Morning Brief: 19 January 2011

No decision yet on priorities A CABINET MEETING convened yesterday to determine Malacañang’s legislative priorities ended with no decisions being reached as President Benigno S. C. Aquino III called for further review of a preliminary list. The Palace, however, still expects to soon finalize the agenda as an official said a Legislative Executive Development Advisory Council (LEDAC) meeting could push through before the end of the month. "The president wants a little more time ... He wanted to see more studies and wanted some figures on some particular measures," deputy spokesperson Abigail D. Valte said. "I think the target [date for the LEDAC meeting] will still be the end of the month," she added. The initial list of 32 measures -- drawn up in a Cabinet workshop last week -- was presented yesterday and classified as relating to human development; infrastructure development; economic development; sovereignty, security and rule of law; and good governance. Full details have not been released but officials have said they do not include new taxes. Included are the fiscal responsibility, rationalization of fiscal incentives, procurement law amendment, anti-trust bill, national land use and the whistleblower measures. "The measures support the [government’s] 16-point agenda which is to promote reforms," Ms. Valte later said in a telephone interview. Pressed on the prospect of new tax laws, she replied: "The president has already said earlier that we will not be pushing for new taxes." Ms. Valte said the final list could be trimmed to 25 or lower and that Mr. Aquino was also looking to judiciously exercise his prerogative to certify a bill as urgent. Article IV, Section 26 of the Constitution states that "no bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency." At the House of Representatives, meanwhile, 132 bills were identified yesterday by the chamber’s leaders as priority measures. The list, said to be in line with priorities identified by Mr. Aquino in his State of the Nation Address last year, will be further trimmed to 20 before being submitted to the LEDAC, House Speaker Feliciano R. Belmonte, Jr. said. "We are trying to tear down or at least introduce to LEDAC a shorter number [of priority bills] which we would push for ... most of which are anyway not contrary to what is being pushed for in the Palace and the Senate," Mr. Belmonte said. Deputy Speaker Lorenzo M. Tañada III added that the final House list, plus the measures that will be identified by Malacañang, "would beat the target for enactment into law by June" or before the end of the first regular session. "I’m very confident that before the end of the session, before we adjourn on this session, we’ll be able to substantially pass at least 20 bills," Mr. Belmonte claimed. "No new tax measures" were discussed, he said, with House legislators instead choosing to prioritize the streamlining of fiscal incentives granted to businesses and the fiscal responsibility bill which prohibits new spending not supported by revenue. A meeting will be held next week to finalize the House list, Mr. Belmonte said. At the Senate, a caucus was called a caucus yesterday to discuss bills that would be presented at the upcoming LEDAC meeting. Senate Majority Floor Leader Vicente C. Sotto III said the chamber was taking a two-pronged approach by first asking senators to submit their top three priorities. "Within the top three, we will prioritize at least one per senator ... We will submit to the committee chairmen the priorities of each member of the respective committees," Mr. Sotto said. While there are 37 committees at the Senate, he said the final list -- expected to be ready this week -- would comprise no more than 23 bills. "We will consolidate it together with the proposed legislative agenda of the Executive department," Mr. Sotto said. -- reports from A. M. G. Roa, N. M. Gonzales and J. D. Poblete Tetangco upbeat 2011 GDP goal will be achieved THE ECONOMY likely grew above target last year and could also outperform analysts’ expectations for 2011, the central bank chief yesterday said. "We believe that 7% growth for 2010 is attainable given the Q1-Q3 (first to third quarter) ... actual growth rate and given the likely outcome of fourth-quarter performance," Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said in an e-mail to reporters. Gross domestic product (GDP) growth averaged 7.5% as of September and both the government and analysts expect the official 5-6% target for the year to be exceeded given surprisingly strong first half results. The outlooks for 2011, however, diverge. The government has a 7-8% target but analysts expect growth to be well below that given continued global uncertainty. Yesterday, HSBC Senior Vice-President Roland Gerard R. Veloso, Jr. told reporters he expected 2010 growth to have averaged 6.8%, easing to 5% this year. A United Nations report released yesterday forecast an even slower 4.8% for this year. Mr. Tetangco, however, said the right factors would allow this year’s goal to be achieved. "We also believe that the 7-8% GDP growth target for 2011 is attainable, should consumption remain solid and investment gain further traction with the infrastructure programs of the government," he said. Trade is expected to recover as the economies of the country’s trading partners improve, although much depends on how the global economy performs. "A key risk to Philippine economic growth continues to be the uncertainty in the shape and speed of the global economic recovery, including whether it will continue to be multi-speed and therefore a fragile one," he said. The government assumed a lower 5% GDP growth in its P1.645-trillion budget for this year. Officials have qualified that the higher 7-8% target would be due to the public-private partnership (PPP) scheme. The government wants to bridge the country’s infrastructure gaps through PPP contracts that are expected to be bid out this year. Mr. Veloso, however, expects the impact of PPP projects to "start to kick in and fuel the economy’s growth in 2012." HSBC is helping the government by conducting road shows to pitch the PPP scheme to possible investors abroad. "We... conducted a road show in London [last November] and we are having the next one in February in the Middle East," Mr. Veloso said. The HSBC official also expects slower exports growth of 8% this year -- they were up 37% as of October last year -- with a pickup in the United States seen as a factor. Unemployment was seen hitting 7.1% this year while the remittance growth forecast was set at 8.5%.

