Morning Brief: 06 June 2011

Inflation likely topped 5% INFLATION likely breached the central bank’s 2011 target of 3-5% last month, analysts said, raising the prospect of policy rates being raised anew next week. A BusinessWorld poll led to a median forecast of 5.05%, just above the midpoint of the Bangko Sentral ng Pilipinas’ (BSP) 4.5-5.5% outlook for the month. Inflation accelerated to 4.5% in April, from 4.3% a month earlier. Official data for May will be released tomorrow. Five out of the nine analysts polled expect the rise in consumer prices to breach 5% while the remainder had projections ranging from 4.5-5%. They pointed out that the impact of lower global commodity prices had yet to trickle down to the local market. "Price levels remain buoyed by the delayed impact of higher oil prices, while rising service costs will keep CPI (consumer price index) elevated," Standard Chartered economist Vincent Tsui said in an e-mail. "Given food prices have been the key driver of inflation in this cycle, with the recent drought in the northern hemisphere, inflation expectations are yet to be well-anchored," he added. Metropolitan Bank and Trust Co. research head Ildemarc C. Bautista concurred, saying in a telephone interview: "Currently, global commodity prices are going down but these need to feed into the system." The BSP has said inflation would likely exceed 5% in the second and third quarters. It remains confident, however, that the full-year average will be "well within" the 3%-5% target. Mr. Tsui forecast a 5.1% result for May, which"should prompt the BSP to hike policy rate by another 25 bps (basis points) to 4.75% in its 16 June meeting." HSBC economist Sherman WK Chan concurred: "We expect the headline reading to have breached the central bank’s target band in May and remain elevated for several months. The BSP is likely to hike the policy rate again at the upcoming meeting on June 16." Other analysts, however, said the BSP could hold off from a third consecutive rate hike given the economy’s first-quarter showing. Rizal Commercial Banking Corp. Senior Vice-President Marcelo E. Ayes, who forecast 5.0%-5.2% inflation for May, said second-quarter growth data should be awaited. The economy expanded by 4.9% in the first quarter, down substantially from 8.4% a year earlier, due to lackluster trade and state underspending. The BSP has so far raised key rates twice this year -- by 25 bps each on March 24 and May 5 -- and officials said the move was necessary as the 3-5% inflation target was at risk. -- Antonio Siegrid O. Alegado

Stocks: Investors brace for turbulence NEW YORK (CNNMoney) -- Stocks could be volatile this week as the economic fallout of Friday's jobs report will continue to weigh heavily on investors' minds. This week's trading agenda is thin on economic reports and corporate earnings. Notable pieces of data include the Federal Reserve's "Beige Book" on Wednesday and weekly jobless claims on Thursday. But last week's bad news will likely set the tone for investors. May's jobs report fell way short of expectations, and other data, such as the Institute for Supply Management's closely-watched manufacturing survey, have also disappointed. The Dow fell nearly 3% last week. Portfolio managers said with this recent wave of bad economic data and a sparse agenda ahead, now is not the time to be putting risk into a portfolio. "We need to digest the past couple of weeks and debate the reasons why we're seeing this slowdown," said Bob Doll, chief equity strategist with the large investment and advisory firm BlackRock. "Is this slowdown temporary, or is there something more fundamental that should be a cause of concern?" The Dow fell for a fifth-straight week last week, its longest week-over-week decline since July 2004. But despite the drop, the market still has some resiliency left, with the Dow up slightly less than 5% for the year and the S&P 500 up 3.4%. Ongoing developments out of Europe could also impact trading. News reports Friday said Greece may be in line to receive additional aid from its European Union partners, after credit agency Moody's downgraded Greece's debt last week. "If the news in Europe flares up, we could see increased volatility, especially when we're light on economic data this week," said David Levy, portfolio manager with Kenjol Capital Management. But there is still reason to be optimistic about the long-term potential for stocks this year, since corporate earnings have far outpaced the economy, Doll said. "The investors need to focus on the U.S. stock market, which you can see has done a whole heck of a lot better than the U.S. economy," he said. With earnings season next month, the next couple weeks are typically the time companies warn investors that their results may come in above or below expectations. Monday: Technology investors will be monitoring Apple (AAPL, Fortune 500) CEO Steve Jobs' keynote speech at the Worldwide Developers Conference in California, scheduled to start at approximately 1 p.m. ET. Jobs is expected to unveil a new Apple cloud computing music service and possibly a new version of the iPhone. Tuesday: On Tuesday is the Federal Reserve's April consumer credit report, released at 3 p.m. ET. Wednesday: The Federal Reserve will release its "Beige Book" at 2 p.m. ET on Wednesday. The book is a collection of economic anecdotal observations by the Fed's 12 regional banks and is used by the central banks as part of their decision making regarding interest rates. Thursday: The Labor Department will release its weekly initial jobless claims report at 8:30 a.m. ET, which investors said will likely be the closest-watched piece of economic data this week. Economists are looking for jobless claims to rise slightly to 423,000. Also out on Thursday is the U.S. April trade balance figures, which are expected to show a $48.7 billion trade deficit, and April wholesale inventory figures. Economists expect wholesale inventories rose 0.9%, according to Briefing.com Friday: Investors will get May's import and export prices from the Commerce Department at 8:30 a.m. ET. Economists expect import prices rose 0.6% last month while export prices rose 1%.

