Morning Brief: 17 October 2011

PHILIPPINES
 
House sets out priority bills to help business - Belmonte
 
By: Abigail L. Ho
Philippine Daily Inquirer
 
The House of Representatives is accelerating the approval of bills and the amendment of existing laws that will make the country’s business environment more attractive to investors.
 
House Speaker Feliciano Belmonte Jr. said that lawmakers have been fast-tracking amendments to the Build-Operate-Transfer (BOT) Law and the Electric Power Industry Reform Act (Epira) “to encourage private sector participation in public infrastructure projects.”
 
“Our amendatory laws are intended to equalize and make uniform the treatment of investors, promote transparency in the award of contracts, and predictability in the relations between the government and private investors,” he said in a speech before members of the Philippine Chamber of Commerce and Industry last week.
 
Belmonte said that as a prelude to the amendment of the Epira, Congress approved the extension of the life of the Joint Congressional Power Commission (JCPC), which will be tasked to study the needs of the industry and recommend laws that will prevent a return to the crisis years of the 1990s.
Proposed amendments to the BOT Law, on the other hand, are now in the advanced stages of committee deliberations, according to Belmonte. The changes aim to remove the cloud of suspicion that often accompanied public-private dealings by making “competitive bidding the cornerstone in the award of contracts.”
 
Apart from these amendments, he said, Congress would likewise push the passage of new business-friendly laws, including the Customs Modernization and Tariff Act, Rationalization of Fiscal Incentives, Fiscal Responsibility Act and reformed valuation systems.
 
The Customs Modernization and Tariff Act, which has been approved on third reading, would modernize the Bureau of Customs and make procedures comply with those under the revised Kyoto Convention and other international standards.
 
“This should reduce the incidence of smuggling. Through this measure, we expect to attain an efficiency gain worth P110 billion,” Belmonte said.
 
The House also aims to step up the fight against corruption through amendments to the Anti-Money Laundering Act as well as the passage of the Whistleblower’s Act and the Freedom of Information Act.

 

WORLD

S&P 500 Index Caps Best Weekly Gain Since July 2009 on Retail-Sales Data

By Kaitlyn Kiernan and Inyoung Hwang (Bloomberg)
U.S. stocks rose, driving the Standard & Poor’s 500 Index to the largest weekly gain since July 2009, amid optimism over corporate earnings and steps by European leaders to support the region’s banks.

Caterpillar Inc. (CAT), Walt Disney Co. (DIS) and DuPont Co. jumped at least 7.6 percent to lead the Dow Jones Industrial Average, which rallied a third straight week, the longest stretch since April, and erased its 2011 loss. Energy, raw-material and technology shares led gains by all 10 industries in the S&P 500 and added at least 7.5 percent. Apple Inc. (AAPL) closed at a record high and Google Inc. completed a nine-day streak of gains.

The S&P 500 climbed 6 percent this week to 1,224.58, the highest level since Aug. 3. The measure has surged 11 percent since Oct. 3, when it closed within 1 percent of a bear market, or 20 percent plunge, from its high in April. The Dow rose 541.37 points, or 4.9 percent, to 11,644.49 this week.

“It’s cautious but a little more optimistic,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $250 billion. “People are shifting their attentions back toward earnings with announcements under way this week. They’re hopeful that, at least for now, disaster can be averted in Europe.”

Stocks rallied the most since August on Oct. 10 after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they will deliver a plan to recapitalize European banks by Nov. 3. The Group of 20 began talks yesterday to address the debt crisis. The S&P 500 has rebounded after dipping below 1,100 in early October for the first time in more than a year and posting its biggest quarterly loss since the end of 2008.

Retail Sales

The S&P 500 extended its weekly advance yesterday, rising 1.7 percent, after a report on U.S. retail sales beat estimates.

The Citigroup Economic Surprise Index for the U.S. turned positive for the first time since April 29, the day the S&P 500 peaked at an almost three-year high. It climbed to 2.2, up from minus 117.20 on June 3. The reading four months ago showed reports were missing the median economist projection in Bloomberg surveys by the most since January 2009.

Corporate earnings helped drive U.S. stocks higher this week. Alcoa Inc. (AA), the first company in the Dow to report results for the third quarter, announced earnings that trailed analysts’ projections, while Google Inc. jumped the most in a week since April 2008 after sales and profit beat estimates. The owner of the world’s most popular search engine rallied 15 percent to $591.68.

Less Fear

“The systemic fear is definitely subsiding,” Robert Carey, chief investment officer at First Trust Portfolios LP, said in a telephone interview. The Wheaton, Illinois-based firm oversees about $46 billion. “We’ve got earnings coming in better than expected, and valuations are quite low on a price- to-earnings basis, so there really isn’t a lot of downside risk to the market.”

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.77 for all of 2011, according to analyst estimates compiled by Bloomberg. The S&P 500 is trading for 11.1 times forecast earnings for 2012, compared with its five-decade average of 16.4 times reported income, according to data compiled by Bloomberg.

It’s time to “extend risk,” Jonathan Golub, chief U.S. market strategist at UBS AG, wrote in a note dated Oct. 10. “As macro concerns subside, stocks which have experienced the greatest price declines are likely to snap back the quickest.”

Most Since 2009

Golub said industrial, raw-material and energy shares are the most attractive. Those groups are among the ones that fell the most since the S&P 500 dropped from a three-year high at the end of April. This week, the Morgan Stanley Cyclical Index advanced 8.5 percent, the biggest gain since July 2009. Caterpillar surged 11 percent to $84.09. Walt Disney added 8.7 percent to $34.47. DuPont climbed 7.6 percent to $45.09.

