| Resiliency highlighted THE PHILIPPINES is resilient enough to see off another possible global crisis, economic managers and analysts yesterday claimed. "The economic fundamentals of the country are very strong," National Treasurer Roberto B. Tan told BusinessWorld in a text message. He cited the inflation rate, which stayed steady at 4.6% in July, within the 3-5% target range of the Bangko Sentral ng Pilipinas (BSP). "Foreign reserves are at an all-time high," Mr. Tan also pointed out. Central bank Deputy Governor Diwa C. Guinigundo, meanwhile, said: "Our foreign reserves are more than sufficient to cover nearly one year of imports of goods and services" in a separate text message. Gross international reserves, which serve as a cushion to external shocks, were at $71 billion as of end-July, already topping the full-year forecast of $70 billion. Concerns have been raised that the GIR would drop as a large part is comprised of debt papers issued by the United States, which lost its sterling AAA credit rating last week. BSP officials, however, have said that they had undertaken a diversification into other investment-grade assets such as European bonds and gold. Messrs. Guinigundo and Tan also hailed the country’s strong fiscal performance, with the first semester deficit falling to only P17.231 billion, the lowest in over a decade. "Banks also remain sound and stable with improved loan and asset quality and substantial capitalization," Mr. Guinigundo said. A former Finance official, meanwhile, said the country’s newfound political stability could also help it ride out economic shocks. "The absence of political risks from an unpopular administration and uncertain presidential elections, and the high credibility of the current leadership and cabinet are a source of strength," said GlobalSource economist Romeo L. Bernardo, a former Finance undersecretary. Government reforms have also created "higher confidence" among the public, Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. noted as well. "The Philippines is clearly, clearly stronger this time around," he told BusinessWorld. A global recession triggered by the US’ credit rating downgrade, he added, would "very different" from the 2008-2009 crisis. "Last time, the world was coming out of a bubble but there were several structural weaknesses. Now, it’s weak but the asset issues have been somewhat cleaned [up]," he said. This time around, the possible global recession could be caused by the continuing debt woes of the US and Europe, which Mr. Paderanga admitted could hit Philippine exports. He assured, however, that the "medium-term task of looking for new markets and new products remain." GlobalSource’s Mr. Bernardo claimed the factors that helped the Philippines pull through in 2008-2009 were still present in today’s economy. "We weathered [the previous financial crisis] thanks to resiliency of OFW (overseas Filipino workers) remittances, the BPO (business process outsourcing) sector, the health of the banking industry and the stable macroeconomy. These elements are still around," he said. "Unless the relapse is worse than the original flu, we should be able to similarly weather [a fresh downturn]," Mr. Bernardo added. He cautioned, however, that economic managers had "have already used up a big part of the medicine kit" such as the compression of the fiscal deficit and quantitative easing. China, which helped jumpstart the global economy during the previous credit crunch, also "has less room to pump prime" today. |
| U.S. Stocks Slump as Dow Falls to Lowest Level Since September on Europe U.S. stocks tumbled, sending the Dow Jones Industrial Average to the lowest level since September, as banks slumped on concern that Europe will fail to contain its debt crisis and that the economy is faltering. All 10 groups in the Standard & Poor’s 500 Index fell at least 2 percent. Bank of America Corp. and Citigroup Inc. dropped more than 10 percent, pacing losses in financial shares, as the costs to protect the government debt of Greece, Italy, Spain and France rose. Walt Disney Co. (DIS), the largest theme-park company, tumbled 9.1 percent on concerns that the slowing economy and consumer confidence may hurt its businesses. The S&P 500 fell 4.4 percent to 1,120.76 at 4 p.m. in New York. The benchmark gauge jumped 4.7 percent yesterday as the Federal Reserve said it would keep borrowing costs at an all- time low and was prepared to use a range of tools to bolster the economy. The Dow declined 519.83 points, or 4.6 percent, to 10,719.94. About 15 billion shares changed hands at 4:15 p.m., almost twice the three-month average, Bloomberg data show. “The message is that the market is concerned about the financial industry,” Kevin Caron, market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has $115 billion in client assets. “The banks are exposed to a deteriorating economy. The European debt crisis has a whole set of issues. The concern is about a spillover effect of that.” Treasuries Surge on Record Low Yield at 10-Year Auction, Fed View, Europe Treasuries rallied as a $24 billion 10-year note sale drew higher-than-average demand and a record low yield in the first offering of the maturity following Standard & Poor’s downgrade of U.S. credit Aug. 5. U.S. 10-year yields fell for a third straight day after the Federal Reserve offered yesterday a dimmer view of the economy than it did in June. The extra yield Treasury investors get to hold 10-year notes instead of two-year debt was the narrowest in more than two years on investor concern the European debt crisis would worsen. Stocks slumped, erasing yesterday’s gains. “There was very good demand for Treasuries at the auction, especially for direct bidders,” said Ira Jersey, an interest- rate strategist at Credit Suisse Group AG in New York, one of 20 primary dealers that are obligated to bid at Treasury auctions. “The reality is there is still tons of weakness in risky assets, the economy and Europe. As such, the only place to go is Treasuries, regardless of the country’s credit rating. The curve should continue to flatten from here.” The yield on the current 10-year note fell 14 basis points, or 0.14 percentage point, to 2.11 percent at 5:02 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent securities maturing in May 2021 rose 1 10/32, or $15 per $1,000 face amount, to 108 30/32. Thirty-year bond yields fell 10 basis points to 3.52 percent. One month-bill rates touched negative 0.005 percent. The Standard & Poor’s 500 Index sank 4.4 percent following its biggest jump in more than two years yesterday, when it rebounded from its worst loss since 2008. |
| Crude Oil Falls as European Debt Concerns Counter Decline in U.S. Supplies Oil declined in New York as concern that the European sovereign debt crisis is worsening countered the biggest drop in crude stockpiles since December in the U.S., the biggest consumer of the commodity. Futures slid as much as 2.1 percent after U.S. equities fell and costs to protect French debt reached a record. The European Central Bank bought Italian and Spanish bonds to help reduce borrowing costs, according to people familiar with the transactions. Switzerland’s central bank said it will “significantly” increase the supply of liquidity to lenders. Crude for September delivery dropped as much as $1.75 to $81.14 a barrel in electronic trading on the New York Mercantile Exchange, and was at $81.36 at 8:46 a.m. Sydney time. The contract yesterday rose 4.5 percent to $82.89. Prices are 4.2 percent higher the past year. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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