THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Friday, October 7, 2011

Philippine Markets: 7 October 2011


07 October 2011

USD/PhP:  43.54 - 0.12        PSEi:     4009.26  + 118.74
USD/JPY:   76.64        PFINC:          906.97  +   25.41
EUR/USD: 1.3455         BDO:        51.00  +     3.15
GBP/USD: 1.5523         BPI:        55.50  +     1.35
PDSTF3M: 2.9154         MBT:          64.85  +     2.35
Prices as of  4:00pm                Source: Bloomberg, Reuters


Philippine Interest Rate Outlook
Secondary money market rates moved sideways this week despite a slightly
higher September inflation of 4.8 percent. The National Treasury the
rejected
all bids at its latest auction of government securities. Positive
sentiments coming
out of the euro zone also helped in kept rates at bay.

Continue to expect rates to remain volatile in the near- term.

Philippine Equities Outlook
Local shares were marginally higher by 0.30 percent week-on-week to 4009.26
as
inflation remain contained at 4.80 percent for the month of September.
Positive developments
coming from the Euro zone helped investors to take advantage of the low
prices and take more
risks.

Chartwise, the week's close at 4009.26 suggests the market has still some
gas to try the
4050 - 4100 levels in the near-term. However, the recent market rally is
still viewed as a
mere technical rebound as market volume remains anemic. A clear break above
4,250
is needed to put the  bulls back to play. Failure for the market to clear
said levels could
call for a retest of the 3,800 levels.

Philippine Peso Outlook
The local currency rose 0.50 percent week-on-week to 43.54 for the first
time in six weeks,
as greenback took a breather from a month long rally.  Positive news out of
the Euro zone
relaxed cautious investors causing them to sell the US dollar and go back
to the equity markets
and take more risks.

Chartwise, the week 's close at 43.54 continues to suggest that the current
peso strength is viewed
as a mere corretive bounce and should see some support at the 43.50 -43.60
levels.  The next ensuing
move is a retest of the 44.00 levels.



BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Morning Brief: 7 October 2011

PHILIPPINES
DoTC to ‘get biggest bang out of every peso spent’

The Department of Transportation and Communications has unveiled an ambitious five-year development plan, involving the construction of P380 billion worth of infrastructure to boost the economy, particularly the underdeveloped countryside, over the next five years.

Transportation Secretary Manuel “Mar” Roxas II on Thursday tried to quell the business community’s fears that the administration would fall short of its development goals due to delays in the government’s infrastructure program.
“We have set a plan and, by next year, we hope that we can present a report card on the progress of these projects to all of you,” Roxas told members of the Makati Business Club (MBC) and Management Association of the Philippines.
The majority of big-ticket infrastructure projects lined up by the Aquino administration are under the DoTC.
Among the major projects presented are the Light Rail Transit (LRT) line 1 extension from Baclaran to Cavite and the LRT 2 extension from Santolan, Pasig to Masinag, Antipolo; the development of international airports in Puerto Princesa, Laguindigan in Misamis Oriental and Panglao, Bohol; the development of ports in Davao; and roll-on, roll-off (Ro-Ro) projects linking China with either the Subic or Batangas ports.
Roxas also announced a plan to reconfigure the controversial NorthRail train line—a Chinese-funded project that was previously suspended by the DoTC due to cost overruns and other contract anomalies.
According to Roxas, the Chinese government has agreed to renegotiate the project.
The reconfigured contract will be the most ambitious among the projects, with an estimated cost of P108 billion. It will give the country its first high-speed train line.
“Instead of the current Caloocan to Mabalacat configuration, we will extend the line from the Manila Central Business District all the way to Clark Freeport, Pampanga,” Roxas said. “We will make sure that what is built is what we originally intended: A high-speed, reliable rail link that will cut travel time between Manila and Pampanga to one hour.”
Roxas added that all the projects would accelerate “the development of the countryside,” making it easier for people in provinces to go to Metro Manila.
Most of the projects are still in their early stages—with feasibility studies just being started—and it may take some time before the contracts are put on the auction block for investors, he said. But most, if not all, should be completed by 2016.
Roxas said the government would have the option of funding the projects through public-private partnerships (PPP), official development assistance or loans from abroad, the government budget or a combination of all.
The priority, he said, would be to get the lowest costs possible.
This is a departure from the administration’s previous stance that all projects should be done through PPPs, wherein the government will spend nothing.
The MBC said its main concern was that this switch in policy direction could result in further delays in the implementation of projects, seen to be key in the state’s efforts to generate jobs and reduce poverty.
But Roxas assured MBC and MAP members that the implementation of the projects was on track. Still, the official did not give a definite timetable.
Roxas added that contracts would be auctioned off transparently to ensure that the final deals would not be tainted by corruption.
“We are resolved to get the biggest bang out of every peso spent—no overpricing, no fancy specs that we don’t need,” Roxas said.
Aside from the infrastructure projects, Roxas also detailed key reforms in the regulation of the many forms of public transport being supervised by the DOTC.
He said the department would start on the regulatory structure of the country’s maritime sector through investments in satellite-based signaling systems and other radar technologies to make sea travel safer.
“There is no more important way to measure our performance at DoTC than by our safety score for our passengers,” he said. “We intend to make safety standards enforcement a religious vow in the department.”

