Philippines Markets: 22 October 2010

22 October 2010

USD/PhP: 43.34 (as of 3:30pm) PSEi: 4286.87 + 37.82
USD/JPY: 81.13 PFINC: 960.41 + 8.85
EUR/USD: 1.3900 BDO: 60.00 unch
GBP/USD: 1.5698 BPI: 56.60 - 0.25
PDSTF3M: 3.7635 MBT: 74.00 + 2.45
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary money market rates moved sideways to down this week despite national government's report of another month of deficit amounting to 31.7 billion pesos. This brings the year to date deficit to 259.8 billion pesos during the first nine months of 2010. Continue to expect rates to move sideways.

Philippines Equities Outlook

Local shares continued to trek upward, rising 1.67 percent week on week to 4,286.87 despite a flash drop earlier on the trading week. Optimism on 3Q earnings continue to stir local and foreign investors to buy local shares.

Chartwise, the week's close at 4286.87 continues to support further rallies towards the 4,250-4,500 levels. Immediate support and resistance is seen at 4,150 and 4,250 levels, respectively.

Philippine Peso Outlook

As of 3:30 pm, the local currency depreciated this week against the dollar as the dollar strengthened against major currencies particularly the Euro. The currency hit a low of 43.64 during the early part of the week but recovered as inflows buoyed the Philippine Peso.

Chartwise, expect the currency to range between 43.15-43.50 levels.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 22 October 2010

9-month budget deficit hits P259.8B The government incurred a budget deficit of P259.8 billion in the nine months to September, 5 percent lower than the P273.7-billion ceiling, Finance Secretary Cesar V. Purisima said Thursday. Purisima said, however, that overspending for the period was P22.3 billion, or 9.4-percent higher, than the deficit incurred in the same period in 2009. He said the government’s “over-performance” in terms of its fiscal position could be attributed to less spending—by P54.2 billion year on year—“partly on account of the savings in interest payments due to lower borrowing cost.” According to National Treasurer Roberto B. Tan, the government saved P11.4 billion in interest payments, shelling out only P244 billion during the period. The budget deficit for the first three quarters of the year represented about 80 percent of the projected full-year deficit ceiling of P325 billion. Purisima said the main revenue agencies boosted the government’s fiscal standing with collections reaching P894.7 billion, or 6.5 percent, higher than last year’s P839.8 billion. However, actual revenues were P40.4 billion short of the targeted P935.1 billion. The Bureau of Internal Revenue contributed P607.3 billion, up 9 percent from year-ago collections but 2.2 percent below its target. The Bureau of Customs chipped in P191.7 billion, up 15.5 percent year on year but down 9.1 percent against the target. The Bureau of the Treasury turned in P45.5 billion, which was 12.8 percent lower than the P52.2 billion earned last year. Expenditures for the first nine months reached P1.15 trillion, increasing by 7.2 percent from P1.03 trillion a year ago. “Let me reiterate that this administration remains focused on its good governance agenda with emphasis on tax enforcement and expenditure discipline,” Purisima said. “We will pursue our economic objectives of sustainable economic growth and poverty reduction within a sound fiscal framework.” In September alone, the deficit amounted to P31.7 billion, higher by 15.2 percent than the P27.5 billion incurred in the same month of 2009. Total revenues for the month reached P91.9 billion, a decrease of 8.7 percent from P100.7 billion. Of the total, the BIR chipped in P61 billion, which was 8.4 percent higher than the year-ago level of P56.2 billion. Customs contributed P20.2 billion, an increase of 10.8 percent from P18.3 billion, and the Treasury turned in P5.3 billion, short of last year’s P6 billion by 12 percent. Peso won’t hit P41:$1 this year -- Aquino THE PESO is unlikely to hit P41 per US dollar this year, President Benigno C. Aquino III yesterday said, noting central bank efforts to address capital inflows that are affecting exporters as well as families of overseas Filipino workers. "The P41 [per dollar rate], perhaps [will] not [happen] this year. The P43-44 level has a little bit of comfort," Mr. Aquino said in Cauayan, Isabela, yesterday after visiting areas affected by typhoon Juan. "[The] Bangko Sentral [ng Pilipinas] is doing its job well in trying to achieve some stability in terms of exchange rate." The President was commenting on an HSBC forecast that the currency could strengthen to as high as P41 per dollar by yearend. "That [a strong peso], of course, negatively impacts our exports sector which is rebounding already, contributing a lot to the national economy," Mr. Aquino said. He added that it "negatively impacts our remittances", referring to the reduced amounts migrant worker families would be getting. The peso has gained around 6% since the start of the year.

