Morning Brief: 6 April 2011

2-month budget gap at a low P8.1B Revenues jumped 27.8%, expenses fell 6.4% By Ronnel Domingo Philippine Daily Inquirer MANILA, Philippines—Government expenses in February went over the budget by P21.5 billion, down from the year-ago deficit of P33.2 billion but reversed the budget surplus posted in January. This brought the budget deficit for the first two months to P8.1 billion. The shortfall was “way below the P52.3-billion ceiling for the (first two months of the year) and a big improvement from the P70.3-billion deficit posted in the same period last year,” Finance Secretary Cesar V. Purisima said. Purisima said the national government posted a primary surplus of P0.7 billion for the month, which was the seventh consecutive month under the Aquino Administration. This meant that a primary surplus was recorded every month since the new government assumed office last July. The government’s fiscal position, when reckoned without interest payments, yields the so-called primary surplus or deficit. “Primary surplus for the first two months of the year amounted to a total of P50 billion,” the finance chief added. January-February expenses reached P224 billion, or 6.4-percent less than the P239.4 billion incurred in the same period of 2010. Revenues for the first two months reached P216 billion, or 27.8 percent higher than last year’s P169 billion. The Bureau of Internal Revenue contributed P128 billion, up 10.7 percent from year-ago collections of P115.6 billion. The Bureau of Customs chipped in P39.1 billion, up 9.7 percent year on year from P35.7 billion. The Bureau of the Treasury turned in P33.6 billion, which was more than four times the P8.2 billion earned a year ago. Other government offices yielded P15.2 billion, up 59.6 percent year on year from P9.5 billion. In February alone, expenditures reached P101.5 billion, lower by 7.6 percent than the P109.9 billion spent in the same month of 2010. Total revenues reached P80 billion, an increase of 4.4 percent from P76.7 billion. Of the total, the BIR chipped in P53.4 billion, which was 4.8 percent higher than the year-ago P51 billion. Customs contributed P18.1 billion, an increase of 30.5 percent from P13.9 billion. The Treasury turned in P2.6 billion while other offices yielded P5.4 billion. BSP wary as inflation steadies www.bworldonline.com ANNUAL INFLATION steadied at 4.3% last month but the result -- below analysts’ estimates and near the low end of the central bank’s forecast -- was not seen as a guarantee that monetary authorities would hold off from further tightening. While "price movements continue to be well-behaved," Bangko Sentral ng Pilipinas (BSP) governor Amando M. Tetangco, Jr. told reporters, "We will continue to monitor developments, particularly for any signs of second-round effects and shifts in inflation expectations, to ensure that our policy settings remain appropriate." The central bank last week hiked key interest rates by 25 basis points, its first adjustment since July 2009, amid inflation worries brought about by rising oil prices. Succeeding reviews will be held on May 5, June 6, and July 28. "The steady March inflation rate shows the normalizing prices of key food and non-food commodities," central bank Deputy Governor Diwa C. Guinigundo said in an e-mail to BusinessWorld. "But we need to validate whether this movement is sustainable," he added. The National Statistics Office, in announcing the March data, said "[the] higher annual growths in services and miscellaneous items index were offset by slower annual rates in clothing and fuel, light and water index". Core inflation -- which strips out some volatile items such as food and energy -- eased to 3.4% in March from 3.6% in February. The latest annual inflation figure, which came at the lower end of the BSP’s target of 4-5% for the month, brought the first quarter average to 4.07%. Analysts polled by BusinessWorld had a median forecast of 4.7%. Prakiti Sofat, Barclays Capital regional economist for Southeast Asia, said headline inflation steadied as "food prices took a slight breather -- largely vegetables and rice prices." Institute of Development and Econometric Analysis research head Jackson L. Ubias, in an e-mail, said: "The strong peso really helped in tempering oil price hikes." But Standard Chartered regional economist Simon Kwok-Cheung Wong said March might just be a "brief pause in an uptrend." "There remains upside risk as oil prices