Morning Brief: 25 August 2011

July shortfall bigger than first-half tally  THE BUDGET DEFICIT could have topped P20 billion in July, exceeding the shortfall posted for the entire first semester, a Cabinet official yesterday said.  "Our budget deficit in July may have been higher than P20 billion and definitely wider than the first-half deficit of P17.23 billion," Budget Secretary Florencio B. Abad said in a text message. "This indicates that spending is now picking up," he added. In a phone interview, Mr. Abad said government agencies had now implemented spending catch-up plans that boosted the government’s expenditures. Infrastructure projects, in particular, were accelerated, he claimed. The Department of Education has reportedly begun bidding out its schoolbuilding construction projects in clusters. Education Secretary Armin A. Luistro has pledged to eradicate a backlog in 2010 and 2011 projects by yearend. The Department of Public Works and Highways, meanwhile, was also said to have put some 3,000 infrastructure projects on the auction block, comprising 49% of its program for the year. The trend of improved spending is expected to continue in the remaining months of the year, Mr. Abad said. "The review of project costs that delayed project implementation in the first few months of this year has now been completed," he said. "We are also monitoring these government projects and these catch-up plans on a weekly basis. We cannot let up. We will keep identifying the bottlenecks in spending so we can address them." July fiscal data is expected to be released today. The government wrapped up the first semester with a deficit significantly below target as spending remained weak against improving revenue collections. Revenues amounted to P681.64 billion in the first half while expenditures totaled P698.871 billion. The government is aiming to collect P1.411 trillion in revenues by the yearend. Expenditures, on the other hand, have been pegged at P1.711 trillion. The full-year deficit has been capped at P300 billion, equivalent to 3.2% of gross domestic product. University of the Philippines economist Benjamin E. Diokno was unimpressed with the claim that the deficit had doubled. "Assuming that the government posts a P20-billion deficit for every month for the next six months, that would sum up to only P120 billion. When you add that to the P17.23-billion deficit in the first half, that is only P137.23 billion for the entire year, which is way below the target," he said in an e-mail. Mr. Diokno, a former Budget secretary, stressed that the government still "has so much ground to cover to make up the underspending" in the first semester.

U.S. Stocks Rise After Durable Goods, Home Prices Beat Forecasts  U.S. stocks rose, extending the biggest rally for the Standard & Poor’s 500 Index in a week, after reports on durable-goods orders and home prices beat economists’ forecasts and banks advanced. Financial stocks in the S&P 500 rose 2.8 percent, the biggest gain within 10 industries. Bank of America Corp. (BAC) surged 11 percent as Meredith Whitney, who predicted Citigroup Inc. (C)’s dividend cut three years ago, said it has no urgent need to raise capital. A gauge of 12 homebuilders in S&P indexes added 3.6 percent. Newmont Mining Corp. (NEM) slumped 1.6 percent after gold futures plunged the most since 2008 as demand for havens waned on speculation financial markets may be stabilizing. The S&P 500 rose 1.3 percent to 1,177.60 at 4 p.m. in New York. The durable-goods data wiped out a 1.4 percent retreat in futures on the index. The Dow Jones Industrial Average added 143.95 points, 1.3 percent, to 11,320.71. “Any time you see life in the walking dead, it certainly makes you feel a lot better,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland, said in a telephone interview. “There’s so much pessimism priced into the market that if we get any decent news, it’s going to buoy investors’ spirits. If investors can be reassured that a disaster is not imminent, that’s good for the market.” With traders awaiting a speech on Aug. 26 by Federal Reserve Chairman Ben S. Bernanke in Jackson Hole, Wyoming, trading is being affected more than usual by levels monitored by so-called technical analysts who base forecasts on price and volume history. Treasuries Fall on Durable Goods; Five-Year Notes Sell at Record Low Yield Treasuries fell, pushing 10-year note yields to the highest in a week, after a report showed durable goods orders rose in July more than forecast, renewing optimism that the U.S. economic recovery may accelerate. U.S. 30-year bond yields rose the most since Aug. 11 amid speculation about whether Federal Reserve Chairman Ben S. Bernanke will signal if policy makers are willing to take further measures to prevent the U.S. from returning to recession when he delivers an Aug. 26 speech at Jackson Hole, Wyoming. The U.S. sold $35 billion in five-year notes at a record low auction yield before a sale of $29 billion of seven-year notes tomorrow. “The economy is not dead,” said William Larkin, a fixed- income money manager at Salem, Massachusetts-based Cabot Money Management, which oversees $500 million. “You’ve got all this fear, but when you get data that says the fear may not be warranted, like today’s data, you’ll get a pop up in yield.” Ten-year note yields rose 15 basis points to 2.30 percent at 5:01 p.m. in New York, the highest level since Aug. 16, according to Bloomberg Bond Trader prices. The 2.125 percent security due in August 2021 fell 1 9/32, or $12.81 per $1,000 face amount, to 98 14/32. The yield on the 30-year bond rose 16 basis points to 3.65 percent, the highest since Aug. 17. Yields on the current five- year note climbed eight basis points to 1.02 percent.

