Morning Brief: 12 October 2011

PHILIPPINES

Aquino sets PhP72bn stimulus package
 
By: Christine O. Avendaño
Philippine Daily Inquirer
 
President Benigno Aquino III plans to unveil Wednesday a P72-billion stimulus package that seeks to help Filipinos keep their jobs amid the slump in many Western economies and slowdown in the country.
 
“It was approved in principle (on Monday),” presidential spokesperson Edwin
Lacierda on Tuesday said of the stimulus package.
 
A tight rein on expenditures was blamed for slower-than-expected growth in the first half of the year.
 
The latest poor news on the economy came on Tuesday, when August data showed exports had posted their biggest annual drop in two years.
 
Transportation Secretary Manuel “Mar” Roxas said the stimulus package was firmed up after the President’s consultations with foreign leaders and businessmen during his recent travels to China, the United States and Japan.
“The President had sensed what analysts are already saying about the turbulence in the international financial markets and the weakening of Western economies,” Roxas told the Philippine Daily Inquirer.
 
He said the President was seeking to protect the economy and jobs in the country by initiating the stimulus package. “He’s trying to insulate our economy from the turbulence being experienced in the US and Europe,” Roxas said.
 
Roxas said the stimulus package would see an increase in economic activities in the country whose exports and tourism would be affected by the economic downturn abroad.
 
P6.5-B LGU fund
At a press briefing, Lacierda said the President would announce the stimulus package in his speech Wednesday before foreign media correspondents at the Mandarin Hotel in Makati City.
 
Lacierda said Mr. Aquino touched on “some parts” of the government’s stimulus package at Tuesday’s celebration of the 20th anniversary of the Local Government Code at the Philippine International Convention Center (PICC) in Pasay City.
 
The President announced the “good news” at the PICC that the government would soon release the local government unit (LGU) support fund amounting to “not less than P6.5 billion.”
 
Lacierda said the P6.5-billion fund was part of the P72-billion stimulus package.
 
Mr. Aquino said the government could not neglect the local government units which provide frontline services, especially during calamities.
 
“For demonstrating your skills and integrity the past year, I am sure that you will be able to provide big help to your constituents and your cities and municipalities,” he said.
 
The President said the LGU support fund was being released in light of the reduction in the internal revenue allocation for LGUs since revenue collections slackened in 2009.
More changes
More measures are expected to be announced Wednesday and any changes to economic forecasts are also expected to be revealed this week.
The measures do not involve any extra budget requirements because government spending is running well behind target this year and this was cited as a factor in the economy slowing more than expected in the second quarter.
 
Since then, officials have said they would pump-prime the economy in the second half of the year, but repeated delays to the government’s infrastructure program meant money allocated for those projects is unlikely to be fully used this year.
 
Instead, the government has identified other projects it can spend on in the final months of the year to make use of the extra spending room, one official said.
 
P20-B interest savings
“These are mostly infrastructure projects that were not included in the plan this year,” said a senior government official who asked not to be named because the Office of the President has yet to make an official announcement.
 
“These projects will not require new debt,” the official said, adding the government could tap into interest savings of more than P20 billion this year.
The official said if these projects were realized, the country would have a better chance of meeting a growth target of 5 to 6 percent this year.
Expenditures for the first eight months of the year amounted to P947.244 billion, just three-quarters of planned spending of P1.275 trillion for the first nine months of the year even after the pace of spending picked up in recent months.
 
The underspending has led to the deficit for the first eight months of 2011 being just 11 percent of the full-year total. With a report from Reuters

WORLD

Most U.S. Stocks Rise as Earnings Optimism Offsets Europe Woes

By Rita Nazareth(Bloomberg)
Most U.S. stocks advanced, while the Standard & Poor’s 500 Index posted its smallest move since August, as optimism about third-quarter corporate earnings overshadowed concern Europe’s debt crisis is worsening.

Alcoa Inc. (AA), the biggest U.S. aluminum producer, rose 2.1 percent ahead of its results. Apple Inc. (AAPL), Bank of America Corp. (BAC) and Caterpillar Inc. (CAT) added at least 1.4 percent to pace gains among companies most-tied to the economy. Mosaic Co. (MOS) jumped 4.3 percent as Credit Suisse Group AG said valuations for fertilizer shares are attractive. AMR Corp. (AMR) rose 7.1 percent as American Airlines joined its bigger U.S. peers with deeper seating cuts.

