PHILIPPINES
BSP may ease forex rules anew due to global financial market woes
The Bangko Sentral ng Pilipinas is mulling over plans to further ease foreign exchange rules in the country in light of recent developments that shook up financial markets abroad.
During the Philippine Economic Forum last Friday, BSP Governor Amando Tetangco Jr. said that the present foreign exchange rules could be broadened
to cover other currency transactions.
Tetangco cited the recent depreciation of the peso and the decline in stock prices in the past few weeks as reasons enough to consider liberalization.
Stock prices started to drop sharply in September, with the peso depreciating at around the same time.
In the first eight months of the year, the peso had appreciated by over 5 percent from its closing value at the end of 2010 due to the strong appetite of foreign portfolio investors for emerging market securities and equities.
After closing at 43.84 against the US dollar in 2010, the peso appreciated until it breached the 42-to-a-dollar territory. Now, the peso is back to the 43 level.
This development has been brought on by the long-standing debt problems in the eurozone, where investors have been forced to liquefy their assets and hold on to dollars.
The BSP believes that further liberalizing foreign exchange rules would help temper the volatility of the peso. For instance, if people can more easily sell dollars, then the depreciation of the peso may be tempered.
The last time the BSP liberalized foreign exchange rules was in October 2010. That time, however, the central bank meant to temper the appreciation, rather than the depreciation, of the peso.
The BSP believes that capital flight can be prevented by relaxing foreign exchange rules.
WORLD
Stocks Fall, Extending Biggest Quarterly Drop Since 2008
By Whitney Kisling
U.S. stocks fell this week, capping the worst quarterly loss for the Standard & Poor’s 500 Index since the end of 2008, as the sovereign debt crisis in Europe and fears of a global slowdown overshadowed improving economic reports in the U.S. Alcoa Inc. and Intel Corp. lost more than 3.7 percent as economic reports from China and Germany fueled investor concerns the world economy may contract. Micron Technology Inc. (MU) slid 24 percent after reporting an unexpected loss, while Advanced Micro Devices Inc. cut its sales forecast, sending the shares down 18 percent. Genworth Financial Inc. (GNW) rallied 13 percent after Germany approved an expansion of a European bailout fund. The Standard & Poor’s 500 Index lost 0.4 percent to 1,131.42, dropping for a second straight week after a 2.5 percent drop on the final day erased earlier advances. The Dow Jones Industrial Average rose 141.9 points, or 1.3 percent, to 10,913.38, after declining 6.4 percent the previous week. “It’s been a horrific quarter, and investors are feeling bruised and battered across the board,” Alex Tedder, senior portfolio manager for American Century Investments in New York, who manages about $7 billion in global stocks, said in a telephone interview. “We’re coming from a background that is extremely depressed and extremely uncertain with the big question mark over growth that we have globally.”
Quarterly Loss
The week’s decline brought the S&P 500 to a quarterly loss of 14 percent, the worst drop since the three months ending December 2008, when the index lost 23 percent amid its worst plunge since the Great Depression. The S&P 500 has declined in nine out 13 weeks in the quarter. For the year, the S&P 500 is down 10 percent. The Dow dropped 12 percent for the quarter, and has lost 5.7 percent for the year so far. Investors dumped equities in the third quarter as concern increased that Europe’s debt crisis will trigger a global recession and the Federal Reserve said there are “significant downside risks” to the U.S. economy. The S&P 500 slumped as much as 18 percent from its high in April, as European finance chiefs clashed over how to assist Greece and American lawmakers struggled to agree on raising the federal government’s debt limit. The benchmark equity index fell to a low of 1,119.46 on Aug. 8 after S&P cut the country’s credit rating. Stocks advanced early in the week amid optimism that Europe would contain its debt crisis, as Germany’s lower house of parliament approved expanding the European bailout fund. Optimism faded amid growing concern policy makers were divided on how to solve the crisis, and as investors increasingly shifted their focus to the global economy. China Manufacturing
A report this week showed a gauge of Chinese manufacturing shrank a third month, the longest contraction since 2009, as measures of new orders and export demand fell.
U.S. economic reports signaling improvements weren’t enough to keep stocks elevated. Labor Department figures showed applications for jobless claims fell to a lower number than was estimated by economists for the week ended Sept. 24. Orders for U.S. capital goods climbed in August by the most in three months, according to a Commerce Department report.
“We have gotten some incrementally good news here domestically, but that’s just still overshadowed by the issues in Europe,” Walter Todd, who helps manage $940 million at Greenwood Capital in Greenwood, South Carolina, said in a telephone interview. “There’s still a lot of unknowns.” The VIX, as the Chicago Board Options Exchange Volatility Index is known, more than doubled this quarter to 42.96, data compiled by Bloomberg show. The gauge has averaged 20.45 over its 20-year history. It hasn’t doubled since 1998, and this quarter’s gain marked the biggest advance ever, the data show.
Shares of raw-material companies led declines among 10 S&P 500 industries, losing 3.2 percent as a group for the week. Alcoa fell 5 percent to $9.57. The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 0.7 percent, ending the quarter with its worst drop since the end of 2008. Intel lost 3.7 percent to $21.34.
Fertilizer producer CF Industries Holdings Inc. slipped 15 percent to $123.39 as the U.S. government said pre-harvest corn inventories fell less than analysts forecast.
Micron Technology, the largest U.S. maker of computer- memory chips, reported an unexpected loss on weak demand for personal computers. The shares slid 24 percent to $5.04. Advanced Micro Devices lost 18 percent to $5.08.
Genworth gained 13 percent to $5.74 this week, while Berkshire Hathaway Inc. Class B shares added 7 percent to $71.04 as the company plans a stock buyback.