U.S. Stocks Rise on Corporate Earnings, Jobless Claims Data U.S. stocks rose, sending benchmark indexes higher for a second day, as better-than-estimated earnings from EBay Inc. to McDonald’s Corp. and a drop in jobless claims helped offset a slump in financial companies amid speculation that banks face more losses from bad mortgages. EBay, the owner of second-most visited e-commerce site, jumped 6 percent, while McDonald’s climbed 1.3 percent. Netflix Inc., the movie-rental service, surged 13 percent after raising subscriber projections. Bank of America Corp. slid 3.3 percent. Alcoa Inc. and Occidental Petroleum Corp. slumped at least 1.3 percent as commodities prices sank amid a rebound in the dollar. The Standard & Poor’s 500 Index advanced 0.2 percent to 1,180.26 at 4 p.m. in New York, after earlier declining as much as 0.6 percent. The Dow Jones Industrial Average rose 38.60 points, or 0.4 percent, to 11,146.57 and earlier topped the highest level on a closing basis since the week Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008. Treasuries Tumble as Investors Balk at Low Yields, Wait for Fed Decision Treasuries fell, pushing 30-year yields up for the first time in four days, as investors balked at low yields amid speculation about whether the Federal Reserve will buy debt to spur the economy and, if so, how much. Yields on the longest-maturity U.S. securities earlier matched the lowest level in a week after two Federal Reserve policy makers said yesterday another round of debt purchases by the central bank may not be needed, reducing concern inflation will balloon. St. Louis Fed President James Bullard proposed today that the central bank buy $100 billion in long-term Treasuries next month and consider more purchases later. “In terms of Treasuries, I wouldn’t touch them with a 10- foot pole, except maybe on the short side,” Steven Leuthold, whose Leuthold Core Investment Fund has beaten 88 percent of its rivals in the past five years, said in an interview with Betty Liu on “In the Loop” on Bloomberg Television. “Yields are so skimpy it makes no sense for people to be putting money in anything other than very, very short-term bonds.” The 30-year bond yield climbed seven basis points, or 0.07 percentage point, to 3.96 percent at 4:58 p.m. in New York, according to BGCantor Market Data. It earlier fell to 3.87 percent for a second day, the lowest level since Oct. 14, after reaching a 2010 high of 4.86 percent in April. The price of the 3.875 percent security maturing in August 2040 tumbled 1 1/4, or $12.50 per $1,000 face amount, to 98 1/2. The 10-year note yield rose seven basis points to 2.55 percent. Its high for the year, also in April, was 4.01 percent.

Oil Rebounds After U.S. Jobless Figures, Indicators Prompt Growth Optimism Oil rose in New York after U.S. jobless claims fell and a gauge of the economy’s prospects rose in September for a third month, signaling a recovery in fuel demand in the world’s biggest crude-consuming nation. Futures retraced some of yesterday’s 2.4 percent decline after the New York-based Conference Board’s index of leading economic indicators climbed 0.3 percent, matching the median forecast of 57 economists surveyed by Bloomberg News. Initial jobless claims dropped by 23,000 to 452,000 in the week ended Oct. 15, Labor Department figures showed. The December contract gained as much as 29 cents, or 0.4 percent, to $80.85 a barrel in electronic trading on the New York Mercantile Exchange, and was at $80.80 at 9:23 a.m. Sydney time. Yesterday it decreased $1.98 to $80.56. Prices are 0.5 percent lower for the week and down 0.5 percent this year.

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

Morning Brief: 21 October 2010

BSP forex losses hit P9.67B in 2009 The Bangko Sentral ng Pilipinas incurred heavy foreign-exchange losses in 2009 as it moved to prevent a steep appreciation of the peso. The latest unaudited financial statement of the BSP showed that the monetary agency’s foreign exchange losses reached P9.67 billion in 2009, a reversal of the P53-million gain recorded in 2008. The central bank loses in times of a rising peso as it can only temper a sharp appreciation by buying foreign exchange, which boosts demand for dollars and, in the process, weakens the local currency. Officials said the peso could have been stronger than it was in 2009 were it not for the central bank's intervention in the foreign exchange market. The record in 2009, however, was smaller than the P113.71 billion in losses recorded in 2007 when the peso appreciated more sharply against the greenback. The peso ended 2007 at 41.74 against the dollar. It closed lower at 48.09 in 2008, thus allowing the central bank to post foreign exchange gain. In 2009, the peso ended the year at 46.42, stronger than the previous year's finish. Despite the foreign-exchange losses incurred by the BSP in 2009, its overall financial position remained healthy, posting a net income of P13.13 billion for the year, up from P8.93 billion in 2008. The profit was boosted by the BSP’s offshore investments, specifically in US treasuries. Given the sharp rise of the peso this year, analysts expect the central bank to post a much bigger foreign-exchange loss. Bangko Sentral Governor Amando Tetangco Jr. would not comment on speculations that the monetary authority could post a considerable loss this year because of its heavier dollar buying to temper the rise of the peso, which now hovers in the 43-to-a-dollar territory. Tetangco earlier said, however, that the BSP must be gauged not based on its income or loss, but on its ability to perform its mandate, including keeping a relatively stable exchange rate and maintaining a tolerable level of increase in consumer prices. Growth goal to be revisited But Aquino says ‘caution’ to be exercised in considering changes FOLLOWING A SPATE of outlook upgrades by multilateral organizations, a review of the official 2010 growth target of 5.0-6.0% will be made but any change will likely not be drastic, President Benigno C. Aquino III yesterday indicated. "We will revisit but will exercise caution given developments in the world’s business and economic fronts," Mr. Aquino said in a text message when asked if revisions were timely following the World Bank’s raising its Philippine prognosis to 6.2% from 4.4% last Tuesday. He did not elaborate. Officials of the Development and Budget Coordination Committee (DBCC) -- which sets the country’s macroeconomic targets -- were not immediately available for comment. The president’s statements echoed that of DBCC chairman and Budget Secretary Florencio B. Abad, who last week said the panel "may consider revisions if ever a meeting will be held." Mr. Abad warned that the government wanted to keep its gross domestic product (GDP) growth estimates "conservative" and added that some "economic projections are now becoming overly optimistic." The previous Arroyo administration raised this year’s growth target from 2.6-3.6% to 5.0-6.0% -- adopted by the Aquino government -- after surprisingly strong first-quarter growth of 7.3%, a figure later revised to 7.8%. The pace accelerated slightly to 7.9% in the second quarter, prompting financial institutions, debt watchers and multilateral agencies to revise their projections. The International Monetary Fund (IMF) earlier this month raised its outlook to 7% from 6%, while the Asian Development Bank (ADB) in September announced a higher 2010 estimate of 6.2%, up from 5% previously. Commenting on Mr. Aquino’s statement, University of Asia and the Pacific economist Victor A. Abola said a review of the 2010 target was not needed. "I think it’s not necessary anymore. Work is always a variable. Manpower is needed for another recalculation and there’s only two months left to finish the year," he said in a telephone interview. "Revisiting the targets for next year is more important." The government has a 7-8% GDP growth target for 2011, higher than the World Bank’s 5%, IMF’s 4.5% and the ADB’s 4.6%. Mr. Abola expects 2010 growth to fall within 6.8-7%, easing to 6% in 2011.

