THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Wednesday, June 22, 2011

Morning Brief: 22 June 2011


Philippines seen to sustain high revenue collection, lower spending

The government is expected to maintain a trend of higher revenue collection and lower spending following a P61-million budget surplus posted in the first four months, according to DBS Bank.

The Singapore-based bank said in a new research note that based on the positive numbers so far, the Philippine government was on track to reach its goal of reducing its budget deficit to 3.1 percent of gross domestic product, or to P290 billion or less.

DBS made the comment ahead of the release of the country’s latest fiscal data later this week.

“Consolidation will be the main theme for the Philippine budget for 2011,” DBS said. “Indeed, in the first four months of this year, revenues were up by 13.2 percent year on year while expenditures were down by 13.4 percent year on year.”

The bank noted that the Philippine government had “a fair record in managing its fiscal accounts over the last decade,” with the budget balance registering an average deficit of 2.9 percent of GDP.

In 2010, MalacaƱang reported a deficit of 3.5 percent of GDP, or P314 billion.

Earlier, Budget Secretary Florencio B. Abad said the Aquino administration had kept the deficit within target for 2010 because of improved revenue collection in the latter part of the year, coupled with the exercise of prudence in management expenses.

Abad said that with this, it was possible to achieve the immediate goals of reducing the ratio of deficit to GDP to this year’s target through 2.6 percent in 2012 and 2 percent in 2013.

Last week, the Bureau of Internal Revenue said it collected P88.16 billion in May, rising 11.5 percent from the P79.05 billion posted in the same month last year.


U.S. Stocks Advance as Concern About Greek Debt Default Eases

U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a fourth straight day, as concern about Greece’s debt crisis eased.

Wells Fargo & Co. (WFC) and Citigroup Inc. (C) rose at least 1.8 percent, following a rally in European banks, as Greece’s government faces a confidence vote that may determine whether it avoids a default. Caterpillar Inc. (CAT), Alcoa Inc. (AA) and Hewlett- Packard Co. added more than 0.8 percent, pacing gains among companies most-tied to economic growth. Best Buy Co. climbed 2.7 percent as the largest consumer electronics retailer set a $5 billion share repurchase plan and raised its quarterly dividend.

The S&P 500 rose 1.3 percent to 1,295.52 at 4 p.m. in New York. The Dow Jones Industrial Average added 109.63 points, or 0.9 percent, to 12,190.01. The Nasdaq Composite Index gained 2.2 percent to 2,687.26, reversing its 2011 drop. The Russell 2000 Index of small companies increased 2.3 percent to 806.37.

“We expect the confidence vote in Greece to go well,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $354.9 billion. “We’re starting to put some of the major building blocks into place to resolve the Greece situation. If you can stop the bleeding, that stops the dominoes from falling. That begins to take some of the contagion risk off the table.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, lost 5.7 percent to 18.86. The S&P 500 has risen for four days after a six-week slump brought it within half a point of erasing its 2011 gain on June 16 and made it the cheapest in almost a year compared with forecast earnings.

Confidence Vote

Stocks rose across the globe amid growing investor optimism that today’s vote of confidence in Greek Prime Minister George Papandreou is likely to determine how soon the nation can win international aid to shore up its finances.

Benchmark gauges and a measure of homebuilders in S&P indexes rallied even as a report showed that sales of existing U.S. homes fell in May to the lowest level in six months. Purchases of existing homes fell 3.8 percent to a 4.81 million annual pace last month, in line with the 4.8 million median estimate in a Bloomberg News survey of economists, data from the National Association of Realtors showed.

The slow pace of recovery should allow the Federal Reserve to delay the central bank’s exit from record stimulus, economists said in a survey. Officials are scheduled to meet in Washington today and tomorrow to determine the course of policy.

Fed’s Balance Sheet

Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52 percent who held that view before the Fed’s last policy meeting in April, according to a Bloomberg News survey conducted last week. Ninety percent of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

“They want to keep monetary policy as easy as possible,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “In Europe, they’ve started to raise interest rates, and that is really hurting their economies.” The Federal Reserve “recognizes that is the wrong medicine to give at this point.”

