Morning Brief: 15 November 2010

Gov’t eyeing multilaterals for PPP guarantees
MULTILATERAL institutions will be asked by the government to provide for guarantees that will come with public-private partnership (PPP) projects, officials said.

"We will be tapping guarantee agencies for PPP so that when there is risk, investors can be paid fast and immediately," Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. said in a telephone interview during the weekend.

"Regulatory risk guarantees" will be introduced by the government when it unveils its PPP initiative during a three-day conference that starts this Wednesday at the Marriott Hotel in Pasay City.

Guarantees, said Finance Undersecretary John Philip P. Sevilla, will be given on a "project-to-project basis" as the requisite insurance depends "on the risk that they may encounter."

"We will present the concept during the convention, but the details will be worked out as PPP projects are bid out," Mr. Sevilla said in a separate phone interview.

A "list of possible regulatory risks" will also be presented before the 150-200 investors expected to attend this week’s launch. Mr. Paderanga said prospective guarantors who will also be present "can choose from the list what risk they want to guarantee."

"So let’s say an investor encountered a risk in the project, [the guarantee agency] will pay him, and then afterwards [bill] the government for such insurance. Negotiations now will be between the government and the agency," he explained.

Budget Secretary Florencio B. Abad said the surety was different from sovereign guarantees "where the government will have to pay investors whether an undertaking succeeds or not."

"We actually wanted to move away from that," he said.

It was not clear where funding for the PPP guarantees would be sourced. The House of Representatives has approved a P12.5-billion outlay for the infrastructure initiative under the proposed P1.645-trillion national budget for 2011.

The amount will cover right of way acquisitions and equipment support, among others.

A short list of 10 PPP infrastructure projects worth P127.8 billion is expected to be implemented next year. Officials have said that up to three projects could be auctioned off during the first semester.

The PPP initiative -- which the Aquino administration has made a centerpiece program given its revenue woes and the country’s infrastructure lack -- is expected to cover about 80 projects worth some P740 billion.


Stocks: Will the slide continue?

Stocks closed out their worst week in three months on Friday, but it's a new week on Wall Street and investors are bracing for a slew of economic and corporate news to help set the tone.
With Black Friday less than two weeks away, all eyes will be on the retail sector. The government's monthly retail sales report kicks things off before the opening bell Monday morning, but investors will be more focused on financial results and guidance from major retailers for the period that includes the all-important holiday season.

Discount giants including Wal-Mart (WMT, Fortune 500) and Target (TGT, Fortune 500) are due to report earnings, as well as higher-end department stores like Nordstrom (JWN, Fortune 500) and Saks Incorporated (SKS).

"Hearing from the retailers will give us insight as to what's happening in the minds of American consumers, and how much they're willing to spend this holiday season," said Kim Caughey, senior equity analyst at Fort Pitt Capital Group. "We saw a surprise pickup in hiring in the last jobs report, so that should make for happy consumers and happy holidays."

Caughey said investors will also be paying close attention to how retailers are coping with higher cotton prices, which have surged in recent weeks as the dollar weakened.

In other corporate news, General Motors could price an initial public offering of 365 million shares late this week, though the exact date has not been disclosed. The company expects to raise about $13 billion selling shares, putting it on course for the third-largest initial public offering in U.S. history.

Monetary and fiscal policy may also take the stage this week, as President Obama returns from the G-20 meeting of global leaders and Congress reconvenes for the start of its lame-duck session. Lawmakers are expected to begin discussing the proposal to cut the deficit by $4 trillion over the next decade as well as the Bush tax cuts, which are set to expire at the end of the year.

Investors will be on the lookout for news relating to Europe's sovereign debt crisis. The same fears that weighed on markets last spring resurfaced last week, this time sparked by Ireland's fiscal instability.

"We'll be watching Europe very closely," said Karl Mills, president and chief investment officer at Jurika Mills & Keifer. "The markets were giving a great amount of importance to the midterm elections and the Fed's new plan, but now the market could face a new bout of sovereign debt concerns."

