Philippine Markets: 02 June 2011

02 June 2011

USD/PhP: 43.215 (As of 12:00pm) PSEi: 4,324.98 + 38.52
USD/JPY: 80.94 PFINC: 956.56 + 4.12
EUR/USD: 1.4364 BDO: 58.70 +1.05
GBP/USD: 1.6340 BPI: 57.40 + 0.10
PDSTF3M: 2.5923 MBT: 70.55 + 0.55
Prices as of 12:00pm Source: Bloomberg, Reuters


Philippine Peso, Bonds Slide as Global Recovery Concerns Mount
2011-06-02 04:36:03.790 GMT


By Clarissa Batino
June 2 (Bloomberg) -- The Philippine peso fell, snapping a
five-day advance, as signs the global economic recovery is
faltering damped demand for emerging-market assets.
Government bonds declined, driving seven-year yields up by
the most in two weeks, as the Bureau of Customs said it likely
missed last month’s collection target of 26.7 billion pesos
($618 million). Moody’s Investors Service cut Greece’s credit
rating three steps to Caa1 yesterday, putting it on a par with
Cuba, and U.S. manufacturing expanded in May at the slowest pace
since September 2009.
“The Greece downgrade and weak U.S. numbers create doubt
on the sustainability of the global recovery, fanning risk
aversion,” said Radhika Rao, an economist at Forecast Pte in
Singapore. “Expectations of faster inflation in May and another
rate increase this month are supporting the peso.”
The peso fell 0.2 percent to 43.217 per dollar at the 12
noon trading break in Manila, according to Tullett Prebon Plc.
The yield on the 5.875 percent January 2018 peso bond rose eight
basis points, or 0.08 percentage point, to 5.97 percent,
according to Tradition Financial Services.
Inflation may have quickened to more than 5 percent last
month, Rao said. Consumer prices rose 4.5 percent from a year
earlier in April and May data is due to be reported by the
government on June 7. Bangko Sentral ng Pilipinas has increased
its overnight borrowing rate two times this year, most recently
by a quarter of a percentage point on May 5, and will next
review borrowing costs on June 16.



BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 02 JUNE 2011

2011 economic growth seen at lower end of target By: Ronnel W. Domingo The Philippine economy will still grow by 4.8 percent this year despite an “increased lethargy” that is expected to follow a first-quarter performance that was on the lower end of government projections. According to GlobalSource Partners, a New York-based think tank, the projected increase in government spending during the second semester also prompts it to maintain its full-year forecast for the Philippines. First-quarter growth is “in line with our expectations and just barely hitting the tail end of the government’s 4.8 percent to 5.8 percent forecast,” GlobalSource said in a new research note. GlobalSource noted that January-March gross domestic product growth was the lowest since the fourth quarter of 2009, and continues a trend of declining growth since the first quarter of 2010. “At this time, we are still sticking to our projection of 4.8 percent growth for the year, though it is obvious the economy now confronts stronger head winds,” it added. The think tank cited data on leading economic indicators from the National Statistical Coordination Board, which hint at slower economic activity in the second quarter. “Additionally, the woes in Mena [Middle East and North Africa] combined with the continued sluggishness in Europe, point to remittances remaining relatively flat in the short term,” the paper said. This indicated that it may just be a matter of time before inflows from overseas Filipinos start dragging down personal consumption, it added. “On the bright side, the rest of the year may see a bump in government spending as the government is said to be looking at expediting the utilization of government budgets,” GlobalSource said. Data from the Bureau of the Treasury show that in the four months to April, government expenses reached P461.4 billion, or 11.6 percent less than the P521.9 billion incurred in the same period of 2010. In May, Budget Secretary Florencio B. Abad said expenditures have started to pick up in April as the use of notice of cash allocations improved.

