Philippine Markets: 28 January 2011

28 January 2011

USD/PhP: 44.10 PSEi: 3970.34 - 20.15
USD/JPY: 82.71 PFINC: 898.39 + 1.92
EUR/USD: 1.3705 BDO: 52.40 - 0.65
GBP/USD: 1.5891 BPI: 54.20 - 0.30
PDSTF3M: 3.3096 MBT: 66.60 + 1.30
Prices as of 12:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary market rates were lower this week by an average of 76 basis points across the curve as correction sets in the market following expecations that BSP will not raise rates in the near-term. Most likely they will move as early as the second quarter. Other factors that forced a correction was the BTr's decision to reject rates at its latest auction, sending a clear signal to the market that low rates are still here supported by the strong liquidity and assurances from government officials that inflation will remain tame.

This correction has pushed the 3M PDST-F rate from a high of 4.1769 to the week's close of 3.3096, lowery by 82 bps week-on-week, while the 5Y PDST-F also behaved similarly to the 3M PDST-F falling from a high of 6.5269 to the week's close of 5.6058

Continue to expect sideways to upward movements in the week ahead of the January 2011 inflation figures , with the 3M PDST-F ranging between 3.00-4.00 percent levels. While the 5Y PDST-F rate is seen to range between the 5.50 - 6.25 percent.

Philippine Equities Outlook

Local stocks rose 0.49 percent week-on-week to 3970.34 for the first time in three weeks on bargain hunting activities. However, risk aversion resurfaced during the end of the week, reversing most of the week's gain due to lack of market moving news.

Chartwsie, the week's close at 3970.34 implies that the current rally is a mere pullback (as mentioned in the previous week, which may be limited to the 4,000-4,050 levels), a rally above the 4,150 level is needed to counter the current bear sentiment. Failure to see this in the week ahead could signal a resumption of the corrective trend testing the 3,800 -3,850 levels in the near-term.


Philippine Peso Outlook

As of 12:00pm, the local currency rose against the dollar compared to the previous week as the US dollar continued to slide against the major currencies, causing the greeback to perform weaker against emerging market currencies.

Chartwise, this week's movements is viewed as a mere correction of the emerging strong dollar trend against the peso, expect the 43.80-44.00 levels to hold in the week ahead, with an expectation to test the 44.50 in the near-term.. Only a break below the 43.80 levels will entertain further peso strength towards the 43.00 -43.50 levels.



BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001