are once again rising," he said in a separate e-mail. Rising price pressures, the analysts said, mean the central will likely raise interest rates by another 25 bps in May. "We continue to expect the BSP to hike the policy rate by a further 50 bps -- equally in May and July -- taking the policy rate to 4.75%," Ms. Sofat said. Mr. Wong concurred, saying: "We are still expecting another 25 bps hike." University of the Philippines economist Benjamin E. Diokno said inflation could hit 5% this month due to rising oil prices. Peter Lee U, economist at the University of Asia and the Pacific, expects a result below 4.5%, with further tightening hinged on the rise in consumer prices topping 5%. Mr. Diokno said the March data should give the BSP reason to "pause and reflect" amid signs of a slowdown in economic growth that could be aggravated by tighter policy. "The economy appears to be slowing, by how much, we don’t know yet. We will know when the first quarter numbers are released," he said. "In the meantime, the LEIs (leading economic indicators) point to a slowdown in the second quarter. This plus recent events should give reasons for BSP to pause and reflect." The composite LEI slid to 0.103 for the second quarter from a revised 0.115 in the first quarter, the National Statistical Coordination Board reported last week. -- Antonio Siegfrid O. Alegado and Daniel Anne Nepomuceno-Rodriguez

U.S. Stocks Erase Gains Amid Concern Federal Reserve to Withdraw Stimulus U.S. stocks erased gains, preventing a third straight advance in the Standard & Poor’s 500 Index, as growing concern that the Federal Reserve will begin removing stimulus measures offset optimism about takeover deals. Boeing Co. (BA) lost 1 percent to help lead the Dow Jones Industrial Average down from an almost three-year high amid concern inspectors will find more problems with the company’s 737 jets. Google Inc. (GOOG) sank 3.2 percent as people familiar with the matter told Bloomberg News that the U.S. government is considering an antitrust probe. National Semiconductor Corp. (NSM), which led the earlier gain in the S&P 500, surged 71 percent after Texas Instruments Inc. (TXN) agreed to buy the chipmaker. The S&P 500 slipped less than 0.1 percent to 1,332.63 at 4 p.m. in New York after climbing as much as 0.4 percent earlier today. The Dow average retreated 6.13 points, or 0.1 percent, to 12,393.90. The Russell 2000 Index (RTY) advanced 0.5 percent, after rallying to a record intraday high. “Investors are fearful that if they don’t get another round of quantitative easing, the market doesn’t get another shot in the arm,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which has about $110 billion in client assets. “I’m not convinced. We have solid economic figures and corporate earnings. The path of least resistance for the market would be higher.” Treasuries Drop as Federal Reserve Minutes Show Debate on Stimulus Efforts Treasuries fell for the first time in three days as minutes of the Federal Reserve’s last meeting showed policy makers differed over whether to begin removing stimulus, fueling concern that interest rates will increase. U.S. debt gained earlier, pushing two-year yields to a one- week low, after Fed Chairman Ben S. Bernanke said yesterday the economic recovery isn’t yet solid and a rise in inflation may be transitory. The central bank has completed almost two-thirds of its plan to buy $600 billion in Treasuries by June under quantitative easing. The Fed has left its key rate unchanged at a record low range of zero to 0.25 percent since December 2008. “There continues to be dissension within the Fed,” said Jeff Hussey, chief investment officer at Russell Investments in Tacoma,Washington, which manages $155 billion. “Bernanke said inflation is transitory and other members are calling into question QE2 and when rates should be raised. The risk is on the upside that rates will rise, so you may want to be a little short.” A short is a bet that Treasury prices will fall. Two-year yields advanced six basis points, or 0.06 percentage point, to 0.81 percent at 5:05 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 0.75 percent security due in March 2013 slid 3/32, or 94 cents per $1,000 face amount, to 99 7/8. The yield earlier fell to 0.75 percent, matching the lowest level since March 28. Yields on benchmark 10-year notes climbed six basis points to 3.48 percent after earlier falling to 3.40 percent, the lowest level since March 25.

