Portugal’s biggest non-state bank by assets, retreated 6.6 percent to 46.7 euro cents, the lowest since at least 1993. Rights that allow the purchase of shares for 36 cents each tumbled 33 percent to 1.1 cent, meaning investors must pay almost 10 cents to acquire one new share at that price. Athens-based Intralot SA, the world’s second-biggest gambling services provider, tumbled 22 percent to 1.64 euros, the largest drop in 12 years. Chairman Sokratis Kokkalis may face prosecution after an investigation into a technical services contract with Opap SA, Eleftherotypia newspaper said, without saying where it got the information.

Oil Heads for First Monthly Drop Since August on European Debt Concerns By Ben Sharples Oil headed for its first monthly decline since August in New York as Europe’s continuing debt crisis stoked speculation that fuel demand may falter as the economy slows. Futures were little changed today and are down 11.9 percent this month. Greece’s main opposition party rejected the government’s austerity plans and called for bailout terms to be renegotiated as the European Union debates giving more aid. U.S. floor trading was closed yesterday for the Memorial Day public holiday. Electronic trades will be booked with today’s transactions for settlement purposes. “Concerns over European sovereign debt continued to weigh on markets, dragging prices lower,” economists at Australia & New Zealand Banking Group Ltd., led by Warren Hogan, wrote in a note today. Crude for July delivery was at $100.37 a barrel, down 1 cent, in electronic trading on the New York Mercantile Exchange at 9:31 a.m. Sydney time. The contract slid 21 cents to $100.38 yesterday. Prices are 36 percent higher the past year. Brent crude oil for July settlement lost 35 cents, or 0.3 percent, to $114.68 on the ICE Futures Europe exchange in London yesterday, the lowest settlement since May 24. The contract has dropped 8.3 percent this month. U.S. Economy Reports this week may show U.S. factory output and job growth slowed while home price declines accelerated. Manufacturing, which accounts for about 12 percent of the world’s biggest economy, will probably cool following its strongest showing in seven years, according to the median forecast in a Bloomberg survey of economists. The Labor Department may say on June 3 payrolls rose 185,000 after a 244,000 gain in April, a separate survey shows. The S&P/Case-Shiller index of property values in 20 cities is forecast to show prices fell 3.4 percent in March from a year earlier, compared with a 3.3 percent drop in February. The European benchmark contract traded at a premium of $14.30 a barrel to U.S. futures yesterday. The difference between front month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year. Brent has advanced 21 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. The death toll from an attack on protestors by Yemeni security forces rose to 57, with more than 1,000 in the city of Taiz injured, al-Jazeera television reported.

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