PHILIPPINES
Philippines cuts growth, export forecasts
Lackluster trade to trim GDP expansion this year
The Philippines cut its growth and trade forecasts for this year and the next on uncertainty over the global recovery, government officials told a Senate budget hearing on Wednesday.
The Aquino administration now expects growth this year to be between 4.5 and 5.5 percent, lower than a 5-6 percent growth target under its budget assumptions for the year, Economic Planning Secretary Cayetano Paderanga told the Senate hearing.
The government now forecasts exports and imports to grow 5 percent and 13 percent, respectively, this year, lower than previous estimates of 9-10 percent and 17-18 percent. It also cut 2012 trade forecasts.
A document from the inter-agency Development Budget Coordination Committee (DBCC) indicated that underspending had affected growth as disbursements from January to August reached P947.2 billion, or 16 percent less than the P1.126-trillion program.
As a result, the budget deficit for the eight-month period reached P34.5 billion, or merely 12 percent of the planned P191.9 billion for the period.
With Malacañang failing to spend some P157.4 billion in the eight months to August, the DBCC said “catch-up plans [are] not enough.”
This was despite Budget Secretary Florencio Abad’s statement last month that Malacañang’s plans to catch up on its spending program were working despite a budget surplus in August.
Abad said national government spending seemed to have finally turned the corner as the state spent P114.93 billion in August, the highest monthly record during the Aquino administration.
This represented “the first positive growth of monthly disbursements during the year,” he added. “This hopefully starts the reversal of the contraction in spending experienced during the previous months.”
Earlier this week, the National Statistics Office reported that export revenues in August dropped 15.1 percent to $4.05 billion.
This meant exports have been contracting yearly for the fourth month in a row, a trend that was attributed mainly to the lackluster business in the global electronics sector.
Last week, the World Bank said it scaled down its 2011 growth projection for the Philippines to 4.5 percent from 5 percent previously, although “strong macroeconomic fundamentals are cushioning the impact of the global economic turmoil.”
According to the bank’s Philippine Quarterly Update, the slowdown in the United States and Europe was affecting Philippine exports but the domestic economy at large was holding out.
Bangko Sentral optimistic Philippines can weather global turmoil
By: Michelle V. Remo
The Bangko Sentral ng Pilipinas said there was ample liquidity in the domestic economy that could help the country weather the ill-effects of a global turmoil resulting from the debt crisis in Europe.
The Aquino administration has slashed its economic growth target for 2011 and 2012 to take into account the adverse impact of the crisis in the developed countries.
The BSP said, however, that the revised target still reflected the resiliency of the Philippines as industrialized countries in the West were struggling with much slower growth rates. The BSP said the new target was easily attainable given the sufficient amount of funds available in the banking system as well as other favorable indicators.
“There is sufficient liquidity in the system, the exchange rate is stable and the inflation outlook continues to be manageable,” BSP Governor Amando Tetangco Jr. told reporters.
The banking sector has about P5 trillion in deposits and about P1.5 trillion of the amount is simply kept by banks in the special deposit account (SDA) facility of the BSP.
Tetangco said the available liquidity would allow banks to lend more, thereby boost consumption by individuals and investments by enterprises.
He said liquidity and the national government’s move to fast-track public spending in the second half would make the lower growth target realizable.
BSP Deputy Governor Diwa Guinigundo said the new growth target was not expected to dampen sentiment of investors on the country.
“I don’t think there will be a material impact on capital flows. The revised growth rate continues to reflect the resiliency of the economy notwithstanding the continuing global weakness and financial market volatilities,” Guinigundo said.
The central bank will review its rates policy next week and will include Indonesia’s surprise Tuesday rate cut in the discussions. Before Indonesia’s rate cut, analysts widely expected the central bank to keep its policy rate on hold at 4.5 percent, the highest in more than two years, for the rest of 2011.
“Economic recovery in any jurisdiction at this time of heightened market uncertainty is more challenging,” Tetangco said in an e-mail to Reuters. “There is, however, sufficient liquidity in our domestic market, the exchange rate is broadly competitive, we have a well-functioning banking system. The NG [national government] also has fiscal space to provide stimulus as necessary.”
“The BSP has enough policy flexibility—given the manageable inflation outlook—to respond to changes in the external environment. The BSP will ensure that our policy stance remains supportive of economic growth,” he said.
Guinigundo told Reuters on the sidelines of a Senate budget hearing that an
easier monetary policy was not the only way to support growth, with such a move possibly complicating policy.
“Interest rates are at historic lows and liquidity is more than adequate, so further easing of monetary policy may have to be reviewed very, very carefully,” he said. “Otherwise, there is that possibility of contributing to excessive liquidity leading to possible asset bubble that would generate more problems.” With a report from Reuters
WORLD
U.S. Stocks Rally, Briefly Erasing Dow’s 2011 Loss
By Rita Nazareth (Bloomberg)
U.S. stocks rose, briefly erasing the Dow Jones Industrial Average’s 2011 loss, as European leaders provided a road map to tame the debt crisis and the Federal Reserve said it discussed further asset purchases.