Fitch Ratings said U.S. lawmakers are “very likely” to raise the debt ceiling limit before Aug. 2, even as it reiterated that failure to do so would result in the country being placed on rating watch negative.

Rating Watch Negative

“The U.S. Treasury is saying that if the debt ceiling is not raised by Aug. 2, then they can’t guarantee that they will remain current on their obligations,” Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team, said in an interview in Singapore today. “If the debt ceiling has not been raised by then, then we would put the U.S. sovereign ratings on rating watch negative. We think it’s very likely that the debt ceiling will be raised in good time.”

Treasury Secretary Timothy F. Geithner has warned that a failure to increase the $14.3 trillion debt ceiling by Aug. 2, the date he projects borrowing authority would be exhausted, may have catastrophic effects on the U.S. economy by sharply raising borrowing costs. Republicans are using the debt-ceiling talks to press for cuts in government spending. Fitch rates U.S. sovereign debt AAA, the highest investment grade.

Wells Fargo, the largest U.S. home lender, added 1.9 percent to $27.46. Citigroup rose 3 percent to $39.31.

Regulatory Claims

JPMorgan Chase & Co. (JPM) pared a gain of as much as 1.9 percent, rising 1.1 percent to $40.91. The only Wall Street bank to remain profitable throughout the financial crisis agreed to pay $153.6 million to resolve U.S. regulatory claims over its role in designing and selling a product linked to risky mortgages as the housing market unraveled in 2007.

The Morgan Stanley Cyclical Index of companies most- dependent on economic activity gained 2.5 percent as 29 of its 30 stocks rose. The Dow Jones Transportation Average of 20 stocks increased 1.9 percent.

Caterpillar, the world’s largest maker of construction equipment, advanced 3.3 percent to $101.39. Alcoa climbed 4 percent to $15.37. Hewlett-Packard gained 0.9 percent to $35.30.

Best Buy rose 2.7 percent to $32.38. The buyback plan replaces the $5.5 billion program announced in 2007, which had $800 million left as of May 28, the Richfield, Minnesota-based company said today in a statement. The quarterly payout will be raised to 16 cents a share.

Bed Bath & Beyond Inc. (BBBY) advanced 2.8 percent to $54.06. Deutsche Bank AG said first-quarter earnings at the home furnishings retailer may beat estimates. Deutsche Bank estimated 60 cents a share for first-quarter earnings, which are scheduled to be released tomorrow.

Consumer Companies

A gauge of consumer companies that sell necessities slid 0.1 percent, the only decline within 10 S&P 500 groups.

Walgreen Co. (WAG) slumped 4.2 percent to $43.28. The largest U.S. drugstore chain said it failed to renew a contract worth more than $5 billion in annual sales with drug-benefits manager Express Scripts Inc. (ESRX) after negotiations fell apart. The agreement will end as of Jan. 1.

The S&P 500 rebounded after touching its 200-day moving average last week, a sign that the market’s decline from an April peak may be limited, analysts who study charts to make predictions said. The benchmark index for U.S. equities fell to as low as 1,258.07 on June 16, 0.17 point above its average level of 1,257.90 in the previous 200 days, before recouping the loss and ending the day higher.

The 200-day moving average “is a pretty significant support level,” as it’s close to the S&P 500’s low for the year in March and to the closing level at the end of 2010, Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said in an interview. “There could be some potential buying here,” he said. “We’re encouraged the market held pretty well. Longer term, the uptrend is still in place.”


Euro Gains Versus Dollar, Yen After Greece’s Pandreou Wins Confidence Vote

The euro rose against the dollar and the yen after Greek Prime Minister George Papandreou won a confidence vote in parliament, taking the Mediterranean nation one step closer to avoiding default on its debt.

The shared currency rose after Papandreou received 155 votes. He needed 151 to prevail. The Federal Reservebegan a two-day policy meeting.