Oil Trades Near Two-Day Low as Dollar’s Gains Counters Stockpile Decline  Oil traded near a two-day low in New York after declining yesterday as a stronger dollar, which curbs investor demand for raw materials, countered an unexpected drop in U.S. crude stockpiles. Futures were little changed after slipping 0.3 percent yesterday as the U.S. currency rebounded against the euro, reducing the appeal of dollar-denominated commodities as an investment. Prices had climbed as much as 1.4 percent when the Energy Department said supplies fell 2.21 million barrels to 351.8 million last week. They were forecast to increase. Crude for October delivery was at $85.21 a barrel, up 5 cents, in electronic trading on the New York Mercantile Exchange at 8:42 a.m. Sydney time. The contract yesterday dropped 28 cents to $85.16, the lowest since Aug. 22. Prices are 18 percent higher the past year. Brent oil for October settlement increased 84 cents, or 0.8 percent, to $110.15 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract settled at a premium of $24.99 U.S. futures, compared with a record $26.21 on Aug. 19.

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

BANCO DE ORO UNIBANK INC. 

Jonathan Ravelas

Chief Market Strategist

(632) 858-3145 

Philippine Markets: 24 August 2011

24 August 2011 

USD/PhP:          42.475           + 0.15        PSEi:             4366.45                        - 8.94 

USD/JPY:           76.69                        PFINC:                   989.59                        + 2.59 

EUR/USD:         1.4400                        BDO:                  59.40                        + 0.85 

GBP/USD:         1.6480                        BPI:                  58.00                        - 1.00 

PDSTF3M:         1.1327                        MBT:               72.60                        + 0.85 

Prices as of  4:00pm                        Source: Bloomberg, Reuters 

Philippine stocks dip amid profit-taking 

By: Philippine Daily Inquirer 

Philippine Daily Inquirer 

MANILA, Philippines—The local stock index closed a tad lower on Wednesday as investors locked up gains from index heavyweight Philippine Long Distance Telephone Co. and braced themselves for a swing to negative territory on Wall Street in the next session. 

The main-share Philippine Stock Exchange fell by 8.94 points, or 0.2 percent, to finish at 4,366.45, weighed down by the decline in PLDT, which went on an ex-dividend. This meant that there was a rush for those who wanted to get dividend payments to load up PLDT on Tuesday, some of which unloaded on Wednesday. 

Joseph Roxas, president of Eagle Equities Inc., said the local market was anticipating a downturn in US stocks Wednesday night and also pointed out the sluggish trading across the region. 

Overnight, US stocks posted sharp gains on hopes that the US Federal Reserve would adopt more measures to stimulate the economy. However, the futures index indicated a potential slide of about 80 basis points in the Dow Jones Industrial Index in the next session. 

Roxas said Moody’s downgrade of Japan’s credit rating wasn’t much of a factor during Wednesday’s stock market trades. 

“The market was a mixed bag today with the index closing down; meanwhile, the number of gainers still outpaced losers,” DA Market Securities noted in its market wrap-up. 

