Philippine Markets: 07 February 2011

07 February 2011

USD/PhP: 43.63 - 0.14 PSEi: 3880.03 + 7.68
USD/JPY: 82.46 PFINC: 872.52 + 0.52
EUR/USD: 1.3588 BDO: 50.30 - 0.20
GBP/USD: 1.6152 BPI: 53.60 + 0.80
PDSTF3M: 3.6673 MBT: 62.90 - 0.55
Prices as of 4:00pm Source: Bloomberg, Reuters


Asian stocks mixed following US jobs data

Asian stock markets were mixed on Monday after a US jobs report gave a muddy picture of the state of the world's biggest economy, while concerns over Egypt pushed oil back above $100.

Tokyo ended 0.46 percent, or 48.52 points, higher at 10,592.04 and Seoul added 0.47 percent, or 9.71 points, to 2,081.74.

Sydney closed 0.12 percent, or 5.8 points, up at 4,868.5 while Hong Kong fell 0.49 percent by the break and Singapore was 0.14 percent stronger.

Trade was quiet across the region as dealers in many markets returned to work after the Lunar New Year holiday, although Shanghai and Taipei remained closed.

"The trend of a global equity market rise is continuing on the back of a stable recovery in the US economy," Hiroichi Nishi, general manager at Nikko Cordial Securities, told Dow Jones Newswires.

The United States released data Friday showing just 36,000 non-farm jobs were created in January, far fewer than the 148,000 expected.

However, it also said the unemployment rate fell to 9.0 percent of the workforce from 9.4 percent.

Normally such a big decline in the jobless rate would boost optimism over the country's recovery – the rate has been above nine percent for 22 months.

But the government said the fall came after recalculations on population. At the same time it said the low job creation number was because of the apparent impact of huge snowstorms in January, which skewed data collection.

Tokyo's Nikkei was lifted by exporters on the back of a weakening yen as well as merger activity – stoked by reports last week of tie-up talks between Nippon Steel and Sumitomo Metal Industries.

The fall in the jobs rate was enough to send dealers into the dollar instead of the yen, which gave a lift to Japanese exporters.

In Tokyo trade the dollar fetched 82.23 yen, compared with 82.19 in New York late Friday.

The euro gained to $1.3608 dollars from $1.3583, and rose to 111.89 yen from 111.62 yen.

"Encouraging economic data, particularly in the US, has helped to shield markets to some extent... the main impact of Egypt and Middle East contagion continues to be felt on oil prices although we believe this will be short-lived," Credit Agricole said in a note to clients.

Brent North Sea crude for March advanced 42 cents to $100.25 a barrel in the afternoon while New York's main future contract, light sweet crude for March, was up 24 cents at $89.27.

Crude traders have been edgy since the uprising in Egypt began nearly two weeks ago with demands for President Hosni Mubarak to step down.

While Egypt is not a major crude producer, it is home to the Suez Canal, which carries about 2.4 million barrels daily, roughly equal to Iraq's output.

Traders are also concerned about the wider ramifications of the events in Egypt on the oil-rich Middle East.

Gold opened at $1,347.80-$1,348.80 an ounce in Hong Kong, up from Wednesday's close of $1,340.70-$1,341.70.

The market was closed on Thursday and Friday for the Lunar New Year holiday.

In other markets:

-- Manila rose 0.20 percent, or 7.68 points, to 3,880.03.

Aboitiz Power added 1.1 percent to 27.50 pesos and Metropolitan Bank & Trust was down 0.9 percent at 62.90 while Union Bank edged down 0.1 percent to 58.40.

-- Wellington rose 0.58 percent, or 19.59 points, to 3,387.41.

Fletcher Building rose 2.4 percent to NZ$8.23 and Auckland Airport added 0.9 percent to NZ$2.26 but Telecom shed 1.3 percent to NZ$2.21.



BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 07 February 2011

SMC eyes venture with Citra, HK firm San Miguel Corp. is forming a three-way partnership with Indonesian conglomerate Citra Lamtoro Gung Persada (Citra) and Star Tollway Corp. to merge local toll-road operations and create a stronger entity that can actively seek big-ticket infrastructure projects under the public-private partnership (PPP) framework. Inquirer sources said that a due-diligence audit was now ongoing among the three parties with the objective of pooling their Philippine tollway interests to create a single vehicle with greater financial muscle in bidding for PPP projects. San Miguel expects to own majority of the consolidated entity over time, the sources said. By bundling their interests, the three groups aim to gain better leverage in funding large-scale infrastructure projects, particularly toll roads, under the Aquino administration, the sources said. Asked last Saturday when the likely closing of the deal with Citra and Star could happen, San Miguel president Ramon Ang said the parties “hope to sign [soon],” declining to provide additional details. Other sources familiar with the scheme said the three-way merger was the basis of Ang’s earlier statement that the Skyway and Star toll roads had been offered to San Miguel. But the sources added that the deal would push through only if San Miguel would get the controlling stake in the unified vehicle, which means that the local conglomerate will get an indirect stake in Citra and Star’s local tollroad projects. Citra is a leading Indonesian infrastructure company whose core business includes expressway development and toll-road operations. It is the joint-venture partner of the state-owned Philippine National Construction Corp. in Metro Manila Tollway Corp. that, in turn, is responsible for the South Metro Manila skyway project. Star Tollway, on the other hand, is led by Hong Kong-based group Cypress Tree Ltd. It operates the 19-kilometer Southern Tagalog Arterial Road (Star) from Lipa to Batangas City and has been tapped as a partner of San Miguel in other prospective infrastructure projects. For its part, San Miguel leads the building of the Tarlac-Pangasinan-La Union Toll Expressway and the North Luzon East Expressway. The first project is an 88-kilometer expressway that will extend from La Paz, Tarlac (the end of the Subic-Clark-Tarlac Expressway), to Rosario, La Union. Once completed by 2013, the new road intends to cut by half the present travel time from Manila to Baguio. The 55.8-kilometer North Luzon East project, on the other hand, will extend from Commonwealth Avenue in Quezon City to as far north as Tuguegarao City in Cagayan province.

Dollar Is Near Two-Week High on Recovery Signs, Treasury Yields The dollar was within 0.3 percent of a two-week high against the euro before reports this week that economists said will show consumer borrowing rose for a third month and optimism among small businesses increased. The greenback was also bolstered as 10-year Treasury yields were three basis points below the highest level since May after U.S. unemployment rate fell to the lowest since April 2009. The euro was weaker amid signs of discord within the European Union on how to solve the region’s sovereign debt crisis. Australia’s dollar declined against 15 of its 16 most-traded counterparts after a government report showed retail sales climbed in December by less than some economists forecast. “The Treasury market has spoken and we regard that as significant enough to put on a long Dollar Index position,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It looks like a tipping point for U.S. yields and we don’t think low-yielding currencies like euro, yen and sterling can sustain their recent strength when the yield story is working against them.” The U.S. currency traded at $1.3580 per euro as of 9:57 a.m. in Tokyo from $1.3581 on Feb. 4, after advancing 0.2 percent last week and reaching as high as $1.3544, the strongest since Jan. 24. The dollar bought 82.25 yen from 82.18 and was at $1.6107 per pound from $1.6111. The euro fetched 111.69 yen from 111.62 in New Yorklast week. Westpac recommends investors bet on gains in the Dollar Index, which tracks the greenback against six major counterparts including the euro, yen and pound. The bank’s initial target for the gauge is 80, it said in an e-mailed note to clients. The index traded unchanged at 78.044. U.S. Economy Consumer borrowing in the U.S. climbed by $2.5 billion in December after increasing $1.3 billion the previous month, the Federal Reserve is forecast to say today. Confidence among U.S. small businesses probably rose in January, a private survey may show tomorrow. The National Federation of Independent Business optimism index increased to 93.8 from December’s 92.6 reading, according to the median estimate in a Bloomberg News survey. U.S. 10-year Treasury yields rose as high as 3.66 percent on Feb. 4, the most since May 4, after theunemployment rate unexpectedly dropped to 9 percent last month from 9.4 percent in December. Employers added 36,000 workers, the Labor Department said in its report Feb. 4. The Australian dollar weakened for a second day against the greenback after its statistics bureau said the nation’s retail sales gained 0.2 percent in December, less than the median forecast for a 0.5 percent gain. The so-called Aussie fell 0.2 percent to $1.0124.