Oil Falls a Second Day After Signals U.S., China Demand Growth May Falter Oil fell for a second day in New York amid signs the pace of fuel demand recovery may falter in the U.S. and China, the biggest energy-consuming nations. Futures slipped from a 30-month high yesterday after the Institute for Supply Management reported a smaller-than-forecast increase in its U.S. index of non-manufacturing businesses, while China’s central bank raised interest rates. An Energy Department report today may show crude supplies rose for a fifth week last week, according to a Bloomberg survey of analysts. “This is a real myriad of factors from the global economic to domestic inventories to foreign exchange,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas. Oil for May delivery fell as much as 62 cents, or 0.6 percent, to $107.72 a barrel, in electronic trading on the New York Mercantile Exchange. It was at $107.81 at 8:33 a.m. Sydney time. Yesterday, the contract slid 13 cents to $108.34. Futures are 24 percent higher in the past year. The ISM’s index for service industries in the U.S., the biggest part of the economy, dropped to 57.3 last month from 59.7 in February. A measure of 50 signals growth, and economists had projected a March reading of 59.5, according to the median estimate in a Bloomberg News survey. Brent for May settlement rose $1.16, or 1 percent, to $122.22 a barrel on London’s ICE Futures Europe exchange yesterday, the highest since Aug. 1, 2008.

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: 5 April 2011

BSP to implement measured policy response versus inflation MONETARY authorities are ready to raise interest rates anew to address inflationary pressures but they also believe the country’s strong external payments position and sound financial system can cushion against external shocks. "The BSP (Bangko Sentral ng Pilipinas) stands ready to implement a measured policy response to prevent inflation from spiraling away from the government’s target," Governor Amando M. Tetangco Jr. said in an annual financial report that was released yesterday. "The upward pressures on global commodity prices could fan inflation. Geopolitical tensions in the Middle East and North Africa have resulted in the spike in the prices of oil in the world market ... Rising energy costs could push up the cost of domestic food products, transport fares and utility charges," he added. Still, "The country’s strong external payments dynamics is seen to provide cushion against possible external shocks in the year ahead," Mr. Tetangco said. The balance of payments (BoP) yielded a surplus of $14.4 billion last year on the back of strong remittances, increased outsourcing receipts and an export sector recovery, the BSP said. Remittances grew by 8.2% to $18.8 billion, accounting for nearly 10% of gross domestic product. Foreign portfolio investments also contributed and as a result gross international reserves rose by 41% to $62.4 billion. The report also said the domestic banking system remained stable and resilient. Asset quality was said to have improved with non-performing loans remaining low at just over 3%. Capital adequacy ratios stood at 15%, well above the 10% prescribed by the central bank. Total resources of the banking system were reported to have risen to P7.2 trillion last year, an 11% increase. 91-day T-bill rate slips to 0.9% Investors prefer short-term fund outlets MANILA, Philippines—Yield of the benchmark 91-day treasury bills again fell below one percent on Monday to an average 0.9 percent as interest rates on short-term debt paper declined across the board. This was the second time the rate of the benchmark bills dipped below one percent since the start of the year, with the first in January when it averaged 0.7 percent. The decrease came despite key policy rates at the Bangko Sentral ng Pilipinas having recently been increased by 25 basis points from historic lows of 4 percent for overnight borrowing and 6 percent for overnight lending, which where at those levels since July 2009. In Monday’s auction, the interest rate on the 91-day bills eased 27.5 basis points from the previous average of 1.125 percent. Also, interest on the 182-day bills fell 54.8 basis points to an average 1.205 percent while yield on the 364-day bills slid 67.4 basis points to an average 2.191 percent. All averages were lower than prevailing rates for done deals in the secondary market, which settled at 1.1 percent for the 91-day bills, 1.25 percent for the 182-day paper and 2.225 percent for the 364-day securities. National Treasurer Roberto B. Tan said Monday’s auction results showed that the market was still expecting higher inflation, which creates uncertainty for investors. Monday’s tenders hint that lenders “preferred to park their funds in shorter-term instruments,” Tan said. Investors brought forward a total of P31.76 billion worth of bids, more than three times the P9-billion offer. Tenders for the three-month bills reached P6.54 billion, or more than twice the original offer of P1.5 billion. Bids for the six-month bills totaled P11.22 billion, or almost thrice the P3.5 billion offered, while those for the year-long bills reached P14 billion, or three and a half times the P4 billion being sold. The Treasury raised P9.6 billion from all three tenors. Bidding rules allow the Treasury to double the amount it would award for non-competitive bids if, for a given tenor, such bids account for less than a quarter of all tenders. Non-competitive bidders do not indicate a rate in their tenders and they will get the resulting average rate when their bids are accepted. In Monday’s case, non-competitive bids for the 91-day bills were less than a quarter of total tenders for each tenor, which allowed an additional award of P600 million.