WORLD
Stocks, Euro Advance as Treasuries Drop
By Michael P. Regan and Rita Nazareth (Bloomberg)
U.S. stocks rallied for a third day, commodities gained and Treasuries slid as European officials detailed plans to tame the sovereign debt crisis and reports on retail sales and jobless claims bolstered optimism in the economy. The euro reversed an earlier drop versus the dollar.
The Standard & Poor’s 500 Index gained 1.8 percent to 1,164.97 at 4 p.m. in New York. The Russell 2000 Index of smaller U.S. stocks extended a three-day advance to 11 percent, its best since 2009. The Stoxx Europe 600 Index surged 2.7 percent. Ten-year Treasury yields added 10 basis points to 1.99 percent. The euro rose 0.7 percent to $1.3439 after losing 0.8 percent. The S&P GSCI Index of commodities jumped 2.5 percent as oil increased 3.7 percent to $82.59 a barrel.
American equities extended a global rally after European Central Bank President Jean-Claude Trichet said the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks, while defying calls for an interest-rate cut and acknowledging “downside risks” to the economy have intensified. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.
“People have priced in a Lehman II type of situation,” Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a telephone interview. “You start to hear some credible stuff on European bank recapitalization. They will do what they’ve got to do to prevent a Lehman from happening. There’s a good chance we might’ve had a bottom in stocks.”
Covered Bonds
The 2.5 trillion-euro market for covered bonds -- assets backed by mortgages or public-sector loans -- underpins much of Europe’s real estate lending, which almost ground to a halt in the wake of Lehman Brothers Holdings Inc.’s collapse in September 2008.
U.S. stocks also climbed after claims for unemployment benefits rose less than forecast last week to a level that shows the pace of dismissals may be slowing. Applications for jobless benefits climbed by 6,000 to 401,000, Labor Department figures showed. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since the end of August.
Government data tomorrow are forecast to show employers added 55,000 jobs last month and the unemployment rate held at 9.1 percent, according to the median estimates.
Bear Market Averted
The S&P 500 has rebounded 6 percent since Oct. 3, when it closed within 1 percent of a level that would have marked a bear-market plunge of 20 percent from its April peak. The S&P GSCI commodities gauge is up 5.3 percent in two days, its best back-to-back advance since May, and has trimmed its drop from this year’s high to 20 percent. Treasury yields have increased after demand for safer assets dragged the 10-year note’s rate to a record low of 1.67 percent on Sept. 23. The Dollar Index has slipped about 1.1 percent since Oct. 4, when it reached the highest level since January.
Indexes of financial, commodity and consumer companies rose at least 2.2 percent today to lead gains in all 10 industry groups in the S&P 500. Bank of America Corp. jumped 8.8 percent and Alcoa Inc. rallied 5.4 percent for the top gains in the Dow Jones Industrial Average.
The S&P 500 Financials Index has rallied 8.8 percent in three days, its steepest advance since July 2009, to trim its year-to-date loss to 23 percent. U.S. Treasury Secretary Timothy F. Geithner told the Senate Banking Committee today that there is “absolutely” no chance of another U.S. financial institution collapsing like Lehman Brothers.
Retail Sales, Apple
Target Corp. climbed 4.3 percent today and Limited Brands Inc. and Saks Inc. also rose after reporting September sales that surpassed analysts’ projections. Apple Inc. shares slipped 0.2 percent after co-founder Steve Jobs died.
The cost to protect the debt of Morgan Stanley and Citigroup Inc. declined amid growing speculation Europe’s leaders will be able to prevent the debt crisis from infecting bank balance sheets.