The brokerage noted that the market was weighed down by PLDT’s 3.21 percent decline equivalent to its dividend of P78 as the telco went on ex-cash. 

“With global economic uncertainty ahead, we look forward to developments in terms of fiscal policy in the advanced economies. It would be more prudent to stay on the sidelines as the real score unravels. At the same time, it is also recommended to keep a watchful eye on bargain levels for favored stocks,” DA Market Securities said. 

Because of PLDT’s decline, the services counter fell by 2.2 percent. All other counters firmed up. PLDT has a 13.75 percent weight on the PSEi, the single biggest among blue chips. 

Despite the overall index decline, there were 80 advancers against 63 decliners while 44 stocks were unchanged. 

Turnover was extraordinary at P18.2 billion as San Miguel Corp. crossed about P13 billion shares in Manila Electric Co. that it had sold to subsidiary San Miguel Pure Foods at P220 per share. 

There was a foreign net selling of P270 million for the day. 

Apart from PLDT, the index was also burdened by declines in the share prices of ICTSI, Metro Pacific Investments, Philex, DMCI and AGI.  There was also profit-taking on non-index stock ORE. 

On the other hand, Lepanto “A” and “B” (particularly A, which is only for local investors) continued to rise. EDC, Manila Mining A and B, Boulevard, BDO, Ni Hao, San Miguel Corp., Aboitiz Power, Metrobank and Security Bank also gained in heavy trade. 

BANCO DE ORO UNIBANK, INC. 

Jonathan Ravelas

Chief Market Strategist

(632) 858-3145 

Morning Brief: 24 August 2011

Central bank sees inflation abating  THE BANGKO SENTRAL ng Pilipinas (BSP) sees less pressure on inflation now than in previous months with commodity prices easing due to a weak global economy, and authorities are concerned about protecting domestic growth.  The BSP is closely monitoring capital inflows and liquidity given signs of a buildup in portfolio flows and credit growth but there are no indications of any asset price bubbles, Assistant Governor Cyd Amador told Reuters in a telephone interview. "At the very top of policy agenda continues to be inflation management, but we are mindful of the impact of our policy actions on growth," Ms. Amador said.  "Inflation pressures seem to have been abating a bit primarily because of the weak global outlook," she added. Central bank Deputy Governor Diwa C. Guinigundo, meanwhile, said in a text message: "monetary policy will remain flexible in promoting price stability without constraining output growth". The "shockwaves" of a possible global downturn, he said, will be faced with a "resilient economy, strong external payments position, sound banks and better fiscal picture ... We have therefore greater policy space in ensuring macroeconomic balance." Analysts said the BSP was likely to keep its policy rate at a two-year low of 4.5% at its next meeting on Sept. 8, two days after the release of August inflation data, but it may impose non-rate measures to dampen liquidity.  Radhika Rao at Forecast Pte in Singapore said the US Federal Reserve’s decision to maintain an accommodative policy bias well into 2013 and the moderation in global commodity prices would help temper Philippine inflation.  "The BSP can enjoy the luxury of maintaining status quo on the rates front," she said. "However, the scope of non-rate and directed measures have indeed risen in light of acceleration in M3 (money supply) prints and pressured bond yields."  The central bank raised rates by a total 50 basis points at policy reviews in March and May, then increased bank reserve requirements in June and July by 2 percentage points in all, as its focus shifted to managing liquidity.  Officials have said they no longer think inflation could top 5%, with the peak expected to hover around 5% sometime in the fourth quarter. Annual inflation was 4.6% in July, steady from June. The BSP said in July that inflation this year could average 4.7%, within its 3-5% goal.  The surge in capital inflows to emerging markets was a challenge facing central bankers in the near term due to fiscal uncertainties in the United States and Europe, Ms. Amador said.  "The challenge is not just to manage short term flows, but also to shape the economy in such a way that it can efficiently absorb these flows towards longer term and more productive investments," she said.  Manila is targeting growth of 7-8% this year, after a 7.6% expansion in 2010, but economists in a Reuters poll expect growth to slow to 5.4%. The BSP has said it was not considering capital controls, but it was monitoring closely activities in the non-deliverable forwards (NDF) market-dollar-based offshore derivatives-to check if they were being used for speculation.  Ms. Amador said authorities were reviewing all policy tools and regulations to arrest any signs of possible imbalances or excessive credit or liquidity growth.  "You need to act well before those crop [up], otherwise you have limited room to maneuver," she said.  Latest data show net portfolio inflows as of August 5 at $2.8 billion, over four times above year-ago levels. Money supply in June climbed 11.4% from a year ago, the fastest in 14 months, with the seasonally adjusted monthly money supply growth of 2.7% the highest so far this year. -- Reuters with a report from N. J. C. Morales