U.S. Stocks Advance as Takeover Announcements Outweigh Technology Slump Most U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a second day, as optimism about takeovers outweighed a drop in technology shares following a report showing lower chip sales. Freeport-McMoRan Copper & Gold Inc. (FCX) rose 1.3 percent after Minmetals Resources Ltd. (1208) offered to buy Perth-based Equinox Minerals Ltd. for about $6.5 billion. Molycorp Inc. (MCP) jumped 12 percent as the owner of the largest rare-earth deposit outsideChina bought most of a European producer. Hewlett-Packard Co. (HPQ) and Intel Corp. (INTC) retreated more than 1.1 percent after theSemiconductor Industry Association said global three-month average chip sales dropped 1.1 percent. More than five stocks rose for every four that fell on U.S. exchanges at 4 p.m. in New York. The S&P 500 advanced less than 0.1 percent to 1,332.87. The Dow Jones Industrial Average added 23.31 points, or 0.2 percent, to 12,400.03 today. “M&A activity has been reasonably strong,” said Peter Jankovskis, who helps manage about $2.7 billion at Oakbrook Investments in Lisle, Illinois. “People look at that as a sign of confidence. It’s an indication that stocks are undervalued. In addition, the U.S. economy is on fairly strong footing. That all provides support for the stock market.” Treasuries Advance as Fed's Lockhart Cites Headwinds to Economic Recovery Treasuries rose for a second day as Federal Reserve Bank of Atlanta President Dennis Lockhart said the U.S. recovery faces headwinds, reducing speculation the central bank will cut its $600 billion debt-buying program. U.S. six-month bill rates fell today to a record low amid a scarcity of short-term debt. Two-year notes gained, pushing yields to a one-week low, as Chicago Fed President Charles Evans said the amount to be purchased in the central bank’s stimulus program may be “about the right number.” Fed Chairman Ben Bernanke is scheduled to speak at 7:15 p.m. in Atlanta. “We saw pretty harsh reaction last week to some of the hawks,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 20 primary dealers that trade with the U.S. central bank. “We don’t think the chairman will say we’ll raise rates quickly. We expect the Fed will raise rates, but not as soon as some of the time horizons people were saying last week.” Yields on benchmark 10-year notes fell two basis points, or 0.02 percentage point, to 3.42 percent at 5:12 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.625 percent security maturing in February 2021 rose 6/32, or $1.88 per $1,000 face amount, to 101 22/32. The yield touched 3.52 percent on April 1, the highest level since March 9, a day after reaching last week’s low of 3.4 percent. Two-year note yields dropped four basis points today to 0.76 percent. Thirty-year bond yields fell one basis point to 4.48 percent after earlier touching 4.46 percent.