Energy stocks rallied the most out of 10 groups in the S&P 500 this week. Crude oil rose to a three-week high as the S&P GSCI Index of 24 commodities jumped the most in 10 months. Denbury Resources Inc. (DNR) rose 22 percent to $14.30, the second- biggest gain in the S&P 500. Range Resources Corp. (RRC) climbed 21 percent to $72.46.

Apple surged 14 percent to $422. The world’s biggest technology company by market value released the iPhone 4S in the U.S., Australia, Canada, France, Germany and Japan. U.S. sales may reach as much as 4 million units this weekend, according to Boston-based Yankee Group.

Google jumped 15 percent to $591.68. Demand for online advertising vaulted third-quarter sales at the world’s biggest Internet-search company past analysts’ estimates.

Harman International Industries Inc. (HAR) soared 23 percent, the most in the S&P 500, to $37.47. Relational Investors LLC, the money manager run by activist investor Ralph Whitworth, boosted its stake in the maker of audio systems for homes and vehicles to 3.86 percent and urged the company to add independent directors.

Liz Claiborne Inc. (LIZ) surged 63 percent, a record weekly gain, to $7.60. It announced a plan to sell brands including its namesake to J.C. Penney Co. and rename the company to focus on the Juicy Couture, Kate Spade and Lucky Brand lines.

 

COMMODITIES

Crude Oil Climbs to Three-Week High on G-20 Discussions, U.S. Retail Sales

By Mark Shenk (Bloomberg)
Crude oil rose to a three-week high as the Group of 20 began discussions in Paris on a solution to Europe’s debt crisis and U.S. retail sales climbed.

Futures increased 3.1 percent after G-20 and International Monetary Fund officials said the IMF may bolster its lending resources to help stem the crisis. U.S. retail sales advanced 1.1 percent last month, the Commerce Department said today. Brent oil in London traded at a record premium to West Texas Intermediate, the U.S. benchmark, for the second straight day.

“The debt crisis is far from over but it appears that they are making progress, which is bullish for oil,” said Michael Wittner, the head of oil-market research at Societe Generale SA in New York. “Economic data, especially in the U.S., has improved recently. It’s now mixed, rather than negative.”

Crude oil for November delivery rose $2.57 to $86.80 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 20. Prices climbed 4.6 percent this week and have dropped 5 percent in 2011.

Brent oil for November settlement rose $3.57, or 3.2 percent, to end the session at $114.68 a barrel on the London- based ICE Futures Europe exchange. November futures expired today. The more active December contract climbed $3.03, or 2.8 percent, to $112.23.

The European benchmark future exceeded the New York contract by $27.88 a barrel today, based on front-month closing prices. The previous record spread was $26.88 yesterday.

‘Waning’ Relevance

The relevance of West Texas Intermediate to oil markets is “waning” as some commodity indexes raise weights of Brent, Barclays Capital said. The Dow Jones-UBS Commodity Index announced Oct. 11 it will include Brent for the first time in January, with a weighting of 5.31 percent, and cut its WTI allocation to 9.69 percent from 14.71 percent. The Standard & Poor’s GSCI Index said on Oct. 6 it will make similar changes.

European leaders may complete a debt plan at an Oct. 23 summit to present to a gathering of G-20 chiefs Nov. 3-4. Yesterday, Standard & Poor’s cut Spain’s credit rating for the third time in three years and new data showed the eight largest U.S. money-market funds almost halved their lending to French banks last month.

“The outlook for an IMF-G-20 plan is overshadowing all of the country and bank downgrades,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The prospect of bailouts is bullish for oil. When there’s a new plan in the works it’s a signal for investors to buy commodities.”

European Proposals

European officials are considering writedowns of as much as 50 percent on Greek bonds, a backstop for banks and continued central bank bond purchases to combat the debt crisis, people familiar with the discussions said. The Greek bond losses may be accompanied by a pledge to rule out debt restructurings in other countries that receive bailouts, said the people, who declined to be identified because the negotiations are ongoing.

The Standard & Poor’s 500 Index advanced 1.3 percent to 1,219.79 and the Dow Jones Industrial Average gained 1.1 percent to 11,602.10. The dollar dropped 0.7 percent to $1.3874 against the euro. A weaker U.S. currency bolsters the appeal of dollar- denominated raw materials as an investment.

“What the market does each day recently depends on how we are looking at the European debt situation,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Today we’re wearing rose-tinted glasses.”

The Standard & Poor’s GSCI Index of 24 raw materials climbed 2.6 percent to 639.14. The index is up 5.4 percent this week and headed for the biggest weekly gain since December.

Economic Outlook

“Oil is moving on the economic outlook and the overall strength in commodity markets,” said Rick Mueller, a principal with ESAI Energy LLC in Wakefield, Massachusetts. “It’s responding to the better outlook for U.S. economic growth and speculation that we may be near some sort of resolution to the euro-zone crisis.”

August retail sales climbed 0.3 percent, up from a previous estimate of no change, the Labor Department in Washington said. Ten of 13 major U.S. retail categories showed increases last month, led by auto dealers and clothing stores.

“We’re experiencing a swing in sentiment based on hope and optimism, not a change in the underlying fundamentals,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The retail numbers were nice but we need to see a gain in income as well for this to signal something sustainable.”

OPEC Meeting

The Organization of Petroleum Exporting Countries will meet on Dec. 14 in Vienna to discuss whether to cut or increase member’s production targets.

“The rise in prices will make OPEC’s task a lot easier in December,” Armstrong said. “The Brent price was recently flirting with $100, but is now comfortably higher. There’s probably a comfortable feeling in the Middle East as a result.”

Oil volume in electronic trading on the Nymex was 587,280 contracts as of 3:06 p.m. in New York. Volume totaled 759,857 contracts yesterday, 13 percent above the average of the past three months. Open interest was 1.43 million contracts.