Morning Brief: 18 November 2010

BSP urged to lower interest rates on special deposit account facility
By Michelle Remo
Philippine Daily Inquirer

The bureau of the Treasury, which manages the national government’s borrowings, has urged the central bank to move against the tide and reduce interest rates.
Lower interest rates paid by the Bangko Sentral ng Pilipinas both for its overnight lending and special deposit account (SDA) facilities were necessary to force banks to lend more to the public rather than park their money in the central bank’s vault, the Treasury said.

The overnight lending and SDA rates are at historic lows of 6 and 4 percent, respectively. Still, the Treasury said there was much room for the BSP to cut rates.

A ranking Treasury official noted that inflation remained way below the official ceiling and that any reduction in interest rates was not expected to cause prices to rise sharply.

“Besides, it would benefit them to cut rates because that would mean they would spend less [on interest on deposits by banks],” Deputy Treasurer Eduardo Mendiola said.

It would also favor the national government if the BSP would reduce interest rates because deposit facilities of the BSP directly competed with the treasury bills and bonds being sold by the national government. The high rates offered by the BSP encourage banks to place more of their funds in the central bank’s deposit facilities instead of investing in government securities.

But Mendiola said that aside from benefiting the national government, lower rates offered by the BSP would encourage banks to lend more to the public.

Funds with the BSP’s SDA facility alone already amounted to more than P900 billion, a record high. Analysts said banks were attracted to deposit funds to the virtually risk-free and relatively high-yield BSP facility.

Latest documents showed that bank lending was so far growing nearly 10 percent this year. Although this was a decent growth, analysts said banks actually had the capacity to lend more.


No lotto winner; prize up P535M
By Tina Santos
Philippine Daily Inquirer

MANILA, Philippines—The wait is still on for the bettor who will win the 6/55 Grand Lotto as no one won the over P495 million jackpot during Wednesday night’s draw.

In a text message, assistant general manager Liza Gabuyo of the Philippine Charity Sweepstakes Office said no one was able to correctly guess the six number combination of 53-09-45-24-50-29.

The prize reached P495,597,376.80, currently the record holder for the biggest lotto jackpot in PCSO history.

The next draw for the 6/55 Grand Lotto is on Saturday night. Gabuyo said the jackpot is expected to reach P535 million.


Most Stocks in U.S. Gain as Target Earnings Offset Tech-Spending Concern

Most U.S. stocks rose, snapping a four-day losing streak in the Standard & Poor’s 500 Index, as earnings at Target Corp. and speculation that Ireland will receive aid offset concern that technology spending is slowing.
Target climbed 3.4 percent as profit jumped 23 percent on credit-card unit growth. McDonald’s Corp. gained 1.2 percent, helping give consumer shares the biggest gain among 10 industries in the S&P 500. NetApp Inc. tumbled 6.5 percent after the maker of storage equipment joined Cisco Systems Inc. in giving a forecast that spurred concern corporations are spending less on computer gear.

The S&P 500 added less than a point to 1,178.59 at 4 p.m. in New York, after earlier rising 0.3 percent. The 30-stock Dow Jones Industrial Average declined 15.62, or 0.1 percent, to 11,007.88. About five stocks advanced for every four that fell on U.S. exchanges, according to Bloomberg data.


Irish Bonds Rise as Lenihan Says Aid Talks to Start Tomorrow; Bunds Climb

Irish bonds rose after Finance Minister Brian Lenihan said potential aid talks for the government’s banks will start tomorrow.

The nation’s debt fell earlier after LCH Clearnet Ltd. raised the deposit clients must pay to trade the nation’s securities for the second time in a week in response to soaring yields. Lenihan said he will hold talks with the European Commission, European Central Bank and International Monetary Fund on the country’s banks. German bonds climbed.

“The margin requirement increase isn’t good for Irish bonds, but it makes an aid deal more likely,” said Charles Diebel, head of market strategy at Lloyds TSB Corporate Bank in London. “It seems pretty inevitable that some kind of deal will be done. It’s just a question of how and what the details are.”

The yield on the 10-year Irish bond fell 14 basis points to 8.32 percent at 4:35 p.m. in London after jumping 31 basis points yesterday. The 5 percent security due October 2020 rose 0.775, or 7.75 euros per 1,000-euro ($1,351) face amount, to 78.14. German 10-year yields fell three basis points to 2.6 percent.

The difference in yield, or spread, between Irish and German 10-year bonds narrowed 10 basis points to 552 basis points, according to Bloomberg generic prices.


Crude Oil Tumbles to Four-Week Low on Signals China Will Increase Rates

Crude oil declined to a four-week low on speculation that China will raise interest rates, slowing economic growth in the world’s biggest energy-consuming country.
Oil fell 2.3 percent after Chinese Premier Wen Jiabao said the government was drafting measures to counter inflation. Prices also dropped on concern Europe’s debt crisis is worsening as ministers considered a rescue package for Irish banks. Futures rebounded briefly after an Energy Department report showed U.S. crude supplies slid 7.29 million barrels last week.

“Fears about Ireland and China are trumping inventories at the moment,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “Under normal circumstances prices would rally after a 7 million-barrel drop.”

Crude oil for December delivery fell $1.90 to $80.44 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 19. Futures have dropped 9.2 percent from the two-year intraday high of $88.63 a barrel on Nov. 11.



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

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001