Oil Rebounds From One-Week Low Amid Optimism About U.S. Economy Oil rose for the first time in three days in New York as an unexpected decline in the jobless rate in the U.S. bolstered optimism fuel demand will increase in the world’s biggest crude-consuming nation. Futures retraced some of the 1.7 percent decline posted Feb. 4 after the Labor Department said that unemployment dropped in January to 9 percent from December’s 9.4 percent. Employers added 36,000 workers, short of the 146,000 median gain projected by economists in a Bloomberg News survey. “Oil’s getting a little bit of support from the jobs data,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “The unemployment number is good, but the increase in jobs isn’t. It’s probably a bit of a knee-jerk reaction from Asia.” The March contract gained as much as 47 cents, or 0.5 percent, to $89.50 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $89.38 at 12:02 p.m. Sydney time. It declined $1.51 to settle at $89.03 on Feb. 4, the lowest since Jan. 27. Prices fell 0.4 percent last week and are up 24 percent the past year. Brent crude for March settlement added 65 cents, or 0.7 percent, to $100.48 a barrel, on the London-based ICE Futures Europe exchange. It declined $1.93, or 1.9 percent, to end the session at $99.83 on Feb. 4. Egyptian natural gas exports to Israel and Jordan may be halted for as long as two weeks after an explosion damaged a pipeline in the Sinai Desert Feb. 5, Egyptian Oil Minister Sameh Fahmy told state television.

Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Morning Brief: 01 February 2011

