THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Tuesday, June 21, 2011

Morning Brief: 21 June 2011


May BOP surplus down 44% year on year
But 5-month figure was 78% higher than in ’10
By: Michelle V. Remo
Philippine Daily Inquirer

The country’s balance of payments (BOP) surplus in May fell from that of the same month last year as foreign currency outflows exceeded the amount coming in.

The Bangko Sentral ng Pilipinas said that the government’s settlement of its maturing obligations led to a decline in the BOP surplus.

The central bank reported that the country’s BOP surplus amounted to $217 million in May, dropping by 44 percent from the $388 million registered a year ago.

Despite the decline in the BOP surplus last month, the central bank said that for the first five months of 2011, the surplus was still higher than that of the same period last year.

From January to May, the BOP stood at $4.8 billion—78 percent higher than the $2.7 billion seen in the same period a year ago.

“This [January to May surplus] could be traced to strong foreign exchange inflows from investments, exports and remittances,” BSP Governor Amando Tetangco Jr. told reporters.

The surplus was driven by inflows of foreign currencies arising from the income of the BSP from its investments abroad, and loans secured by the government from foreign creditors.

Still, the outflows were higher. The government and the BSP during the period paid off liabilities denominated in foreign currencies, while state-owned Power Sector Assets and Liabilities Management Corp. (PSALM) decided to withdraw its deposit from the central bank to meet its expenditure requirements.

BOP, which reflects the country’s commercial transactions with the rest of the world, is the difference between the amount of foreign currencies coming into the country and that flowing out.

A surplus in the BOP tends to beef up the country’s overall reserve of foreign currencies, also called the gross international reserves.

The GIR reflects an economy’s capacity to pay for its imports, settle debts with foreign creditors, and engage in other commercial transactions with parties abroad.

Earlier, the central bank reported that the country’s GIR, given a boost by the surplus in the BOP, amounted to a record $68.9 billion as of end-May this year.

Apart from the income of the BSP from its investments abroad and loans obtained from foreign creditors, earnings from exports, remittances and investments in the business process outsourcing sector are the usual contributors to the country’s GIR.

The central bank claims that the country’s GIR remains at a comfortable level, or enough to meet any short-term requirements of the country.

The BSP credits the country’s foreign currency holdings for its improved credit standing recently.

Last week, Moody’s Investors Service upgraded the country’s credit rating from three to two notches below investment grade.

This followed a similar ratings action by Standard & Poor’s last November.


U.S. Stocks Gain as Luxembourg’s Juncker Says Greek Solution Will Be Found

U.S. stocks rallied, sending the Standard & Poor’s 500 Index up for a third straight day, as Luxembourg’s Jean-Claude Juncker assured investors that a solution will be found to Greece’s debt crisis.

Caterpillar Inc. (CAT), the world’s biggest maker of construction equipment, climbed 2.3 percent as Raymond James & Associates raised its rating. Biogen Idec Inc. (BIIB) jumped 4.1 percent after ISI Group Inc. recommended buying shares of the largest maker of multiple sclerosis medicines. Wal-Mart Stores Inc. (WMT) increased 0.4 percent after the U.S. Supreme Court rejected an effort to sue the world’s largest retailer for discrimination.

The S&P 500, which has declined for six of the past seven weeks, advanced 0.5 percent to 1,278.36 at 4 p.m. in New York. The Dow Jones Industrial Average gained 76.02 points, or 0.6 percent, to 12,080.38, also rising for a third straight day.

“It’s critical that we hold in here,” said Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “There’s anxiety about the European debt crisis. If they can kick the can down the road, there will be more upside potential than downside risk. The market is oversold.”

The S&P 500 snapped a six-week slump on June 17, preventing the longest decline since March 2001. The gauge retreated 6.3 percent from this year’s high at the end of April amid weaker- than-estimated economic data and concern about Europe’s debt crisis. The index is still up 1.7 percent in 2011 on government stimulus measures and better-than-expected earnings.


U.S. 10-Year Yields Rise From Almost 2011 Low as Concern Eases on Greece

Treasury 10-year yields rose from almost the lowest level this year after comments from European and International Monetary Fund officials eased concern Greece’s debt crisis is worsening, reducing U.S. debt’s refuge appeal.

U.S. two-year yields were little changed after falling for the past 10 weeks, the longest rally in a quarter-century. Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said Greek Prime Minister George Papandreou assured him the government would do everything necessary to ensure delivery of financial aid from the European Union and IMF.

“The market anticipates that Papandreou will gain the support to do that,” said Chris Ahrens, head U.S. rates strategist in Stamford,Connecticut, at UBS AG, one of the 20 primary dealers that trade with the Federal Reserve. “The market is focused like a laser on events in Greece. The big event is still in the foreground.”

Ten-year yields increased one basis point, or 0.01 percentage point, to 2.96 percent at 5:20 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 3.125 percent note maturing in May 2021 fell 1/8, or $1.25 per $1,000 face amount, to 101 13/32. The yield, which earlier fell six basis points to 2.89 percent, touched its 2011 low of 2.88 percent on June 16. It has lost 33 basis points since the start of the year.

Two-year note yields were little changed at 0.37 percent after earlier rising to 0.39 percent. They reached a low for the year of 0.34 percent on June 16.


Crude Oil Futures Increase in New York as Juncker Eases Greek Debt Concern

Crude oil rose for a second day in New York after Luxembourg’s prime minister, Jean-Claude Juncker, assured investors a solution will be found to Greece’s debt crisis.

Futures climbed 0.3 percent today, after gaining 0.3 percent yesterday. Juncker said Greek Prime Minister George Papandreou had assured him the government would do everything to ensure financial aid. He also said Italy was not in danger from the euro area’s debt crisis. Prices slid 2 percent before Juncker’s comments on concern Greece’s debt crisis would weaken the global economy and curb fuel demand.

Crude oil for July delivery rose as much as 28 cents to $93.54 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.43 at 8:10 a.m. Sydney time. The contract yesterday settled at $93.26, after earlier touching $91.14, the lowest intraday level since Feb. 22. Futures have increased 20 percent the past year.

Oil has dropped almost 18 percent from the 2011 settlement high of $113.93 on April 29. A 20 percent decline is typically considered to be an indicator of a bear market. The July contract expires today. August futures advanced 16 cents, or 0.2 percent, to $93.79 after yesterday climbing 0.3 percent.

Brent crude oil for August delivery fell $1.52, or 1.3 percent, to $111.69 a barrel yesterday on the London-based ICE Futures Europe exchange.



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
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