Netflix Tumbles
Alpha Natural Resources Inc. plunged 61 percent for the quarter, leading the S&P 500 lower, while Netflix Inc. dropped 57 percent. Netflix, the U.S. online and mail-order video service, tumbled after Amazon.com Inc. and Microsoft Corp. unveiled competing products and its own rebranding alienated customers and drove away investors. For the quarter, utility stocks were the only group in the S&P 500 to advance, rising 0.4 percent. S&P 500 companies will start to report earnings for the third quarter this month, with Alcoa expected to post results Oct. 11. Analysts have lowered their estimates for 2011 profits by 0.9 percent to $99.23 a share since the start of September.
The S&P 500’s valuation measure based on reported earnings slipped 15 percent in the three months ending Sept. 30 to 12.4, the biggest quarterly contraction since June 2010, data compiled by Bloomberg show. The index is trading near its lowest point since March 2009, about the time the bull market that added as much as 102 percent began. Trading Range
Since August, the benchmark gauge for U.S. equities has traded between about 1,100 and 1,300, as investors swayed between positive reports on the world’s largest economy and its corporations and speculation that the European debt crisis was growing. The index is forecast to reach 1,305 by the end of the year, according to strategists surveyed by Bloomberg.
“If nothing happens and if the crisis keeps spreading, I think we are on a path for global recession,” Thomas Lee, the New York-based chief U.S. equity strategist at JPMorgan Chase & Co. said in a Bloomberg Television interview Sept. 29. “But that’s kind of like saying someone took their hand off the steering wheel and no one is trying to grab it.”
COMMODITIES
Oil Falls, Caps Biggest Quarterly Slump Since 2008 on Bets Demand to Drop
By Margot Habiby
Oil capped the largest quarterly drop since the 2008 financial crisis by tumbling to a one-year low as signs of slowing growth in China, the U.S. and Germany heightened concern that fuel demand will weaken. Futures dropped 3.6 percent after China’s purchasing managers’ index fell for a third month while German retail sales declined in August and U.S. consumer spending slowed. Prices tumbled 17 percent from the end of June, the biggest quarterly decline since the 56 percent plunge during the last three months of 2008.
“The Chinese PMI and the German retail sales numbers are what started the ball rolling down and then personal income pushed it further,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We’ve had some pretty disappointing economic data.” Crude oil for November delivery fell $2.94 to $79.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 29, 2010. Futures dropped 11 percent this month, the biggest decline since May 2010, and lost 0.8 percent this week. Brent oil for November settlement fell $1.19, or 1.1 percent, to settle at $102.76 a barrel on the ICE Futures Europe exchange in London. Prices are down 8.6 percent this quarter, 11 percent this month and 1.2 percent this week. A gauge of manufacturing in China, the world’s fastest- growing oil consumer, shrank for a third month, the longest contraction since 2009. The reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August and compared with a preliminary 49.4 figure published last week.
China is the world’s second-biggest oil user, trailing only the U.S.
Chinese Slowdown Risk
Consumer spending in the U.S. slowed in August as incomes unexpectedly dropped for the first time in almost two years, Commerce Department figures showed today in Washington. Purchases rose 0.2 percent after a 0.7 percent increase the prior month. “There is a risk of slowdown in Chinese demand,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts Brent prices at $100 in the next quarter. “The risks to the forecast in the fourth quarter and for 2012 as a whole are to the downside.” German retail sales, adjusted for inflation and seasonal swings, slumped 2.9 percent from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a 0.5 percent decline, according to the median of 18 estimates in a Bloomberg survey.
Fuel Demand
“There are increasing signs that we are tipping into recession and that’s playing into a weaker demand outlook,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. Total products supplied averaged over four weeks, a measure of fuel demand, fell 0.6 percent in the period ended Sept. 23 to 19 million barrels a day, the lowest level since July, the Energy Department reported this week.
Oil pared losses in intraday trading after the Institute for Supply Management-Chicago Inc. said today that its U.S. business barometer rose to 60.4 this month from 56.5 in August. Economists forecast the gauge would drop to 55, according to the median estimate in a Bloomberg News survey.
Oil may fall next week on concern that Europe’s economy is showing signs of a slowdown as governments struggle to contain their fiscal crisis and avert a Greek default, according to a Bloomberg News survey. Thirteen of 28 analysts, or 46 percent, forecast oil will decline through Oct. 7, while eight respondents, or 29 percent, predicted prices will increase. Economic Outlook
“The underlying message is that the economy will remain weak in the long term,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “In the short term, the market is going to react on every headline out of Europe on the debt crisis and every bit of economic data here in the U.S.” Greek Prime Minister George Papandreou met French President Nicolas Sarkozy today in Paris after seeing European Union President Herman Van Rompuy in Warsaw. Papandreou said after the talks that Greece was making sacrifices to uphold its commitments and thanked Sarkozy for his support. Next week European leaders will discuss a permanent rescue fund after German lawmakers approved an expansion of the temporary European Financial Stability Facility. OPEC Output
The Organization of Petroleum Exporting Countries’ oil output in September rose to the highest level since November 2008, as a Saudi cut was outpaced by Iraqi and Libyan gains, a Bloomberg News survey showed. Production increased 75,000 barrels, or 0.3 percent, to average 30.055 million barrels a day, according to the survey of oil companies, producers and analysts. The euro tumbled 1.5 percent to $1.3392 at 4:31 p.m. in New York. A weaker euro and stronger dollar curbs the appeal of commodities as an alternative investment. The European currency has tumbled 7.7 percent since the end of June, poised for the worst quarter since the period ended in June 2010. Oil volume in electronic trading on the Nymex was 622,091 contracts as of 4:31 p.m. in New York. Volume totaled 591,868 contracts yesterday, 9.8 percent below the average of the past three months. Open interest was 1.4 million contracts.