Almost seven stocks rose for every five that fell on U.S. exchanges at 4 p.m. New York time. The S&P 500 added 0.1 percent to 1,195.54. The benchmark gauge traded within a 1 percent range between its high and low level for the day, the narrowest since July 26. The Dow Jones Industrial Average retreated 16.88 points, or 0.2 percent, to 11,416.30 today.

“The markets have shrugged off some of the pessimism,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “We’re seeing a recovery in groups that have really taken it on the chin. Only time will tell if earnings won’t be quite as bad as we all feared.”

The S&P 500 has fallen as much as 19 percent from its three-year high in April through Aug. 3, on a closing basis, amid concern about Europe’s debt crisis. Gauges of financial, commodity and industrial shares in the index slumped more than 26 percent during that period. The S&P 500 last week rose from the threshold of a bear market, and yesterday rallied 3.4 percent, on optimism Europe will tame its crisis.

Earnings Season

Earnings per share for the S&P 500, excluding financial companies, rose 14 percent in the third quarter, according to analysts’ estimates compiled by Bloomberg. Still, it’s the smallest gain since the end of 2009, the data showed.

Alcoa, the first company of the Dow to report results for the third quarter, climbed 2.1 percent to $10.30 in regular trading. The shares tumbled 4.8 percent to $9.81 at 5:08 p.m., after the earnings were released. The largest U.S. smelter of aluminum reported third-quarter profit that trailed analysts’ estimates as production costs increased.

Excluding restructuring costs, earnings were about 14 cents a share, New York-based Alcoa said in a statement. The average estimate of 15 analysts surveyed by Bloomberg was for 22 cents. Sales increased 21 percent to $6.4 billion. The average of nine analysts’ estimates was for $6.23 billion.

Economic Outlook

Aluminum for immediate delivery on the London Metal Exchange has declined 11 percent in 2011, erasing earlier gains, amid concerns about the economic outlook in the U.S. and Europe, hampering Alcoa’s efforts to boost earnings.

Benchmark gauges fell earlier today after European Central Bank President Jean-Claude Trichet said the debt crisis threatens the financial system. S&P said it no longer sees 2012 as a “turnaround year” for Spanish banks and the rating company expects problematic assets to “continue accumulating during 2012 and potentially into the first months of early 2013.”

After the close of regular U.S. trading, Slovak lawmakers failed to approve an overhaul of Europe’s bailout fund, toppling the government. Smer, the largest opposition party, which didn’t back the legislation today, will support the changes in a second vote, ensuring it will pass, party leader Robert Fico told reporters in the capital Bratislava. Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measures.

‘Systemic Risk’

“The key overhang is the systemic risk,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “Given the shock that occurred in 2008, investors are focused on capital preservation as opposed to identifying opportunities. Some relief might unfold as we head into earnings season.”

The Morgan Stanley Cyclical Index of companies most-tied to economic growth added 1 percent. The Dow Jones Transportation Average, a proxy for the economy, gained 0.7 percent. The KBW Bank Index rose 0.6 percent. Apple increased 3 percent to $400.29. Bank of America climbed 1.4 percent to $6.37. Caterpillar jumped 1.9 percent to $80.66.

Fertilizer producers advanced after Credit Suisse said the industry’s valuations “look highly compelling.” Mosaic added 4.3 percent to $55.77. CF Industries Holdings Inc. (CF) climbed 4.6 percent to $146.81.

AMR Surges

The Bloomberg U.S. Airlines Index of 10 stocks gained 2.8 percent. AMR surged 7.1 percent to $2.71. The fourth-quarter capacity reduction of 3 percent means that 2011 costs for flying each seat a mile will increase “modestly” beyond the forecast of as much as 10.1 percent provided on Sept. 21, Fort Worth, Texas-based American said yesterday in a statement.

Companies in the S&P 500 least-tied to economic growth retreated. Gauges of utility and telephone providers in the benchmark gauge lost at least 1 percent.

COMMODITIES

Crude Oil Rises for Fifth Session as Equities Gain on Earnings Optimism

By Margot Habiby (Bloomberg)
Crude oil capped the longest rally this year in New York as gasoline prices surged and the Standard & Poor’s 500 Index held gains a day after making the biggest advance since August.

