Morning Brief: 13 January 2011

Food crisis feared in ’11 due to tight supply By Ronnel Domingo Philippine Daily Inquirer MANILA, Philippines—Weather shocks as well as supply and demand uncertainties may trigger another full-blown Asian food crisis this year and push up Philippine consumer prices by 1.5 percentage points, according to financial services firm Credit Suisse. Taking off from National Statistics Office (NSO) data, this would mean that the inflation rate may jump to about 4.5 percent by the middle of the year, from 3 percent year-on-year in December. In a nine-page report on Asian inflation, Credit Suisse said a repeat of the crisis seen in most of Asia in 2007 and 2008 “cannot be ruled out.” “In the worst case scenario, we assume that the UN Food and Agriculture Organization food price index rises by a further 30 percent from [present],” the company said. The report, penned by Santitharn Santhirathai and Wu Ku Lung, noted that non-Japan Asia’s (NJA) food price inflation in November 2010 was at its highest level in the past decade, except for 2007-08 when global food prices spiked to extraordinary heights. “As such, it is no wonder that food price inflation is among the top concerns on investors’ minds,” the paper added. “Recent flooding in rice exporting economies … and food inflation problems in China have led many investors and analysts to wonder whether the NJA economies are heading towards another food price crisis, similar to the one in 2007-08,” Credit Suisse said. Credit Suisse said it expects grain prices to rise by another 13 percent to 14 percent in 2011 from levels seen in the fourth quarter of 2010, which would translate into about an 8-percent to 9-percent increase in NJA food prices in local currency terms. The firm added that, based on this scenario, food inflation in Asia outside Japan might rise to about 15 percent by mid-2011, translating to an additional 1.5 percentage points to inflation rates. According to the NSO, the inflation rate for food alone—which accounts for about half of the overall inflation rate—remained at 2 percent in December. 2010 exports target topped Goal exceeded in November despite growth slowdown MERCHANDISE EXPORTS growth was at its slowest so far for 2010 last November but the month’s results were enough to top the full-year target, fueling optimism for 2011. Outbound shipments rose by 11.2% in November to $4.14 billion from a year ago, the government reported yesterday. This brought aggregate merchandise exports for the 11 months to $47.22 billion, up by 34.5% from last year’s $35.12 billion and surpassing the government’s 2010 target of $43.1 billion or a 15% growth. Month on month, exports declined by 13.4% from October’s $4.78 billion, data from the National Statistics Office (NSO) showed. Exports had grown by 27.4% the previous month. The November growth rate, however, was faster than the 5.8% recorded in the same month last year. Experts said the slowdown was expected due to seasonal trends. University of Asia and the Pacific (UA&P) economist Peter Lee U said, "November to December is the peak sales season [overseas], so most products have been exported from here before that period." Amid the continued growth, the government said it would review targets for 2011 once full-year economic data for 2010 become available. In a telephone interview, National Economic and Development Authority (NEDA) Deputy Director-General Augusto B. Santos said, "Our performance is good despite the perceptively weak global economic recovery [last year]." "Given the good showing, it (exports growth) may exceed 15% for 2011; in that case we may have to review the macroeconomic targets of the government," he added. Myrna Clara B. Asuncion, acting director for policy and planning at the NEDA, said the 13% export growth target for 2011 could be revised when fourth-quarter data come in next month. Industry officials, for their part, said growth would be modest in 2011. Sergio R. Ortiz-Luis, Jr. , Philippine Exporters Confederation, Inc. (Philexport) president and Export Development Council (EDC) vice-chairman, said in a telephone interview: "We have been saying that chances are high that growth targets will be exceeded. We are already levelling up to pre-crisis levels, where we hit our highest numbers." "This (the November exports data) is a preview of what we will have in 2011, which is a more modest growth of around 11%," he added. Arthur S. Young of the Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) said in a separate telephone interview: "We do expect that we are well within the 30% range." Both the SEIPI and Philexport maintained their 2010 growth targets at 25-30% and 20%-25%, respectively. Asked for a growth forecast for 2011, Mr. Young said: "It’s a little premature to arrive at a concrete number. But we believe growth for 2011 is at around 10%, as we are back to seasonal trends." "We expect a slow start in the first quarter and things to pick in the second to third quarter of 2011," he added. Mr. Ortiz-Luis said the EDC had set an export growth target of 11% for 2011. Electronics grew by 8.5% and remained the country’s top export earner in November, generating $2.33 billion in sales or 56.4% of the total. Growth was driven by semiconductor sales which went up by 19.6% to $1.72 billion in November. Apparel and clothing accessories, which accounted for just 3.3% of the total, followed with $138.20 billion in sales, up by 2.4%. The biggest gainers were gold, which went up by 208.5%; petroleum, 176.1%; and coconut oil, 118.5%. Exports of woodcraft and furniture grew by more than half to $134.22 million. According to the NEDA’s Ms. Asuncion, the main growth drivers in November were "upward shipments for manufactured goods, primarily semiconductors, and petroleum products." Experts expect rising world demand for electronics and semiconductors to continue supporting the country’s exports industry. "The outlook for exports... is good because of bright prospects for electronics," UA&P economist Cid L. Terosa said. "Exports will be one of the main drivers of the economy aside from remittances," he added. Mr. U said the "world economy is growing," enhancing the prospects of the country’s export industry. Japan was the top export destination for the month with revenues amounting to $668.27 million, up by 7.72% from a year earlier. China came in second with $652.76 million, up by nearly 180%, followed by the United States with $488.62 million.