On the docket

Monday: Economists expect the Commerce Department to report that retail sales rose 0.7% in October, after a 0.6% rise the previous month, according to consensus estimates gathered by Briefing.com. Sales excluding volatile autos are expected to have ticked up 0.3%.

Home improvement giant Lowe's (LOW, Fortune 500) is expected to report earnings of 30 cents per share, up from 24 cents per share a year ago.

The Empire Manufacturing survey is also due before the start of trading. The regional reading on manufacturing is forecast to have slipped to 11.7 in November from 15.73 in October.

The September reading on business inventories, due from the government later in the morning, is likely to show an increase of 0.9%.

After the close, department store Nordstrom (JWN, Fortune 500) will report earnings.

Tuesday: The Producer Price Index, a measure of wholesale inflation, is due out from the Commerce Department before the opening bell. The index is expected to have edged up 0.8% in October after rising 0.4% in September. The so-called core PPI, which strips out volatile food and energy prices, is expected to have risen 0.1% after increasing by the same amount in the previous month.

Government data on industrial production and capacity utilization for October are also due before the market opens.

Wal-Mart Stores (WMT, Fortune 500) reports results before the start of trading. The Dow component is expected to have earned 90 cents per share, up from 84 cents a year ago, according to forecasts from analysts polled by Thomson Reuters.

Abercrombie & Fitch (ANF), Home Depot (HD, Fortune 500) and Saks Incorporated (SKS) are also on tap to post financial results.

After the opening bell, the National Association of Homebuilders is scheduled to release its housing market index for October. The figure is expected to edge down to 15.0 from 16.0 in September.

Wednesday: The Commerce Department releases the Consumer Price Index, a measure of consumer inflation, in the morning. CPI is expected to have increased 0.3% in October after climbing 0.1% the previous month. Core CPI is expected to have inched up 0.1%, after a flat reading in September.

Housing starts are expected to have decreased to a 600,000 annual unit rate in October from a 610,000 unit annual rate in September. Building permits are expected to have risen to a 565,000 annual rate from a 539,000 annual unit rate in September.

Also before the bell, discount retailer Target (TGT, Fortune 500) is forecast to have booked earnings of 68 cents per share, up from 58 cents a year ago.

After the market closes, analysts are looking for Applied Materials (AMAT, Fortune 500) to reports earnings of 31 cents per share, compared to 11 cents a year ago.

Thursday: The Department of Labor releases the weekly jobless claims report in the morning. The number of Americans filing new claims for unemployment last week is forecast to inch higher to 442,000 from 435,000 in the previous week.

Continuing claims -- a measure of Americans who have been receiving benefits for a week or more -- is expected to hold steady at around 4.30 million, the same as in the previous week.

Analysts expect office supply giant Staples earned 40 cents per share last quarter, up slightly from 39 cents a year earlier.

The Philadelphia Fed index, another regional reading on manufacturing, is expected to have improved to 4.5 in November from 1.0 in October.

The index of leading economic indicators is expected to have risen 0.6% in October after rising 0.3% the previous month.

After the close, Dell (DELL, Fortune 500) is expected to post earnings of 32 cents per share, up from 23 cents per share a year earlier.

Friday: There are no market-moving economic or corporate events expected on Friday.


Oil Falls From Two-Year High on Speculation China May Raise Interest Rates

Oil fell the most in more than three weeks on speculation China will raise interest rates, curbing demand growth in the world’s biggest energy-consuming country.
Futures slipped 3.3 percent after Chinese stocks tumbled on a report yesterday that showed consumer prices climbed 4.4 percent from a year earlier, the fastest pace since 2008. China’s central bank may increase rates within weeks, according to a Bloomberg News survey.

“Anything that provides evidence of a slowing Chinese economy is likely to be reflected in oil-demand estimates,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “It would also tend to moderate bullish views for where oil prices will be in 2011.”

Crude oil for December delivery fell $2.93 to settle at $84.88 a barrel on the New York Mercantile Exchange. Futures, dropped 2.3 percent this week, leaving them up 10 percent from a year ago.



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

Jonathan Ravelas
Chief Market Strategist
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Rhys Cruz
Junior Researcher
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