PHILIPPINES
GDP growth seen at 4.3% this year – Think tank cuts PH growth forecasts
By: Doris C. Dumlao
New York-based think tank Global Source has slashed its growth projections for the Philippine economy this and next year, citing the “infinitely gloomier” global environment and little room for the government to boost infrastructure spending.
In a report entitled “Resilient, Not Immune,” dated Oct. 3 and written by Filipino economists Romeo Bernardo and Margarita Gonzales, Global Source reduced its gross domestic product growth forecast for this year to 4.3 percent from 4.8 percent. The outlook for next year was likewise reduced to 4.8 percent from 5.5 percent.
The new forecasts—which are close to the latest market consensus forecasts of 4.4 percent for this year and 4.9 percent for next year—assumed that the global financial trouble could be contained.
Aside from the world economy entering what the International Monetary Fund calls a “dangerous new phase,” the report sees it increasingly hard for the government to meet spending targets before the end of the year as it vowed to do.
“Seeing the negative impact on growth, the government has been desperately trying to catch up on spending, but we are doubtful it can make much headway having already missed the boat on infrastructure projects by failing to roll these out during the dry months,” it said.
Global Source also sees slow movement in the public-private partnership (PPP) program, further stalling the country’s much-needed infrastructure boost.
“Even the new scheme recently proposed for mass transport projects under the PPP may not yield the desired quick results. This approach, which hopes to tap cheap development loans to build the fixed component (such as rail tracks) while allowing private firms to bid for the contract for the rest of the system (including rolling stock and operations and maintenance), may be even harder and may take longer to pull off. This is because it introduces another layer of complexity in reconciling policies and procedural requirements of the government, official funders and private investors,” the think tank said.
But in the worst-case scenario where European debt troubles coupled by US weakness would lead to another global financial crisis of the same scale as 2008, Global Source said the Philippines could remain as resilient to financial volatility as it had been back then. “This is in light of robust domestic demand, continued growth in remittance and BPO [business process outsourcing] inflows, historically high foreign exchange reserves, a generally healthy bank sector and a greater fiscal space to help counter a downturn in the real economy,” it said.
Global Source said that in its best scenario, there could be a brightening in the outlook for the world economy if international efforts succeeded in preventing a financial contagion coming from the eurozone and if effective measures to stimulate the US economy were put in place.
On the upside, however, Global Source noted that inflation risk had abated, which helped support consumer demand and reduced the unspoken bias for peso appreciation.
WORLD
U.S. Stocks Rise as S&P 500 Jumps in Final Hour on Europe Report
By Rita Nazareth
U.S. stocks rallied, driving the Standard & Poor’s 500 Index up 4.1 percent in the final 50 minutes of trading, amid speculation European Union officials are examining how to recapitalize the region’s banks.
Financial stocks in the Standard & Poor’s 500 Index jumped 4.1 percent as a group, reversing a 2.9 percent drop. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added at least 4.1 percent. DuPont Co. and Hewlett-Packard Co. (HPQ) rallied more than 3.6 percent, pacing in companies most-tied to economic growth. AMR Corp. (AMR) surged 21 percent as analysts said the parent of American Airlines is unlikely to file for bankruptcy.
The S&P 500 rose 2.3 percent to 1,123.95 at 4 p.m. New York time. The index plunged 2.2 percent earlier, to a level that would mark more than a 20 percent drop from an April peak, the threshold of a bear market. The Dow Jones Industrial Average lost 153.41 points, or 1.4 percent, to 10,808.71 today.
“The European crisis has been the market driver,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “If Europe comes out with something to kick the can down the road, it buys them more time. We learned in 2008 how important the financial system is and how a ripple effect can occur.”
Stocks reversed losses in the final hour of trading after a report in the Financial Times quoted Olli Rehn, European commissioner for economic affairs, as saying there is an “increasingly shared view” that the region needs a coordinated approach to halt the sovereign debt crisis. Belgian Prime Minister Yves Leterme said a “bad bank” for troubled assets will be set up for Dexia SA and will have government guarantees.
Due for Rally
Stocks were due for a rally after falling more than 5 percent in the previous two sessions, Paul Zemsky, the New York- based head of asset allocation for ING Investment Management, said. His firm oversees $550 billion. The S&P 500 is trading for 12.2 times earnings in the last 12 months, close to the lowest since March 2009.
“The market doesn’t go on a straight line either up or down,” Zemsky said in a telephone interview. “There’s no sign of recession in the U.S. and yet the market is pricing for one. So you’re going to have days when things pop up and you’re going to have bear market rallies.”
About 7 percent of S&P 500 stocks began the day trading above their average price in the last 200 days, according to data compiled by Bloomberg. That matched the proportion following the Aug. 8 rout for the lowest level in 30 months. The full index began today 14.1 percent below its 200-day moving average, the biggest gap since April 30, 2009.
Bear Markets
Concern governments may be running out of tools to keep the global economic slowdown from worsening has left equities from Brazil to Hong Kong and Frankfurt in bear markets. The declines have confounded bullish investors who speculated the recovery that began in March 2009 would boost stocks for a third year.
Global stocks fell earlier after some officials hinted that bondholders may have to take bigger losses on Greek debt than previously negotiated. Deutsche Bank AG scrapped its profit forecast and announced 500 job cuts and further writedowns of Greek bond holdings amid a “significant and unabated slowdown in client activity” in the wake of Europe’s debt crisis.