U.S. Stocks Climb on Banks Upgrade, Europe's Effort to Resolve Debt Crisis U.S. stocks rose, sending benchmark indexes to the highest since August 2008, as Wells Fargo & Co. raised its rating for large banks on prospects for higher dividends and amid speculation Europe will step up measures to control its crisis. Bank of America Corp. and Citigroup Inc. gained at least 2 percent. JPMorgan Chase & Co. added 2.6 percent after Chief Executive Officer Jamie Dimon told CNBC that he would like to boost the company’s dividend. Canada’s Consolidated Thompson Iron Mines Ltd. soared 33 percent after Cliffs Natural Resources Inc. agreed to buy the company for about C$4.9 billion ($4.95 billion). Nvidia Corp. jumped 15 percent after Oppenheimer & Co. predicted a “good year” for the industry’s earnings. The Standard & Poor’s 500 Index rose 0.9 percent to 1,285.96 at 4 p.m. in New York, the highest since Aug. 28, 2008. The Dow Jones Industrial Average increased 83.56 points, or 0.7 percent, to 11,755.44. Treasury 10-Year Note Pares Loss as Demand Rises at $21 Billion Auction Treasuries pared declines after the government’s sale of $21 billion in 10-year notes drew the strongest demand since September from a group of investors that includes foreign central banks. Government securities had slumped earlier on speculation European officials are stepping up efforts to solve the region’s debt crisis, damping demand for the refuge appeal of U.S. debt. Indirect bidders, a class of buyers that includes central banks, bought 53.6 percent of the notes today, compared with an average of 44.5 percent in the last 10 sales. The Federal Reserve said it would buy $112 billion of debt during the next four weeks under the next round of its quantitative easing program. “Yields are better than they have been,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of 18 primary dealers that trade Treasuries with the Federal Reserve. “The foreign bid has come back to some degree.” The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.37 percent at 5:05 p.m. in New York, according to BGCantor Market Data. It touched as high as 3.41 percent.

Oil Rises to 27-Month High After U.S. Supplies Decline, Equities Increase Oil climbed to a 27-month high after supplies dropped more than forecast and the Standard & Poor’s 500 Index increased on signals European officials are stepping up efforts to solve the debt crisis. Futures increased 0.8 percent after the Energy Department said stockpiles fell 2.15 million barrels to 333.1 million last week, the lowest level since February. Inventories were forecast to decrease by 1.4 million barrels, according to a Bloomberg News survey. The S&P 500 rose above its highest close since August 2008 as European leaders consider aid for Portugal. “It was a big drop in crude-oil stocks, but not out of bounds of expectations,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester Massachusetts. “Portugal is likely to see a rescue package, and that’s cause for relief. The European financial crisis has been a major concern for the past year.” Crude oil for February delivery climbed 75 cents to $91.86 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 3, 2008. Futures are up 14 percent from a year ago.

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

Philippine Markets: 12 January 2011

12 January 2011

USD/PhP: 44.00 - 0.125 PSEi: 4037.23 + 4.86
USD/JPY: 83.14 PFINC: 902.92 - 7.85
EUR/USD: 1.2982 BDO: 55.60 + 0.20
GBP/USD: 1.5627 BPI: 54.50 - 1.40
PDSTF3M: 1.0786 MBT: 64.10 - 0.40
Prices as of 4:00pm Source: Bloomberg, Reuters



Philippines Export Growth Slumps to 12-Month Low
By Max Estayo

Jan. 12 (Bloomberg) -- Philippine export growth slowed to a 12-month low in November as sales of electronics and manufactured goods eased. Shipments abroad grew 11.2 percent from a year earlier to $4.14 billion after rising a revised 27.4 percent in October, the National Statistics Office said in Manila today. That compares with the median forecast for a 25.2 percent gain in a
Bloomberg News survey of seven economists.