Strong growth for 2010 AN INDUSTRY-LED fourth-quarter acceleration allowed the economy to grow by 7.3% last year, a pace well over target and the fastest in more than two decades. Gross domestic product (GDP) growth, which had slipped to 6.3% in the third quarter from 8% in the first half, strengthened to 7.1% in the last three months of the year, at the high end of the government’s 6.2-7.2% forecast. The full-year result topped the official 5-6% target and the National Statistical Coordination Board (NSCB) said it was the highest since democracy was restored in 1986. Economic managers expressed optimism the momentum would be sustained this year, although analysts said a slowdown was likely as planned infrastructure projects still had to materialize. Analysts also said the better-than-expected result could prompt the Bangko Sentral ng Pilipinas (BSP) to start raising rates as early as this quarter, but central bank governor Amando M. Tetangco, Jr. said a stronger uptick had been factored into inflation expectations. Economists polled by BusinessWorld had supported the government’s fourth-quarter outlook but other forecasts said growth could have slipped below 6%. The industry sector led economic expansion for the year, growing by 12.1% and followed by services’ 7.1%. Agriculture ended 2010 down 0.5%, hit by a first-half dry spell. Jeepney fare hike okayed; water rates up this month JEEPNEY FARE hikes and costlier water have been added to consumer worries. Regulators yesterday said they had approved a provisional P1 increase in jeepney fares -- which would bring the minimum rate for Metro Manila commuters to P8 -- while water concessionares said they would this month implement the latest phase of previously approved adjustments. The Land Transportation Franchising and Regulatory Board (LTFRB) said it was allowing jeepney fares to go back up, but not to levels hit in 2008 when oil prices spiked. "[We] took judicial notice that prices of goods have been going up as well as the cost of maintaining jeepney operations, affecting the livelihood of operators," LTFRB member Manuel Iway said. "However, the rate of increase for provinces will vary. For example, the existing minimum rate in Cebu and Tacloban in Leyte is P6.50; with the additional P1, it will be P7.50," he added. The new rate will still be lower than the P8.50 the LTFRB provisionally approved in 2008, Mr. Iway said. Regulators gradually reduced the fare -- the last adjustment was in February 2009 -- as fuel prices came down. Mr. Iway said the decision was made following petitions by jeepney groups such as Pasang Masda and the Federation of Jeepney Operators and Drivers Association of the Philippines. "The militant Pagkakaisa ng Tsuper at Operator Nationwide also supported the requests but did not submit a formal position paper for itself," he claimed. Mr. Iway said the fare increase could be implemented once the LTFRB formally issues its decision. "There is no need to issue new fare matrix for jeepney operators. They can ask passengers to pay the additional P1 after they secure a copy of the decision," he said. As this developed, east zone concessionaire Manila Water Co., Inc. and west zone concessionaire Maynilad Water Services, Inc. yesterday also announced that higher water rates would be implemented starting Feb. 16, with the adjustments to be reflected in March billing statements. Manila Water customers consuming 30 cubic meters per month will have to shell out around P58 extra for an average bill of P543, while those being serviced by Maynilad will have to add P60.88 for an average monthly bill of P744. "The increase to our lower-income customers (lifeline customers) is less than P2 per month -- less than the price of two text messages," Maynilad said in a statement. Manila Water spokesperson Jeric T. Sevilla told BusinessWorld the higher water tariffs would mean better service from the company. "The exchange for higher water rates is 24/7 water. We are also going to be expanding our reach ... and we will even be building more wastewater treatment plants," he claimed. The increases are part of an agreement with the Metropolitan Waterworks and Sewerage System, which in 2007 approved a rate rebasing to be implemented over a five-year period. -- from reports by A. M. P. Dagcutan and E. N. J. David Gov’t to strip NFA of key functions Private sector to handle rice importations By Ronnel Domingo Philippine Daily Inquirer MANILA, Philippines—Budget Secretary Florencio B. Abad said President Aquino has given the go-ahead for reforms in the National Food Authority to address fund leakage and a burgeoning debt by stripping the agency of its conflicting functions. Abad said an emerging consensus in the Cabinet was that the program of providing subsidized rice to the poor would be transferred to the Department of Social Welfare and Development through its conditional cash transfer program. The budget chief said the DSWD, with its National Household Targeting System, was better positioned to identify and directly reach indigent households. Citing documents from the World Bank, Abad said only 31 percent of NFA rice went to the poorest 20 percent of households and that it cost the agency as much as P8.60 to deliver P1 of low-priced rice. At the same time, Abad said the function of regulating trade staples such as rice would be transferred to the Department of Agriculture. He said the DA was the more appropriate institution to regulate rice and that it was a folly to think that NFA, which he described as a virtual monopoly, could function both as a regulator and a trader. He said the transfer of these functions would allow the NFA to focus on its core food security functions, which was buying rice from poor farmers and managing a buffer stock. He added that the NFA would be conducting domestic rice procurement involving small farmers and within an inventory of 15 days during harvest season and 30 days during lean months. Through such function, Abad said the NFA would serve as a “buyer of last resort.” The budget chief said President Aquino had directed that the private sector be allowed to play a major role in the importation of rice. “Discussions are ongoing as to the reduction of the current 40-percent tariff on rice,” he said. “Rice procurement anomalies that have been unearthed exhibit the urgent need of reforming NFA,” Abad said. “Not only is it saddled with a gargantuan debt, it has also disadvantaged poor farmers and poor consumers,” he said. The NFA is expected to breach its debt cap of P120 billion in March, rising from P171 billion in July last year.