Financial and industrial shares rose the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) jumped at least 2.7 percent, following a rally in European lenders. General Electric Co. (GE) and 3M Co. (MMM) added more than 1.6 percent to pace gains among companies most- reliant on economic growth. PepsiCo Inc., the largest snack-food maker, increased 2.9 percent as profit beat analysts’ estimates.
The S&P 500 advanced 1 percent to 1,207.25 at 4 p.m. New York time, rallying 4.5 percent in three days. The index rose as much as 2.1 percent earlier before paring gains in the final hour of trading. The Dow climbed 102.55 points, or 0.9 percent, to 11,518.85. The 30-stock gauge is down 0.5 percent for 2011.
“The market doesn’t want to turn back lower,” Liam Dalton, chief executive officer of Axiom Capital Management Inc., in New York, which oversees $1.8 billion, said in a telephone interview. “The process in Europe is likely to be resolved. Earnings are looking like they will be relatively good. There are a lot of things that can go right or wrong, but our playbook has been that the market is not going to have a major decline.”
The Dow has gained 8.1 percent since reaching this year’s closing low on Oct. 3 amid optimism European leaders will tame the region’s debt crisis and after American economic data improved. Before that, the gauge had slumped as much as 17 percent from this year’s high on April 29 amid concern that Europe’s crisis would slow down the economic recovery.
Trading Range
The S&P 500 had the biggest rally over seven days since March 2009, climbing 9.8 percent. The rebound has yet to bring the S&P 500 out of a trading range it’s been stuck in for more than two months. The benchmark index for U.S. stocks has fluctuated between 1,074.77 and 1,230.71 since Aug. 5 as investors remained cautious toward riskier assets amid speculation Greece will default on its debt.
“It feels like Charlie Brown and Lucy every time she put a football in front of him,” James Dunigan, who helps oversee $109 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. Cartoon character Charlie Brown is a perpetual loser in football and other pursuits. “Maybe the worst case scenario is off the table in Europe. Still, the question is -- whatever they do, will it be enough? I’m not sure I’m ready to declare victory yet.”
‘Coordinated Approach’
Global stocks rose today as European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes. Barroso urged a “coordinated approach” to deliver a “significantly higher capital ratio of highest quality capital” for banks, while offering government funds only as a last resort.
Some Federal Reserve officials last month wanted to keep further asset purchases as an option to boost the economy as policy makers saw “considerable uncertainty” that U.S. growth will pick up, the Fed said today in minutes of the Sept. 20-21 session. The debate culminated in the Federal Open Market Committee’s decision to replace $400 billion of Treasuries in the central bank’s portfolio with longer-term debt to reduce borrowing costs.
“We’re believers that we’re probably going to avoid a recession,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages $150 billion, said in a telephone interview. “If people come to realize that economic growth isn’t as poor as sentiment or as stock prices have indicated, we probably could create some type of bottom.”
Most-Tied
The Morgan Stanley Cyclical Index of companies most-tied to economic growth added 2 percent. The Dow Jones Transportation Average rose 1.3 percent. The KBW Bank Index (BKX) gained 3.3 percent. Bank of America added 3.3 percent to $6.58. JPMorgan gained 2.8 percent to $33.20. GE increased 1.6 percent to $16.40. 3M rallied 2.5 percent to $78.36.
PepsiCo jumped 2.9 percent to $62.70 after saying third- quarter profit rose 4.1 percent as sales of Frito-Lay products increased. Chief Executive Officer Indra Nooyi created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.
“The reason we’re bullish and why we’re having a different view of the market is because we’ve had a lot more faith in the ability of U.S. corporations and the U.S. economy to still navigate through a U.S. expansion, despite what looks like very, very scary headlines,” Thomas Lee, the chief U.S. equity strategist at JPMorgan, said in an interview on Bloomberg Television “In the Loop” with Betty Liu.
Liz Claiborne Soars
Liz Claiborne Inc. (LIZ) surged 34 percent, the most since 1987, to $6.84 after agreeing to sell its namesake and Monet brands to J.C. Penney Co. and its Kensie line to Bluestar Alliance as the company works to reduce debt. The transactions and the completion of the sale of Dana Buchman brand to Kohl’s Corp. (KSS) are worth a total of $328 million in cash.
Alcoa Inc. (AA) fell 2.4 percent to $10.05. The first company in the Dow to report earnings this quarter posted profit that trailed estimates, saying European customers “dramatically” cut orders on economic uncertainty. Alcoa is grappling with rising production costs while the price of aluminum on the London Metal Exchange has fallen in the past two months.