Credit-default swaps on Morgan Stanley, the owner of the world’s biggest retail brokerage, fell 55 basis points to 475, the biggest decline since May 2009, and those on Citigroup slid 40.5 basis points to 304.57, the largest drop since Nov. 24, 2008, according to data provider CMA. Swaps on Goldman Sachs Group Inc. eased 25 basis points to 371, the data show.
Wall Street strategists say the S&P 500 will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.
The benchmark index for U.S. stocks will climb 14 percent from yesterday to end 2011 at 1,300, according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.
Trading Range
Excluding its dip to a 13-month closing low of 1,099.23 on Oct. 3, the S&P 500 has mostly traded between about 1,120 and 1,220 for the past two months. Following 14 periods since 1990 when the index was stuck in a range, more than 75 percent resulted in gains in the next one, three and six months, according to Birinyi Associates Inc., the Westport, Connecticut- based money management and research firm. The average trading range studied lasted about seven months, with the shortest beginning in March 1998 and lasting three months, Birinyi data show.
“We’ll need clear economic data or policy movements out of Europe to break out of that range,” Wasif Latif, vice president of equity investments at USAA Investment Management Co. in San Antonio, which oversees about $50 billion, said in a telephone interview.
Earnings Season
Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.
Among European stocks, BNP Paribas SA, Credit Agricole SA and Natixis surged at least 5.3 percent after Le Figaro said the French government is working on a contingency plan to take stakes in the country’s lenders. BHP Billiton Ltd., the world’s biggest mining company, rallied 5.9 percent as metal prices increased. SABMiller Plc surged 7 percent after a report by Brazilian news website IG said the brewer is in talks to be bought by Anheuser-Busch InBev NV. Spokespeople for both companies declined to comment.
Bonds, Currencies
Ten-year Spanish and Italian bond yields decreased seven basis points each, while rates on U.K., French and German debt rose at least four points.
The dollar weakened against 14 of 16 major peers today, with the Brazilian real surging 2.7 percent to lead gains after higher-than-forecast inflation spurred bets the central bank may slow the pace of interest-rate cuts.
The euro strengthened versus 10 of 16 major peers. The pound slid against all 16 major peers after the Bank of England expanded its bond-purchase program. The Australian and New Zealand currencies strengthened against most peers.
Copper futures climbed 4.5 percent to $3.2465 a pound in New York and rallied 5.9 percent in London to lead gains in 19 of 24 commodities tracked by the S&P GSCI Index.
The MSCI Emerging Markets Index of stocks surged 3.7 percent, extending its rebound from a two-year low on Oct. 4. Benchmark indexes in South KoreaBrazil and Chile climbed at least 2.5 percent.
COMMODITIES
Crude Oil Caps Biggest Two-Day Gain in Seven Months on ECB Stimulus Plans
By Mark Shenk (Bloomberg)
Crude oil rose, capping the biggest two-day rally since February, after European Central Bank President Jean-Claude Trichet announced a bond-purchase program to stimulate economic growth.
Futures advanced 3.7 percent as Trichet said at a press conference in Berlin that the ECB will resume covered-bond purchases and one-year loans for banks as the sovereign debt crisis threatens to spread. Oil dropped earlier as Trichet said that the euro-area economy faces “intensified downside risks.”
“The market was whipsawed on the Trichet statements,” said Phil Flynn, vice president of research at PFGBest in Chicago. “We initially moved lower but then rebounded because the ECB will be adding more liquidity. Stimulus is bullish for both demand and the price.”
Crude oil for November delivery rose $2.91 to settle at $82.59 a barrel on the New York Mercantile Exchange. Futures have climbed 9.1 percent since Oct. 4, the biggest two-day gain since Feb. 22-23. Prices are down 10 percent this year.
Brent oil for November settlement increased $3, or 2.9 percent, to end the session at $105.73 a barrel on the London- based ICE Futures Europe exchange.