S&P 500 Falls Most Since August Amid Slower Growth By Stephen Kirkland and Rita Nazareth Stocks sank, dragging the Standard & Poor’s 500 Index to its worst loss since August, and Treasuries rallied as slower growth in jobs and manufacturing fueled concern the economy is faltering. The Dollar Index erased losses, and commodities fell. The S&P 500 plunged 2.3 percent, the Stoxx Europe 600 Index slid 1 percent and Brazil’s Bovespa retreated 1.9 percent as of 4:15 p.m. in New York. Ten-year Treasury note yields dropped below 3 percent for the first time since December and the Dollar Index rose 0.3 percent after sinking 0.4 percent earlier. The Swiss franc snapped a two-day drop against the euro. The S&P GSCI Index of commodities tumbled 1.5 percent. U.S. equities halted their longest streak of gains in a month after companies added 38,000 workers to payrolls in May, according to figures from ADP Employer Services, less than one- quarter of the median growth forecast by economists. Stocks extended losses after the Institute for Supply Management’s factory index showed U.S. manufacturing expanded at the slowest pace since September 2009. “It’s going to be pretty rocky,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The bond market is in full-on pessimistic mode. We still think that this ultimately will be only a soft spot. The question is how long? It will be risk-off until this soft spot is confirmed.” Broad Retreat Financial firms, industrial companies and raw-material producers fell at least 3 percent to lead declines in all 10 industry groups in the S&P 500. Caterpillar Inc. (CAT), Alcoa Inc. (AA) and Bank of America Corp. (BAC) fell 4.3 percent or more for the biggest losses in the Dow Jones Industrial Average. The Russell 2000 Index of small U.S. companies slumped 3.2 percent, the most since August, while the Dow Jones Transportation Average retreated 3.4 percent. The ISM’s factory index fell to 53.5 in May from 60.4 the prior month. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey. Estimates of the 83 economists polled ranged from 53 to 60. The S&P 500 has fallen 3.6 percent from an almost three- year high at the end of April, and Treasuries have rallied, as economic data trailed economists’ estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program by the end of this month. Citigroup Inc.’s U.S. Economic Surprise Index, which tracks the rate at which data is beating or missing estimates, turned negative in May and has since fallen to the lowest level since January 2009. Labor Department data on June 3 will probably show a projected 180,000 gain in payrolls following a 244,000 April increase, according to a Bloomberg survey. Quantitative Easing The recent lower-than-forecast economic data has caused some investors to speculate that the Fed will plan a third round of so-called quantitative easing after its latest program of bond purchases, known on Wall Street as “QE2,” is completed this month. “We do not want to see QE3,” Brian Belski, Oppenheimer & Co.’s New York-based chief investment strategist, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “QE3 is a short-term event, which will cause the market to go higher because investors over the last 10 years have become so reliant on cheap money and low interest rates. We think that only prolongs the inevitable when the Fed has to eventually sell these securities that they have been buying.” Dollar Does Best The dollar beat stocks, bonds and commodities for the best performance in May. The Dollar Index climbed 2.3 percent in the month, while the MSCI All-Country World Index of equities fell 2.5 percent, the S&P GSCI Index of commodities sank almost 7 percent in the month and bonds of all types returned 1.1 percent on average. Crude oil slid 2.4 percent, the most in three weeks, to $100.29 a barrel in New York. All but four of the 24 commodities tracked by the S&P GSCI Index retreated. Silver, coffee, sugar and wheat lost at least 2.9 percent for the biggest declines. The Stoxx 600 retreated for the second day this week. Banca Monte dei Paschi SpA sank 7.6 percent, as the Italian lender’s controlling shareholder sold 450 million shares on behalf of Fondazione Monte dei Paschi di Siena, a term sheet for the deal showed. The difference in yield between Greek 10-year bonds and benchmark German bunds increased 15 basis points to 13.17 percent. Greece’s next aid package may include incentives for bondholders to keep lending without triggering a downgrade that would roil Europe’s banking system, two people with knowledge of the talks said. So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the European Central Bank, the people said. Franc Strengthens The franc strengthened against all 16 of its major counterparts, gaining 1.7 percent versus the euro, after retail sales rose in April at the fastest rate for two years, boosting speculation the Swiss National Bank will increase borrowing costs. Britain’s pound weakened against 10 of its 16 major peers after a manufacturing index fell to a 20-month low and U.K. mortgage approvals dropped to the least in four months. The MSCI Emerging Markets Index fell 0.3 percent, breaking a four-day winning streak. Taiwan’s Taiex Index climbed 0.6 percent. The Bombay Stock Exchange Sensitive Index rose 0.6 percent after Morgan Stanley predicted it will rebound 19 percent this year. Thailand’s SET Index slid 0.8 percent before the central bank raised its benchmark one-day bond repurchase rate for the fourth time this year.