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.
UBS AG raised its 2011 earnings forecast for companies in the S&P 500, citing stronger-than-forecast U.S. economic data. Thomas Doerflinger, a New York-based strategist, raised his profit estimate for the benchmark index to $96.64 a share from $95, saying earnings in the second half of the year will reflect higher economic growth expectations after U.S. manufacturing, auto sales, construction and payrolls data beat forecasts.
COMMODITIES
Oil Declines in New York as IEA Cuts Demand Forecast, Brent Strengthens
By Margot Habiby - Oct 12, 2011
Oil fell for the first time in six days after the International Energy Agency reduced its 2012 global consumption forecast and investors widened the spread between futures traded in New York and London.
Futures snapped the longest winning streak this year as the IEA cut demand estimates by 210,000 barrels a day and said Libyan output will rebound to 600,000 barrels a day by year’s end. Brent oil rose in London on speculation that Europe’s debt problems will be resolved and after the U.S. said Iran was linked to a plot to kill the Saudi Arabian ambassador to Washington.
“The IEA lowered their demand expectations and said Libyan output is going to be better than expected,” said Matt Smith, a commodities analyst with Summit Energy Services Inc. in Louisville, Kentucky.
Oil for November delivery fell 24 cents, or 0.3 percent, to settle at $85.57 a barrel on the New York Mercantile Exchange, the first decline since Oct. 4. Futures have fallen 6.4 percent this year.
The IEA reduced its world demand forecast to 90.5 million barrels a day. That means consumption will increase by 1.3 million barrels a day, or 1.4 percent, from this year.
Brent oil for November settlement rose 63 cents, or 0.6 percent, to settle at $111.36 on the London-based ICE Futures Europe exchange at 2:32 p.m. in New York.
Brent was $25.79 a barrel more expensive than New York futures, near a record $26.87 based on settlement prices Sept. 6. The spread has widened for the past four days, pressuring West Texas Intermediate oil futures traded in New York and supporting Brent.
Brent-WTI Spread
“People are playing the Brent-WTI spread because they think the European situation is going to be resolved and they’re going to use some oil in Europe,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The other reason is the Iranian situation. If we lose Iranian oil, it’s kind of the same thing as losing Libyan oil, and that drove the spread earlier this year.”
Libyan production dropped 97 percent this year to a low of 45,000 barrels a day in August as rebels deposed longtime leader Muammar Qaddafi, based on Bloomberg News estimates. Output increased to 100,000 barrels a day in September as a transitional government took over.
Iran produced 3.59 million barrels a day last month, second only to Saudi Arabia in the Organization of Petroleum Exporting Countries.
Condemnation of Iran
The U.S. will work closely with international partners to condemn Iran and further isolate it, Secretary of State Hillary Clinton said in a speech in Washington. She said the Islamic republic “must be held accountable” for its “flagrant violation” of U.S. and international laws.
Brent also increased more than WTI after the supervisory committee for the Dow Jones-UBS Commodity Index said yesterday that it will include Brent in the index for the first time from January, with a weighting of one-third of the crude portion of the index. It said it was reducing its WTI allocation.
Earlier, New York futures rose as much as 0.9 percent as the euro surged to a three-week high after European Commission President Jose Barroso called for a “coordinated approach” to recapitalize the region’s banks and Slovakia’s political parties reached an agreement to approve Europe’s enhanced bailout fund.
Slovakia is the only country in the 17-member euro area yet to approve the European Financial Stability Facility. Lawmakers rejected the measure yesterday amid a dispute over the future of Prime Minister Iveta Radicova.
Euro Surges
The euro gained 1.3 percent to $1.3818 at 2:32 p.m. in New York. Earlier, it touched $1.3834, the highest intraday level since Sept. 16 on an intraday basis.
“There’s relief about the risk in the EU,” said Thorbjorn Bak Jensen, an analyst at Global Risk Management in Middelfart, Denmark.
Oil prices also rebounded from the day’s lows because of a rally in the equity markets. The Standard & Poor’s 500 Index gained 2 percent to 1,219.68, and the Dow Jones Industrial Average increased 1.8 percent to 11,620.87.
“The crude oil market doesn’t really have much to trade on other than following the stock market around like a puppy dog,” said Stephen Schork, president of Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.
The U.S. Energy Department cut its crude-oil price projection for 2011 after futures prices in New York tumbled in September by the most since May 2010. WTI oil will average $92.36 a barrel this year, down 2.2 percent from the September projection of $94.40, the department said today in its monthly Short-Term Energy Outlook. Prices have averaged $94.92 a barrel so far this year.
Oil volume in electronic trading on the Nymex was 545,523 contracts as of 2:56 p.m. in New York. Volume totaled 810,036 contracts yesterday, 21 percent above the average of the past three months. Open interest was 1.42 million contracts.
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