Oil Rises to 30-Month High on Libya Conflct; Kuwait Says Price Is Too High Oil climbed to the highest level in 30 months in New York on speculation that U.S. economic growth may support demand and a protracted conflict in Libya will curtail supply. Futures advanced a third day after an April 1 report showed the U.S., the world’s largest crude consumer, added more jobs than economists forecast last month. Prices are too high and “worrying,” the chief executive officer of Kuwait Petroleum Corp. said today. Forces loyal to Libyan leader Muammar Qaddafi bombed an oil field south of the city of Ajdabiya, Al Jazeera television reported, heightening concern output losses from Africa’s third-largest producer may continue. “It’s becoming increasingly clear that the situation in Libya may be prolonged,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “The more one looks at uprisings in the Middle East, the more one realizes they will not be easy to resolve. At the same time, oil demand is relatively inelastic to higher prices.” Crude for May delivery gained as much as 84 cents, or 0.8 percent to $108.78 a barrel in electronic trading on the New York Mercantile Exchange, the highest since Sept. 24, 2008, and was at $108.16 at 1:39 p.m. London time. Prices are up 25 percent from a year ago. Brent oil for May settlement rose as much as $1.05, or 0.9 percent, to $119.75 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 2.7 percent last week.

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 April 2011

Gov’t issuing P117B in T-bills, bonds in Q2 Higher by 9.3% than year-ago level By Ronnel Domingo Philippine Daily Inquirer MANILA, Philippines—The Bureau of the Treasury (BTr) plans to issue P117 billion worth of T-bills and T-bonds in the second quarter, higher by 2 percent than the P114 billion scheduled in the previous quarter. Lined up for auction in the quarter ending June are P63 billion worth of treasury bills and P54 billion worth of treasury bonds. The increase in the offering comes in the wake of what the Singapore-based DBS Bank described as a lackluster performance of the Philippine domestic bond market in the previous quarters. In a notice to dealers of government securities, National Treasurer Roberto B. Tan said the BTr was scheduled to offer in seven fortnightly auctions a total of P10.5 billion in 91-day T-bills, P24.5 billion in 182-day bills and P28 billion in 364-day bills. Also in the second quarter, the BTr is set to offer a batch of four-year bonds, three batches of seven-year bonds and two of 10-year bonds, each worth P9 billion. Based on the domestic borrowing plan for the second quarter, the amount of debt paper that may be issued in the next three months will be higher by about 9.3 percent than year-ago level. In a new research note, DBS said the Philippine domestic bond market showed the only negative performance in Asia in the first quarter. The bank said in a new research that “with the exception of the Philippines, Asian local currency government bond markets provided investors with positive returns in” the first quarter of 2011. “After a sharp fall in Philippine government bond yields in (the third and fourth quarters of 2010), that is not really surprising,” DBS said. “Overall, the (first quarter of 2011) performance of Asian bond markets was somewhat better than we had expected, but that just means that the adjustment in yields to more sustainable interest rate levels is taking longer,” the bank added. The Bangko Sentral ng Pilipinas last week finally increased its policy rates by 25 basis points from 4 percent for overnight borrowing and 6 percent for overnight lending, which had remained unchanged since July 2009. “As the US economy is improving materially, we think higher yields in the US will come soon, and that keeps us cautious also in the Asian bond space,” DBS said. “The bond market outlook remains bearish in (the second quarter of 2011).” P500-M fuel subsidy OKd for jeepneys By Norman Bordadora, Jeannette Andrade Philippine Daily Inquirer MANILA, Philippines—President Benigno Aquino III Thursday approved a P500-million fuel subsidy to public utility jeepneys and tricycles to cushion the impact of the series of fuel price increases that has reduced the daily income of drivers. The President announced the subsidy on the day militant transport workers staged a strike in various parts of the country, including Metro Manila, to protest soaring fuel prices. “What control do we have over (developments in) the Middle East? None. What