U.S. Stocks Gain as Better-Than-Expected Results Boost Optimism U.S. stocks advanced, with benchmark indexes rallying the most in two weeks, on higher-than-estimated results at Boeing Co. and Yahoo! Inc. and speculation the Federal Reserve will inject more money into the economy. Boeing climbed 3.4 percent after also raising its full-year earnings projections. Yahoo! rose 2 percent after third-quarter profit beat analysts’ estimates. Freeport-McMoRan Copper & Gold Inc. added 2.8 percent, leading a measure of raw-materials producers to the biggest gain among 10 industries in the Standard & Poor’s 500 Index. The S&P 500 rose 1.1 percent to 1,178.17 at 4 p.m. in New York, maintaining gains after the Fed said in its Beige Book business survey that U.S. economic growth showed little sign of acceleration last month, fueling speculation it will boost purchases of government debt. The Dow Jones Industrial Average increased 129.35 points, or 1.2 percent, to 11,107.97. Treasury Bonds Advance as Beige Book Fails to Quell Speculation on Easing Treasury 30-year bonds rose as a Federal Reserve regional survey showing a “modest pace” in the economic recovery failed to quell speculation that policy makers will increase asset purchases to spur inflation and employment. Yields on the longest-maturity U.S. securities touched the lowest level since Oct. 14, reversing an earlier rise, as the dollar slid against most major currencies on bets the central bank will pump more money into the economy in a tactic called quantitative easing. Ninety percent of respondents to a Citigroup Inc. survey said they expected an easing announcement at the Fed’s Nov. 2-3 meeting. “The Beige Book was more upbeat, but the economy is still weak and there were no clues as to what asset purchases will look like,” said James Combias, New York-based head of Treasury trading at Mizuho Financial Group Inc., one of 18 primary dealers that trade with the Fed. “The market will have to wait to get more answers regarding QE. Until then, the market will stay bid and in a range.” The yield on the so-called long bond fell two basis points, or 0.02 percentage point, to 3.89 percent at 4:56 p.m. in New York, according to BGCantor Market Data. It slid as low as 3.87 percent. The 3.875 percent security due in August 2040 gained 13/32, or $4 per $1,000 face amount, to 99 22/32. The benchmark 10-year note yield was little changed at 2.48 percent after declining to 2.45 percent and earlier rising to 2.59 percent.

Oil Near $82 After Rising the Most in Five Weeks in N.Y. as Dollar Falls Oil for December traded near $82 a barrel in New York after the November contract rose the most in five weeks yesterday as the dollar fell and crude U.S. stockpiles gained less than forecast. November futures, which expired yesterday, jumped 2.9 percent after the Federal Reserve said the economy expanded at a “modest pace” in September and early October, sending the U.S. currency lower. A weaker greenback bolsters the appeal of raw materials to investors. The Energy Department said that crude supplies climbed less than half the projection in a Bloomberg News survey. “It’s all the dollar,” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago. The dollar will probably remain weak until after the Federal Reserve meeting and the congressional elections in November, he said. The December contract was at $82.56 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange at 9:31 a.m. Sydney time. Yesterday it rose $2.38, or 3 percent, to $82.54. Prices are up 4 percent this year. Oil for November delivery surged $2.28 to $81.77 at its final settlement, the biggest gain since Sept. 10.

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