“It’s a rather disappointing number,” said Radhika Rao, an economist at Forecast Pte in Singapore. “It signals fading seasonal demand, which is probably waning even for the electronics sector. Peso gains in the month could also have impacted manufacturers’ competitiveness.”

The outlook for Asian exports including chips made by the Philippine units of Texas Instruments Inc. and Intel Corp. is mixed after a world economic recovery spurred a rebound in demand last year. While U.S. retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years, global semiconductor sales growth slowed in November.

“People are nervous that the global economy might sputter,” David Cohen, an economist at Action Economics in Singapore, said before the report. Still, “the global picture suggests demand is
continuing its upward trajectory.”

Electronics Sales

Exports account for about a third of the Philippines’ $161 billion economy. Electronics sales, which make up more than half of Philippine exports, climbed 8.5 percent in November from a
year earlier, compared with a 38.2 percent increase in October, today’s report showed.

“The soft number has been distorted by a high base in the last quarter of” the previous year when exports started to recover, Barclays Capital regional economist, Prakriti Sofat,
said by telephone after the release. “Going forward, we would see exports underpinned by a supportive external environment and a pickup in the electronic sector.”

Global semiconductor sales rose 14.4 percent in November from a year earlier, slowing from a 19.8 percent pace the previous month, according to the Semiconductor Industry Association.

The peso climbed to 42.47 per dollar on Nov. 4, the highest level in 2 1/2 years, according to Tullett Prebon Plc. It traded at 44.075 at 9:43 a.m. in Manila, little changed from yesterday.

PH stock prices firm up

Local stocks firmed up on Wednesday as investors picked up bargains after a two-day bloodbath.

The main-share Philippine Stock Exchange index added 4.86 points or 0.12 percent to 4,037.23.

The recovery was led by the industrial and mining/oil counters, which surged by 1.9 percent and 2.21 percent, respectively.

Only the interest rate-sensitive property counter traded in the red alongside increasing expectation of a monetary tightening in the latter part of this year as Asian central banks' concern shifts to rising inflation from appreciating local currencies.

Value turnover surged to P6 billion from a little over P4 billion in the last few days.

There were 91 advancers as against 55 decliners and 34 unchanged stocks.

The stocks that actively gained on heavy volume were Manila Electric Co., Cyber Bay Corp., Semirara Mining Corp., Alliance Global Group Inc., San Miguel Corp., Universal Robina Corp., Cebu Air Inc., First Philippine Holdings Corp., Metro Pacific Investments Corp., Ayala Corp., Nickel Asia Corp., Philippine Long Distance Telephone Co., Empire East Land Holdings Inc. and DMCI Holdings Inc.

On the other hand, investors sold down shares of Metropolitan Bank & Trust Co., Aboitiz Power Corp., Megaworld Corp., Manila Water Co. Inc. and Ayala Land Inc.

Morning Brief: 11 January 2011

Gov’t studying more frequent RTB offerings RETAIL TREASURY BOND (RTB) issuances could be staged more frequently by the government, the National Treasurer said. "We’d like to make it a program so it becomes a regular supply source for small investors and savers," Roberto B. Tan told reporters following yesterday’s T-bill auction. "There is demand and it is also good for small investors to always have a source of investments with meaningful returns," he added. Earlier in the day, First Metro Invesment Corp. Executive Vice President Roberto Juanchito T. Dispo said at a briefing that the government was looking at an RTB sale every semester. "The Treasury wants RTBs to be more predictive, as much as going to one every semester," he said, adding: "We are looking at amounts of P50 billion per tranche." FMIC served as arranger for the Treasury’s RTB sale last August. The government sold RTBs twice last year. In April, it raised $500 million from the sale of three- and five-year papers in dollar and euro-denominations. In August, it raised P97 billion from the sale of five-, seven- and ten-year RTBs. Mr. Tan said officials were also considering a swap of dollar-denominated bonds to global peso bonds. "We’re still figuring out market reception for it," he said. New taxes not in list of priorities SOME 30 priority measures have been identified by Cabinet officials as priority measures needing action by Congress, a Malacañang official yesterday said. The list, which the official said does not include new tax legislation, will be further trimmed to 25 before being submitted to President Benigno S. C. Aquino III for approval. A Cabinet workshop yesterday resulted in the initial list, Sec. Ricky A. Carandang of the Presidential Communication Development and Strategic Planning Office said. Mr. Aquino, he added, will decide what items will be included in Executive branch’s legislative agenda that is to be submitted during a Legislative Executive Development Advisory Council (LEDAC) meeting later this month. "The criteria [in choosing the bills] include [their] relevance to the [government’s] 16-point agenda," Mr. Carandang said, along with "impact on the largest number of people" and "doability" -- how easy it would be to get legislative approval. Mr. Aquino’s "Social Contract with the Filipino People" seeks to address poverty by weeding out graft and corruption in the bureaucracy and creating jobs, among others. The list of measures, said Mr. Carandang, have been clustered into five areas: human development; infrastructure development; economic development; sovereignty, security and rule of law; and good governance. "We did not discuss measures to increase taxes but mostly measures that might help revenue collections rather than [a] legislated increase in taxes," he added. The controversial reproductive health (RH) bill, however, is one of the 30 identified bills. The list "will roughly hew to what the President talked about during the State of the Nation address (SONA)," Mr. Carandang said. Among the measures listed in Mr. Aquino’s SONA last year were the fiscal responsibility, rationalization of fiscal incentives, anti-trust, national land use and whistleblower bills. Legislators, meanwhile, are preparing their own talking points for the LEDAC meeting, with leaders of both chambers of Congress saying these would be aligned to that of the Aquino administration. Both Senate President Juan Ponce Enrile and House Speaker Feliciano R. Belmonte, Jr. have stated that the proposed antitrust law would be prioritized. Other than the antitrust law, the Senate priorities are said to include the Electricity Rate Reduction Act, National Telecommunications Commission Reorganization Act, Government Owned and Controlled Corporations Governance Act, the creation of a People’s Survival Fund under the Climate Change Act of 2009, and amendments to the Electric Power Industry Reform Act. The House priorities, meanwhile, include the Public-Private-Partnership Law as an amendment of the Build-Operate-Transfer Law, Anti-Money Laundering Act; Right to Information Bill and the RH bill.