OPEC Overshadowed by Qaddafi in Most-Hostile Meeting Since 1990 Gulf War OPEC ministers meeting in Vienna this week will find themselves supporting opposing camps of a military conflict for the first time in 21 years, with hostilities in Libya complicating an agreement on oil quotas. Not since Saddam Hussein invaded Kuwait in 1990 has the producer group gathered with some nations giving financial and military support to a movement seeking to topple the government of a fellow member. While Libyan leader Muammar Qaddafi is trying to quash a rebellion in a country that holds Africa’s largest crude reserves, Qatar, Kuwait and the United Arab Emirates are backing the insurgents. The stand-off underlines the difficulties the 50-year-old organization that accounts for about 40 percent of the world’s oil may have in deciding production levels. Oil has gained 9.5 percent this year to trade at about $100 a barrel just as signs emerge that the pace of the global economic recovery may be slowing. The Organization of Petroleum Exporting Countries will probably leave its output target unchanged on June 8, according to a Bloomberg survey of 30 analysts conducted May 24-31. “Amid issues surrounding representation of Libya and oil prices correcting towards $100 a barrel, OPEC is likely to sit on the fence, deferring a decision on quotas for later,” Harry Tchilinguirian, the head of commodity-markets strategy at BNP Paribas SA in London, said in an interview on June 1. “This does not mean individual countries may not take discretionary steps to increase output. OPEC has yet to fill the gap in the market left by Libya.” Crude Oil Declines as U.S. Jobless Rate Climbs to Highest Level This Year Crude oil fell, capping the biggest weekly decline in a month, as the U.S. jobless rate climbed to the highest level this year, adding to concern that a slower economic recovery will curb oil demand. Oil dropped 0.2 percent after the Labor Department said payrolls rose by 54,000 in May, the smallest gain in eight months. The median forecast in a Bloomberg News survey called for a 165,000 increase. The unemployment rate advanced to 9.1 percent from 9 percent a month earlier. “The economy is slowing down, so oil demand is going to slow down,” said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage LLC in New York. “That’s going to be your main concern.” Crude oil for July delivery fell 18 cents to settle at $100.22 a barrel on the New York Mercantile Exchange. Prices declined 0.4 percent this week, the biggest drop since the five days ended May 6. Brent crude for July delivery rose 30 cents, or 0.3 percent, to $115.84 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $15.62 a barrel to U.S. futures, up 48 cents from yesterday. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. The spread averaged 76 cents last year.

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

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