Oil Drops a Second Day as Global Manufacturing Slows; U.S. Supplies Rise By Ben Sharples Oil declined for a second day in New York after reports showed U.S. crude supplies rose, companies added fewer jobs than forecast and global manufacturing slowed, stoking speculation fuel demand may falter. Futures fell as much as 0.7 percent after the biggest drop in three weeks yesterday. Crude stockpiles climbed the most in more than a month, according to the American Petroleum Institute. Employment rose by 38,000 in May, the smallest gain since September, ADP Employer Services said. A 175,000 increase was forecast, according to a Bloomberg News survey. Manufacturing in China, Europe and the U.S. slowed in May. “Disappointing U.S. private-sector employment and global manufacturing data provided further confirmation of slowing in the economy and potentially demand for oil and oil products,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. Crude for July delivery lost as much as 67 cents to $99.62 a barrel in electronic trading on the New York Mercantile Exchange, and was at $100.01 at 11:26 a.m. Sydney time. The contract yesterday declined $2.41, or 2.4 percent, to $100.29, the biggest single-session drop since May 11. Prices are up 37 percent the past year. Brent crude oil for July delivery was at $114.47 a barrel, down 6 cents, on the London-based ICE Futures Europe exchange. The contract yesterday fell $2.20, or 1.9 percent, to $114.53, the lowest settlement since May 24. Crude Inventories The European benchmark contract traded at a premium of $14.43 a barrel to U.S. futures. The difference between front- month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year. The industry-funded American Petroleum Institute said U.S. crude supplies rose 3.5 million barrels last week to 371.6 million. An Energy Department report today is forecast to show stockpiles declined 1.6 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey. Gasoline inventories climbed 1.5 million barrels to 212.7 million, the American Petroleum Institute said. The Energy Department report may show a 900,000 barrel increase for the fuel, the survey shows. “The American Petroleum Institute crude inventory data looked negative, with a surprising rise in crude and gasoline stockpiles,” Pervan said. If Energy Department data “confirms today’s bearish numbers, prices could remain under pressure.” Oil Options Oil-supply totals from the American Petroleum Institute and DOE have moved in the same direction 72 percent of the time over the past year. API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. The most-active oil option yesterday was the July $95 put, a bet that prices will fall. The contract rose 30 cents to 89 cents. The July $115 call, the most-traded option betting on higher prices, fell 9 cents to 10 cents. A purchasing managers’ index for China showed the slowest expansionary pace in nine months, while the equivalent measure for the euro area fell to a seven-month low. Russia’s index signaled “near stagnation,” and reports from Poland to Hungary also showed a loss of manufacturing momentum. Forecasts Lowered The U.S. Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, from 60.4 in April, the Tempe, Arizona- based group said yesterday. Economists forecast the gauge would drop to 57.1, according to a Bloomberg News survey. The ADP employment report prompted some economists to cut their forecasts for payrolls to be reported tomorrow by the Labor Department. Goldman Sachs Group Inc., Deutsche Bank Securities Inc. and Bank of America Merrill Lynch reduced their estimates. JPMorgan Chase & Co. in New York lowered second-quarter growth forecasts for the second time in as many weeks. The world’s largest oil-consuming nation will expand at a 2 percent annual rate from April through June, down from a prior estimate of 2.5 percent, according to an e-mailed statement yesterday from Michael Feroli, the bank’s chief U.S. economist. The Organization of Petroleum Exporting Countries’ crude output increased for a second straight month in May, led by gains from Saudi Arabia and Nigeria, according to a Bloomberg News survey. Production rose 165,000 barrels, or 0.6 percent, to average 28.895 million barrels a day, according to the survey of oil companies, producers and analysts. Saudi Arabia bolstered output by 75,000 barrels, or 0.8 percent, to 8.925 million barrels a day, the highest level since October 2008. Nigerian production rose 75,000 barrels a day to 2.06 million last month.

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