Stocks in U.S. Rally on Consumer Spending Data, Exxon Profit; Massey Jumps U.S. stocks rose, extending the second straight monthly gain for the Standard & Poor’s 500 Index, as businesses expanded at the fastest pace since 1988 and consumer spending and Exxon Mobil Corp.’s profit beat estimates. An index of energy shares in the S&P 500 rallied 2.6 percent, led by Exxon, the world’s largest company by market value, as Brent crude exceeded $100 a barrel for the first time since 2008. Massey Energy Co. jumped 9.8 percent after Alpha Natural Resources Inc. agreed to buy the coal producer for $7.1 billion. Intel Corp., the world’s largest chipmaker, ended unchanged after saying a design error will cut sales and margins. Rival Advanced Micro Devices Inc. rose 4.5 percent. The S&P 500 rose 0.8 percent to 1,286.12 at 4 p.m. in New York, after sliding 1.8 percent on Jan. 28 amid protests demanding the ouster of Egyptian President Hosni Mubarak. The index gained 2.3 percent in January. The Dow Jones Industrial Average added 68.23 points, or 0.6 percent, to 11,891.93. “It’s economic momentum versus geopolitical risk,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh,North Carolina, which manages $5 billion. “In my view, the economy wins. There’s been steady improvement in earnings reports. There’s M&A activity going on, which is a sign of confidence in the economy. I don’t see the market as being stretched, and I believe we should continue to grind higher.” Treasuries Fall as Consumer Spending Gain Beats Forecast, Business Expands Treasuries fell for the first time in three days as U.S. consumer spending rose more than forecast in December and businesses expanded in January at the fastest pace since July 1988. Government securities erased earlier gains as concern eased that protests in Egypt would disrupt global trade and the Federal Reservebought a lower percentage of Treasuries submitted for sale during today’s central bank purchase than at the previous 10 transactions. Stocks rose. “The markets do appear to be signaling there’s less concern about what’s going on in Egypt,” said Michael Pond, co- head of interest-rate strategy in New York at Barclays Plc, one of the 18 primary dealers that trade with the U.S. central bank. The yield on the benchmark 10-year Treasury note rose six basis points, or 0.06 percentage point, to 3.37 percent at 5:36 p.m. in New York, according to BGCantor Market Data. It increased for a fifth month, marking the note’s longest losing streak since 2006. The 2.625 percent security due in November 2020 fell 14/32, or $4.38 per $1,000 face amount, to 93 25/32. Thirty-year bond yields increased four basis points to 4.57 percent. They also had a fifth monthly increase in January, marking their longest run of losses since 1999. Treasuries returned 0.17 percent this month through Jan. 28 before today’s losses, according to the Bank of America Merrill Lynch Treasury Master index. The last full month in which they didn’t lose money was September, when they rose 0.003 percent, the index showed. Treasuries gained 2.1 percent in August.

Crude Oil Rises to Two-Year High in New York on Egypt Unrest, Brent Gain Oil surged to the highest price in more than two years in New York and Brent crude topped $100 a barrel as a seventh day of unrest in Egypt raised concern that supplies may be disrupted. Oil capped a five-month increase as opposition groups demanding President Hosni Mubarak’s ouster urged more people onto the streets. Egypt’s Suez Canal, which links the Mediterranean and Red seas, is one of seven “world oil transit chokepoints,” according to the U.S. Energy Department. “This is all Egypt,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Upwards of 3 to 4 million barrels a day of flow could be disrupted” by a shutdown of the Suez Canal. That would add 6,000 miles (9,700 kilometers), two weeks and assorted costs to tankers’ journeys from the Persian Gulf to Europe and the U.S., he said. Oil for March delivery climbed $2.85 or 3.2 percent, to $92.19 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 3, 2008. Futures rose 0.9 percent in January and 26 percent in the past year.

Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001