Futures increased for a fifth day as prices for the motor fuel climbed amid speculation that supplies will decline after Sunoco Inc. shut part of a fluid catalytic cracker at its Marcus Hook refinery in Pennsylvania. The S&P 500 gained 0.1 percent amid optimism about third-quarter earnings.

“Equities are high and that gives hope for the crude market,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “Units going down at Marcus Hook would be bullish for both gasoline and oil because there’s going to be less demand for imported oil on the East Coast and more demand for crude in the midcontinent.”

Crude for November delivery at Cushing, Oklahoma, gained 40 cents, or 0.5 percent, to $85.81 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 21. Prices have risen 5.3 percent in the past week. The five-day advance was the longest since the period ended Dec. 23, 2010. Futures have fallen 6.1 percent this year.

Gasoline for November delivery gained 5.23 cents, or 1.9 percent, to $2.7476 a gallon on the Nymex, a three-week high.

“Oil got some bullish news with the refinery issue,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Marcus Hook gave us a little bit of a bounce.”

Marcus Hook

Sunoco is conducting work expected to take about four days on the unit at Marcus Hook, said Kevin Sunday, a spokesman for the Pennsylvania Department of Environmental Protection. Thomas Golembeski, a Sunoco spokesman, didn’t immediately respond to an e-mail seeking comment.

The S&P 500 Index (SPX) rose to 1,195.54 from 1,194.89 yesterday. The Dow Jones Industrial Average slipped 0.1 percent to 11,416.30. Alcoa Inc. (AA), the biggest U.S. aluminum producer, increased 2.1 percent before reporting its quarterly results today. Mosaic Co. (MOS) jumped 4.3 percent and Apple Inc. (AAPL) climbed 3 percent.

“Oil traders are very responsive to the condition of equities,” said Richard Ilczyszyn, a Chicago-based senior market strategist at MF Global Holdings Ltd. (MF) “Equities are a little stronger and the markets have rebounded.”

Prices also increased after the Justice Department charged two men in an alleged plot to use a weapon of mass destruction to kill Saudi Arabia’s ambassador to the U.S. The kingdom is the world’s largest oil exporter and OPEC’s biggest producer.

Alleged Plot

Manssor Arbabsiar and Gholam Shakuri were charged in a purported conspiracy to murder Adel Al-Jubeir in a scheme that began early this year and progressed through Sept. 29, according to papers filed in Manhattan federal court.

Brent oil for November settlement rose $1.78, or 1.6 percent, to settle at $110.73 on the London-based ICE Futures Europe exchange.

Earlier, oil and equities tumbled after European Central Bank President Jean-Claude Trichet said the region’s debt crisis threatens the financial system and because of uncertainty before a government vote in Slovakia on the euro area’s bailout fund.

Slovak Finance Minister Ivan Miklos told Parliament today that lawmakers should back the European Financial Stability Facility, the euro region’s enhanced bailout fund. Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measure, following approval in Malta yesterday.

Slovak Vote

Slovak lawmakers rejected the bill, which is tied to a no- confidence vote against Prime Minister Iveta Radicova. Miklos said the measure would likely be approved in a subsequent vote.

“All the attention is focused on what’s going on in Europe and what’s going on with the dollar and equities and not really the oil fundamentals,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

The euro was little changed at $1.3664 at 2:36 p.m. in New York from $1.3642 yesterday. Earlier, it fell as much as 0.6 percent to $1.3566.

The Organization of Petroleum Exporting Countries reduced its demand estimate for this year for a third month today on threats to the world economy. It predicted oil demand will grow 880,000 barrels a day this year, revised down from 1.06 million barrels a day in a report last month.

The oil market is in a “very comfortable” situation and it is “too early” to talk about the next OPEC meeting, its Secretary General Abdalla El-Badri said in London today.

U.S. Supplies

An Energy Department report Oct. 13 may show U.S. crude supplies rose 800,000 barrels last week, according to the median of 15 analyst estimates in a Bloomberg News survey. The department is releasing the data a day later than usual because of yesterday’s Columbus Day holiday.

Oil volume in electronic trading on the Nymex was 632,119 contracts as of 2:36 p.m. in New York. Volume totaled 556,770 contracts yesterday, 17 percent below the average of the past three months. Open interest was 1.42 million contracts.