can we do here? We will have a subsidy for all franchises of public transport,” he told reporters. Mr. Aquino said the subsidies would be in lieu of fare increases. The subsidy will not cover buses because the Land Transportation and Franchising Regulatory Board granted them a provisional P1-fare increase starting March 29. Smart cards The President said the government would distribute “smart cards” that would entitle holders of PUJ and tricycle franchises to the subsidy. “The subsidy will only be for those who have been granted a franchise. That will be our control so that our subsidy won’t be diverted to just about anywhere,” he said. He said the measure would be reviewed after one month. “We will add, remove or decrease the amount of subsidy depending on the price of crude oil on the world market,” Mr. Aquino said. Grateful The jeepney group United Organizations of Drivers and Operators Nationwide (locally called Pinagkaisang Samahan ng Tsuper at Opereytors Nationwide or Piston) said it was grateful for the subsidy but pointed out that it was a temporary solution to the drivers’ woes. “This is only good for 30 days and, although the discount is P3 per liter, the fuel subsidy would only be made available to PUJ and tricycle drivers,” said Piston secretary general George San Mateo. He said that should Mr. Aquino put a stop to oil price increases, at least P6 per liter could be taken off the prices of petroleum products that would benefit all motorists, not only jeepney and tricycle drivers. “It seems he (President Aquino) was just compelled to issue the executive order (on the 30-day fuel subsidy) because of the mass protests,” San Mateo said at the Don Chino Roces (formerly Mendiola) Bridge near Malacañang where a Piston-led transport caravan ended. Caravan After Mr. Aquino announced the subsidy, some 1,000 protesters, mostly from the transport sector, gathered at the bridge. The Piston-led transport caravan, which kicked off at Quezon Memorial Circle, reached the bridge at noon. San Mateo said the caravan drew the participation of 500 drivers and some 120 vehicles around Metro Manila. Piston was joined by members of militant groups Bagong Alyansang Makabayan (Bayan), Gabriela, Courage, Bayan Muna, Kilusang Mayo Uno, and the Koalisyon ng Progresibong Manggagawa at Mamamayan (KPMM). KPMM proposed that the President immediately remove the 12-percent value-added tax (VAT) on petroleum products and nationalize the oil industry. KPMM spokesperson Larry Tan said taking these steps – apart from putting a stop to the oil price hikes – would show that the President was true to his promise that the public was his “boss.” Approved on Monday The President said he approved the subsidy at a Cabinet meeting on Monday. He said he still didn’t have the figures for the exact subsidy per liter. “But the bottom line is they are already in the last stages of working with the Land Bank (of the Philippines) and just one other bank that will be producing the smart cards for us,” Mr. Aquino said. Malacañang said the details of the subsidy were still being finalized. “The executive order has not been signed yet. The details are still being worked out,” Communications Secretary Ricky Carandang said hours after the President made the announcement. Carandang said the subsidy would not affect the budget deficit as the measure would make use of savings by the government over the past months. Affected sectors In the House of Representatives, Bayan Muna party-list Rep. Teodoro Casiño said the fuel subsidy would not be enough to address the runaway oil prices because other sectors similarly affected were not covered. “High oil prices affect everyone, from housewives, power consumers, manufacturers, farmers and fisherfolk,” Casiño said. He said the better option would be to suspend the VAT on oil while Congress deliberated on measures reducing or removing the tax. He said the VAT windfall of P4 billion from January to March this year could reach P28 billion if prices remained high. With a report from Cynthia D. Balana