U.S. Stocks Retreat as Daylong Rebound Fails to Erase S&P 500 Index Loss U.S. stocks declined for a third day as a daylong advance that reversed most of a 100-point loss in the Dow Jones Industrial Average fell short of erasing all the losses spurred by concern Europe’s credit crisis may worsen. DuPont Co. and Duke Energy Corp. slumped at least 1.1 percent after announcing takeovers valued at more than $20 billion. Strayer Education Inc. led losses in for-profit education stocks, tumbling 23 percent after forecasting less profit than analysts estimated because enrollment plunged. Apple Inc. rallied 1.9 percent after analysts said Verizon Wireless’s introduction of the iPhone will boost sales. The Standard & Poor’s 500 Index lost 0.1 percent to 1,269.75 at 4 p.m. New York time after losing as much as 0.7 percent after the cost to insure against sovereign defaults in Europe jumped to a record high. The Dow average lost 37.31 points, or 0.3 percent, to 11,637.45. U.S. 10-Year Notes Gain for a Third Day on Concern About European Debt Treasury 10-year note yields fell for a third straight day for the first time since November amid concern about a bailout for Portugal, and as it joins Spain and Italy in plans to borrow at least $43 billion this week. Two-year note yields touched the lowest in almost five weeks as the cost of insuring Portuguese bonds against default rose to a record. Treasuries yields extended a drop from Jan. 7, after Federal Reserve Chairman Ben S. Bernanke said the labor- market recovery will be gradual and a report showed the nation’s employers added fewer jobs than forecast. The Fed bought $7.79 billion in Treasuries due from February 2018 to August 2020 as part of its plan to spur the economy. “There’s a spillover from Europe,” said Thomas Tucci, head of U.S. government bond trading at Royal Bank of Canada’s RBC Capital Markets in New York, one of 18 firms that trade directly with the Fed. “The front end of the market after Bernanke spoke on Friday realizes the Fed is not in any rush to remove accommodation, so it’s relatively well bid.” Ten-year yields dropped four basis points to 3.29 percent, at 5:08 p.m. in New York, BGCantor Market Data show, the first three-day decline since Nov. 30. The 2.625 percent security maturing in November 2020 rose 10/32, or $3.13 per $1,000 face value, to 94 15/32.

Crude Oil Rises After Alaskan Pipeline Shutdown Cuts Production After Leak Crude oil rose after BP Plc and its partners in the Trans Alaska Pipeline System, which carries 15 percent of U.S. output, couldn’t say when production would return after the line was shut following a leak. Futures climbed 1.4 percent after the pipeline’s Jan. 8 closure forced companies to suspend 95 percent of production from the North Slope area. U.S. crude supplies fell 6.8 percent to 335.3 million barrels in the five weeks ended Dec. 31, according to the Energy Department. “The Alaska oil pipeline is getting considerable attention because it comes on the heels of a significant drawdown in U.S. crude-oil inventories over the past several weeks,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Crude oil for February delivery increased $1.22 to settle at $89.25 a barrel on the New York Mercantile Exchange. Prices are up 7.9 percent from a year ago.

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