U.S. Stocks Rally on Stimulus Speculation  U.S. stocks rallied, driving the Standard & Poor’s 500 Index up from the cheapest valuations since 2009, as weaker-than-estimated economic data reinforced optimism the Federal Reserve will act to spur growth. Monsanto Co. (MON), Chevron Corp. (CVX) and Microsoft Corp. (MSFT) added at least 3 percent, pacing gains in companies most-tied to the economy. The Morgan Stanley Cyclical Index rose 2.9 percent, breaking a five-day losing streak. Sprint Nextel Corp. (S) jumped 10 percent, the most since May 2010, after the Wall Street Journal said it will start selling Apple Inc.’s iPhone. Financial shares reversed losses after the Federal Deposit Insurance Corp.’s list of “problem” banks shrank for the first time since 2006. The S&P 500 rose 3.4 percent to 1,162.35 at 4 p.m. in New York, for the biggest rally since Aug. 11. All 10 industries in the benchmark gauge rose, with gains ranging between 1.8 percent and 4.6 percent. The Dow Jones Industrial Average added 322.11 points, or 3 percent, to 11,176.76. Treasury 2-Year Notes Sell at Record Low Yield; 30-Year Bond Yield Rises The Treasury sold $35 billion of two-year notes at a record low yield of 0.22 percent as investors continue to seek the world’s safest securities as a refuge from financial market turmoil and a slowing economy. U.S. 30-year bonds dropped as stocks rose. Yields on Treasuries were at almost record lows amid speculation Federal Reserve Chairman Ben S. Bernanke may signal on Aug. 26 that policy makers are willing to take further measures to prevent the U.S. economy from returning to recession. The note auction was the first of the maturity to be sold after Standard & Poor’s on Aug. 5 downgraded the U.S. AAA long-term sovereign rating. “Obviously, there’s still a bid for fixed-income securities,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “The ramifications of this rating doesn’t do much. We have plenty of money. There’s lots of cash on the sidelines.” Yields on benchmark 10-year notes rose five basis points to 2.15 percent at 5:01 p.m. in New York, according to Bloomberg Bond Trader prices. The yield reached as high as 2.16 percent. The 2.125 percent securities maturing in August 2021 fell 13/32, or $4.06 per $1,000 face amount, to 99 3/4. The current two-year note yield rose one basis point to 0.22 percent. The yield on the 30-year bond rose to 3.49 percent, touching the highest since Aug. 18.

Oil Rises a Third Day as Industry Report Shows Decline in Crude Stockpiles  Oil advanced for a third day in New York as investors bet that shrinking U.S. crude supplies indicate that fuel demand will increase in the world’s biggest consumer of the commodity. Futures gained as much as 0.5 percent after the industry- funded American Petroleum Institute said supplies fell 3.34 million barrels to 347 million last week. An Energy Department report today may show inventories climbed for a second week. Prices rose yesterday amid speculation that the Federal Reserve will bolster efforts to stimulate the economy. Crude for October delivery advanced as much as 41 cents to $85.85 a barrel in electronic trading on the New York Mercantile Exchange, and was at $85.71 at 8:42 a.m. Sydney time. The contract yesterday rose $1.32, or 1.6 percent, to $85.44. Prices are 20 percent higher the past year. Brent oil for October settlement gained 95 cents, or 0.9 percent, to $109.31 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract settled at a premium of $23.87 to U.S. futures, compared with a record close of $26.21 on Aug. 19.

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