“The euro will trade higher,” Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd., said before the vote. Greek lawmakers “recognize that the market needs to believe that Greece is going to get that $12 billion tranche and a vote for the government is a vote for the package.”

The euro rose against the dollar to $1.4391 at 6:15 p.m. in New York, from $1.4304 yesterday. It earlier touched $1.4423, the strongest level since June 15. The euro gained against the yen to 115.52, from 114.80.

The confidence ballot cleared the way for a separate vote on a 78 billion-euro ($112 billion) package of budget cuts and asset sales to ensure the payment of 12 billion euros due in July under last year’s 110 billion-euro bailout from the European Union and the International Monetary Fund. It also was needed for consideration of a second rescue plan.

Pleas for Consensus

Papandreou called last week for the confidence vote after opposition parties rejected pleas for national consensus and his handling of the crisis led to defections from his party.

The dollar weakened earlier before the Federal Open Market Committee issues an interest-rate decision tomorrow. Policy makers will keep the benchmark interest rate at zero to 0.25 percent tomorrow, where it’s been since December 2008, a Bloomberg News survey forecast.

Futures show the likelihood policy makers will increase the target rate by March 2012 dropped to 21 percent from 30 percent a month ago.

Sales of existing homes in the U.S. decreased in May to the lowest level in six months, an annual pace of 4.81 million, National Association of Realtors data showed today. The report followed data from the New York and Philadelphia Fed Banks last week showing manufacturing in those regions shrank this month.

“The slowdown we’ve seen has pushed out the expected Fed tightening,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “We’ve had two and a half months of data and the timing of expected Fed tightening is pushed out by 10 months. The market may be extrapolating the softness for a longer period than they have any right to.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.4 percent.

The Standard & Poor’s 500 Index gained 1.3 percent, and the Thomson Reuters/Jefferies CRB Index of raw materials increased 0.6 percent. Crude oil rose as much as 1.6 percent to $94.74 a barrel in New York before briefly reversing gains.

The euro earlier rose versus most major currencies as Greece’s Papandreou sought to secure multiparty support for his government’s austerity measures. He called last week for the confidence vote after opposition parties rejected pleas for national consensus and his handling of the crisis led to defections from his party.

Luxembourg’s Jean-Claude Juncker assured investors yesterday that a solution will be found to Greece’s debt crisis.

Implied volatility for one-week Euro-U.S. dollar options has slumped 195 basis points to 13 percent over the past three days. It closed at 14.98 percent on June 16, the highest level since May 6. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. A basis point is 0.01 percentage point.

The pound weakened 0.5 percent to 88.73 pence per euro and rose 0.2 percent to $1.6238 after Bank of England Markets Director Paul Fisher said further bond purchases to stimulate the economy are possible.


Oil Gains a Second Day as Euro Crisis Eases, U.S. Crude Supplies Seen Down

Oil advanced for a second day in New York as concern eased that Greece will default on its debt and investors bet a report will show U.S. crude stockpiles dropped for a third week.

Futures climbed as much as 1.6 percent after Luxembourg’s Prime Minister Jean-Claude Juncker said his Greek counterpart assured him the government would do everything to ensure financial aid. Mirae Asset Securities Ltd. raised its Brent price forecasts by 15 percent as fighting in Libya continued to disrupt supplies. An Energy Department report tomorrow may show U.S. crude inventories fell for a third week, according to the median of 12 analyst estimates in a Bloomberg News survey.

“The markets right now are under the spell of supply insecurity on the one side, and sentiment and overall macroeconomic indicators on the other,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “The rebound we’re seeing today is moderate considering the recent slide.”

Oil for July delivery rose as much as $1.48 to $94.74 a barrel on the New York Mercantile Exchange and was at $94.53 at 1:35 p.m. London time. The contract expires today. The more actively traded August future gained $1.25 to $94.88.

Crude in New York, up 21 percent in the past year, has dropped 17 percent from this year’s settlement high of $113.93, reached on April 29. A 20 percent decline is one measure used to define a “bear market.”