Stocks in U.S. Fall as S&P 500 Trims Biggest First-Quarter Gain Since 1998 U.S. stocks fell, trimming the biggest first-quarter rally for the Standard & Poor’s 500 Index since 1998, as a Federal Reserve official saidinterest rates may need to rise and concern about Europe’s debt crisis grew. Berkshire Hathaway Inc. (BRK/A) lost 2.1 percent as David Sokol, once a candidate to succeed Warren Buffett as the head of the investment firm, resigned. CarMax Inc. (KMX) slumped 7.2 percent after the largest U.S. seller of used cars said margins shrunk. Home Depot Inc. (HD), Intel Corp. and American Express Co. (AXP) fell more than 1.3 percent to lead losses in the Dow Jones Industrial Average. The S&P 500 fell 0.2 percent to 1,325.83 at 4 p.m. in New York and advanced 5.4 percent during the January-March period. The Dow average dropped 30.88 points, or 0.3 percent, to 12,319.73 today. Stocks extended losses late in the session as Fed Bank of Minneapolis President Narayana Kocherlakota told the Wall Street Journal that policy makers may have to lift rates to fight inflation. “That kind of brought the market back to reality,” Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $3 billion inSan Antonio, Texas, said of Kocherlakota’s comments. “We had a negative tone set. It’s another example of people being a little bit timid about going to the market simply because of what they’re hearing.” Equities fell earlier after Irish regulators instructed four banks to raise 24 billion euros ($34 billion) in additional capital following a stress test on the nation’s lenders. Portugal reported a budget deficit of 8.6 percent of gross domestic product last year, higher than a government target of about 7 percent. In the U.S., jobless claims topped economist estimates a day before the Labor Department’s monthly labor data. Treasuries Decline Before Payrolls on View U.S. Economy Gaining Strength Treasuries fell, pushing the 10- year note yield toward a three-week high amid concern payrolls data tomorrow will move the Federal Reserve closer to reducing stimulus measures as the economic recovery gains momentum. Bonds headed for a second quarterly decline on concern the Fed may end its $600 billion program of debt buying earlier than planned as inflation accelerates. Minneapolis Fed President Narayana Kocherlakota said the federal funds target may need to rise by 75 basis points by late 2011, CNBC reported, citing the Wall Street Journal. “The market is reacting to yet another hawkish comment by another Fed official,” said Michael Pond, co-head of interest- rate strategy in New York at Barclays Plc, one of 20 primary dealers that trade with the U.S. central bank. “Some officials do seem more concerned about the inflation that is starting to come from the data.” Yields on benchmark 10-year notes gained three basis points, or 0.03 percentage point, to 3.46 percent at 5:32 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.625 percent security due in February 2021 dropped 7/32, or $2.19 per $1,000 face amount, to 101 11/32. The 10-year note yields rose after falling as much as three basis points to 3.40 percent. They touched 3.50 percent yesterday, the highest level since March 9. U.S. debt lost 0.1 percent this quarter through yesterday, the latest available figures, after dropping 2.7 percent in the final three months of 2010, according to Bank of America Merrill Lynch indexes. Inflation-indexed debt has returned 1.9 percent since Dec. 31.

Oil Surges to End Quarter at Two-and-a-Half Year High on Conflict in Libya Oil surged in New York to end the quarter at the highest price in two and a half years amid concern that the Libyan conflict will prolong production cuts. Prices rose 2.4 percent after troops loyal to Libyan leader Muammar Qaddafi retook control of the oil port of Ras Lanuf and were shelling Brega, another energy hub. Libyan oil production dropped 72 percent in March to a 49-year low, according to a Bloomberg News survey ofoil companies, producers and analysts. “Events in the Middle East, particularly the fighting that continues to be going on in Libya, are providing support for the market,” saidGene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market seems to be searching for a catalyst to continue the rally.” Crude for May delivery climbed $2.45 to $106.72 a barrel, the highest settlement since Sept. 26, 2008, on the New York Mercantile Exchange. Futures surged 17 percent from January through March, the best quarter since the period ended in June 2009. Oil rose 10 percent in March for a seventh straight monthly gain. That’s the longest consecutive number of increases since the contract started trading in 1983. Libyan oil production tumbled by 995,000 barrels in March to 390,000 barrels a day in the Bloomberg survey. Libya was the third-largest oil producer in Africa before the conflict and pumped 1.59 million barrels a day in January, according to data compiled by Bloomberg.

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