Crude began rising from a one-year low yesterday when the U.S. Energy Department reported U.S. stockpiles fell 4.68 million barrels to 336.3 million last week. Days of supply fell to 22.2, equaling the lowest level since 2008. Gasoline inventories declined 1.14 million barrels to 213.7 million.
Berlin Meeting
The ECB will spend 40 billion euros ($53.8 billion) on covered bonds from next month and offer banks two additional unlimited loans of 12- and 13-month durations, Trichet said.
“They are concerned about slowing growth and inflation, so they decided against cutting interest rates and went ahead with quantitative easing,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Trichet spoke as German Chancellor Angela Merkel held talks in Berlin with International Monetary Fund chief Christine Lagarde, World Bank President Robert Zoellick and Angel Gurria of the Organization for Economic Cooperation and Development, among others. Trichet is due to join the discussions later.
European Union officials are working on plans to increase bank capital, Antonio Borges, the IMF’s European department head, said yesterday in Brussels. Merkel said she’s ready to discuss recapitalizing banks at this month’s EU summit.
“There’s increasing optimism that the Europeans will find a way out of the debt crisis,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New CanaanConnecticut.
Fed Signals
The Bank of England unexpectedly expanded its bond-purchase program to 275 billion pounds ($421 billion) from 200 billion pounds after keeping its key rate at a record low of 0.5 percent. Eleven of 32 economists in a Bloomberg News survey predicted an increase in asset purchases.
Federal Reserve Chairman Ben S. Bernanke signaled Oct. 4 that he’ll push forward with further expansion of monetary stimulus if needed. He said the Fed’s remaining tools to boost growth include giving more information about its pledge to keep interest rates low at least through mid-2013, reducing the rate paid on banks’ reserve deposits and buying more securities.
“If you see the Europeans solve some of their problems and if the U.S. skirts a recession, which we expect to be the case, you are setting up a tougher environment in the market,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. “Volatility should increase.”
The Standard & Poor’s 500 Index rose 1.8 percent to 1,164.97 at 4:03 p.m. in New York and the Dow Jones Industrial Average increased 1.7 percent to 11,123.33. The dollar dropped 0.6 percent to $1.3427 per euro. A weaker dollar bolsters the appeal of commodities as an alternative investment.
U.S. Employment
Prices also climbed after claims for U.S. unemployment benefits rose less than forecast. Applications for jobless benefits increased by 6,000 to 401,000 last week, Labor Department figures showed. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since August.
Employers added 59,000 workers to payrolls in September and the unemployment rate held at 9.1 percent, according to the median forecast of economists before the Labor Department’s monthly jobs report tomorrow.
“Tomorrow’s monthly jobs number is going to have a serious impact on the market,” Beutel said.
U.S. consumer confidence last week capped the worst quarterly performance in more than two years, when the country was in a recession. The Bloomberg Consumer Comfort Index rose to minus 50.2, from the prior period’s minus 53 that was the second-lowest level on record. The gauge averaged minus 48.4 last quarter, the weakest since the first three months of 2009.
“Since economic growth concerns remain and the data is mixed there will continue to be a great deal of volatility in the market,” said Jason Schenker, the president of Prestige Economics, an energy advisory company in Austin, Texas.
Oil volume in electronic trading on the Nymex was 700,572 contracts as of 3:15 p.m. in New York. Volume totaled 648,839 contracts yesterday. Open interest was 1.43 million contracts.
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