Technical Indicators

Brent oil for August delivery was at $112.49 a barrel, up 80 cents, on the London-based ICE Futures Europe exchange. The contract yesterday fell $1.52, or 1.3 percent, to $111.69. Prices have advanced 43 percent the past year.

Oil yesterday fell below its lower Bollinger Band, a technical signal that prices may have declined too far. The contract also slid below its 200-day moving average of $92.30 a barrel, a level that can attract buyers, supporting prices.

“There’s a little bit of optimism leading back into the market and the chances are that the Greece concerns will probably be solved some way,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted prices will average $100 a barrel this year. “We feel oil is due for a bit of a bounce.”

Greek Confidence Vote

Greece’s cabinet faces a confidence vote in parliament today. Prime Minister George Papandreou is seeking the “widest possible” consensus for a medium-term budget plan, he told reporters yesterday after meeting European Commission President Jose Barroso in Brussels.

European Union leaders have insisted he gain multi-party support for austerity measures that are a condition for the aid needed to avoid default as soon as next month.

Mirae Asset Securities raised its average Brent crude forecasts for 2011, 2012 and 2013 by 15 percent to $115 a barrel on the “sustained loss” of Libyan oil supplies, according to a report e-mailed today. Production in the North African country has been cut by almost 90 percent since fighting broke out between rebel forces and troops loyal to leader Muammar Qaddafi.

U.S. inventories dropped 1.63 million barrels, or 0.4 percent, to 363.9 million in the seven days ended June 17, according to the analysts surveyed before the Energy Department’s report tomorrow. Nine of the respondents forecast a decline, two projected a gain and one said there was no change. The industry-funded American Petroleum Institute will report its own data today.

The third weekly drop in U.S. crude supplies would be the longest stretch of declines this year, reflecting an increase in gasoline output to the highest level in nine months. Refineries probably operated at 86.6 percent of capacity last week, up 0.5 percentage point from the prior week, the survey showed.



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

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

Saturday, June 18, 2011

Philippine Markets: 17 June 2011


17 June 2011

USD/PhP: 43.66 + 0.135 PSEi: 4153.11 - 19.97
USD/JPY: 80.46 PFINC: 912.43 - 21.65
EUR/USD: 1.4165 BDO: 51.80 - 3.15
GBP/USD: 1.6118 BPI: 53.95 - 1.55
PDSTF3M: 3.1804 MBT: 69.50 - 0.05
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary market rates moved up by an average of 7 basis points week-on-week as short-term rates continued to move up in anticipation that monetary authorities will continue to hike its benchmark rates at its policy meeting scheduled on 16 June . The BSP unexpectedly kept the benchmark rate to 4.50 percent but increased reserve requirements from 19% to 20%. It aimed to siphon excess liquidity in the market to prevent further inflationary pressures. Their recent move reinforces its move to stay ahead of inflation.

Continue to expect interest rates to move sideways with upward bias next week.

Philippine Equities Outlook

Local shares slumped 1.60 percent week-on-week to 4153.11 as fear trades triggered sell-off in global equity markets due to uncertainty in US economic health and escalating Euro debt concerns. Expect continued weakness and heightened volatility in the market as locals track US market movements.

Chartwise, the week’s close at 4153.11 continues to support the emerging down trend forming in the charts. A break below 4150 levels will put the 4000-4100 levels at play. Only a strong move above the 4250 will put the bulls back into play.

Philippine Peso Outlook

Local currency fell 0.88 percent week-on-week to 43.66 as US dollar strengthened against major currencies particularly the Euro as Greek debt concerns are worrying investors and traders worldwide. Weakness in global equity markets also prompted buying of US dollars as safe haven

Chartwise, the week's close at 43.66 signals a break of an important resistance at 43.60. This suggests the market has the momentum to try the 44.00-44.50 levels in the next few weeks. Only a move below the 43.00 levels will negate any moves above the 44.00 levels.


BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001
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