Equities briefly rose after Fed Chairman Bernanke said the central bank “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability. Bernanke made his remarks today in testimony to Congress’s Joint Economic Committee in Washington.
Banks Surge
Banks, brokerages and insurers led the rally as the S&P 500 Financials Index (S5FINL) jumped 6.5 percent between 3:18 p.m. and 4 p.m. New York time. The KBW Bank Index jumped 4.5 percent, after slumping 3.2 percent earlier. Bank of America added 4.2 percent to $5.76. JPMorgan rose 6.6 percent, the most in the Dow, to $30.26. Morgan Stanley (MS), owner of the biggest retail brokerage, rose 12 percent, the largest gain in the S&P 500.
The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 4.3 percent. The Dow Jones Transportation Average, a proxy for the economy, added 4.4 percent. DuPont increased 4.5 percent to $40.23. Hewlett-Packard advanced 3.7 percent to $23.02.
The Bloomberg U.S. Airlines Index of 10 companies added 6.3 percent. AMR gained 21 percent to $2.39, after falling 33 percent yesterday on concern the company may file for bankruptcy. Fort Worth, Texas-based AMR reiterated yesterday that Chapter 11 protection ‘‘is certainly not our goal or our preference’’ as the third-largest U.S. airline seeks more productivity in union agreements.
Apple Slumps
Apple Inc. (AAPL) dropped 3.6 percent to $361.23. The company, in its first product unveiling since Steve Jobs resigned as chief executive officer, introduced an iPhone with a stronger processor to help it vie with Google Inc.’s Android. The update of Apple’s best-selling product marks an early test for Tim Cook, CEO since Aug. 24, who hasn’t yet shown he can match his predecessor’s skills at product design and marketing.
‘‘There is some disappointment that only one new iPhone has been announced,” said Shaw Wu, an analyst at Birmingham, Alabama-based Sterne Agee.
COMMODITIES
Oil Falls for Third Day as Investors Lose Confidence in Economy
By Margot Habiby
Oil fell to a one-year low for a third day in New York amid concern that fuel demand will drop as investors lose confidence in the U.S. and European economies. Brent settled below $100 for the first time since February.
Futures declined 2.5 percent after European policy makers indicated they may renegotiate terms of Greece’s bailout. Prices pared an intraday loss after Federal Reserve Chairman Ben S. Bernanke signaled he may not be finished with attempts to stimulate the economy and as Saudi Arabian security forces were wounded during unrest in the kingdom.
“Fears of recession are driving us lower,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Until we see some positive signals of the economic front, the market should move lower. We now have to find the next support level, which should be near $70.”
Crude for November delivery decreased $1.94 to $75.67 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 23, 2010. Futures have fallen 7.9 percent in the past three sessions.
Brent oil for November settlement declined $1.92, or 1.9 percent, to $99.79 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Feb. 7.
The Standard & Poor’s 500 slid 1.4 percent to 1,083.82 at 3:20 p.m. in New York. The index touched 1,074.77 in intraday trading, down more than 20 percent from a three-year high in April, the threshold for a bear market. The Dow Jones Industrial Average dropped 180.35 points, or 1.7 percent, to 10,474.95.
Bernanke Boost
“Bernanke seems to be giving a little vote of confidence that Europe will take care of the situation there and stocks aren’t falling out of bed anymore,” said Phil Flynn, vice president of research at PFGBest in Chicago.
The chairman said the central bank “will continue to closely monitor economic developments” in testimony to Congress’s Joint Economic Committee today in Washington.
The Commerce Department also reported orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis.
“As the economy goes, as the equity markets go, so goes the market,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “The issues in Greece and the continued erosion of the U.S. stock market are our clear-cut correlation.”
Eleven members of the security forces in Saudi Arabia, the world’s largest oil exporter, were wounded by attackers armed with machine guns and Molotov cocktails during unrest in a Shiite Muslim town in the east, the official Saudi Press Agency said.
Greek Bailout
European finance ministers in Luxembourg considered recrafting a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue package for Greece.
Crude also decreased on signs of rising production from Libya. The North African country aims to raise output to more than 500,000 barrels a day by the end of this month, according to Nuri Berruien, the chairman of the state-run National Oil Corp. Its target of restoring crude production to 1.7 million barrels a day within 15 months is a “conservative figure,” he said yesterday in Tripoli.
Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.
Libyan Output
“Libyan production coming back at higher quantities than originally thought is a bit bearish,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts Brent will average $107 a barrel this quarter. “The most important thing, of course, is the economy and fears of slower growth in the emerging markets are a big driver. Risk is clearly on the downside.”
Goldman Sachs Group Inc. (GS) cut its 2012 forecast for Brent crude. Goldman Sachs said Brent will average $120 a barrel next year, down from $130.
Jeffrey Currie, an oil analyst at Goldman Sachs, cited a “flatter upward trajectory” as he cut his Brent crude prediction. In a separate report, Goldman Sachs cut its global economic growth forecast for this year and next, predicting recessions in Germany and France as Europe stalls and the risk of a contraction in the U.S. grows.
Oil volume in electronic trading on the Nymex was 699,889 contracts as of 3:21 p.m. in New York. Volume totaled 705,614 contracts yesterday, 6.9 percent above the average of the past three months. Open interest was 1.42 million contracts.