U.S. Stocks Rise on Commodities Rally, Europe Support Pledge U.S. stocks rose, extending a seven- week rally, as gains in commodity producers and a pledge by European finance chiefs to support the region overshadowed lower-than-estimated profit at Citigroup Inc. and Steve Jobs’s leave of absence at Apple Inc. Alcoa Inc. and Exxon Mobil Corp. rose at least 1.1 percent as the U.S. dollar fell, sending commodity prices higher. Boeing Co. rose 3.4 percent after the seventh postponement of the 787 Dreamliner matched the length projected by some analysts. Citigroup fell 6.4 percent after revenue from stock and bond trading fell more than at JPMorgan Chase & Co. Apple slumped 2.3 percent as Chief Executive Officer Steve Jobs went on leave because of his health. The Standard & Poor’s 500 Index rose 0.1 percent to 1,295.02, its highest level since Aug. 28, 2008, at 4 p.m. in New York. The Dow Jones Industrial Average rose 50.55 points, or 0.4 percent, to 11,837.93. Treasury 2- to 30-Year Yield Curve Steepens to Record on Inflation Outlook The difference in yields between 2- and 30-year Treasuries widened to a record as investors demanded higher compensation for the longer-term debt on speculation inflation will accelerate. The gap between 2- and 30-year yields reached 4.01 percentage points, the steepest slope to the so-called yield curve since Bloomberg records on the data began in 1977. The Federal Reserve is purchasing as much as $21.5 billion in U.S. debt this week as part of its program to boost growth. “The two-year remains anchored to the Fed’s zero interest rate policy,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “With the Fed’s own stated policy objective of spurring inflation, we would anticipate that calls for the Fed to begin its exit strategy will precede when it does, so in that context the long end will continue to underperform the two-year sector.” Thirty-year bond yields rose five basis points, or 0.05 percentage point, to 4.57 percent at 5:01 p.m. in New York, according to BGCantor Market Data. They touched 4.61 percent, the highest level since Dec. 16. The 4.25 percent securities maturing in November 2040 fell 23/32, or $7.19 per $1,000 face amount, to 94 7/8. The yield on the 10-year note increased four basis points to 3.37 percent, after earlier falling to 3.28 percent. The two- year note was little changed at 0.59 percent. The spread between yields on U.S. 10-year notes and comparable TIPS, a gauge of traders’ outlook for consumer prices over the life of the securities, widened to 2.38 percent. It touched 1.47 percent in August.

Crude Oil Declines as IEA Says Global Inventories 'Relatively Comfortable' Crude oil slipped to a one-week low after the International Energy Agency said supplies are ample, particularly in North America. Crude declined after the Paris-based agency reported that inventory in the most developed economies “looks relatively comfortable” after dropping 8.3 million barrels in November to 2.74 billion, or 58.7 days worth of consumption. North American inventories were 3.2 percent above the five-year average. “We’re well-supplied presently,” said John Kilduff, a partner at Again Capital LLC in New York. “With stocks well above the five-year average, we’re not in the woods yet.” Oil for February delivery fell 16 cents to settle at $91.38 a barrel on the New York Mercantile Exchange, the lowest level since Jan. 11. Prices are unchanged 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: 18 January 2011

Remittances seen breaching $18B in ’10 11-month tally hits $17B; Nov. inflow at $1.6B By Michelle Remo Philippine Daily Inquirer MANILA, Philippines—Overseas Filipinos sent home $1.6 billion in November, bringing total remittances for the first 11 months of 2010 to $17 billion, the Bangko Sentral ng Pilipinas reported Monday. The central bank said demand for Filipino workers by employers in various parts of the globe remained strong. Remittances in November were up nearly 11 percent from the $1.5 billion recorded in the same month of the previous year. The January-November level was also up 8.2 percent from $15.8 billion in the first 11 months of 2009. BSP Governor Amando Tetangco Jr. said the growing demand for Filipino workers must be credited to their diversified skills, adding that government efforts to seek employment deals with host countries also helped increase the deployment rate. The central bank said in its report that remittances from January to November last year came mostly from the United States, Canada, Saudi Arabia, Japan, the United Kingdom, United Arab Emirates, Singapore, Italy, Germany and Norway. The BSP said the move of Philippine-based banks to open remittance centers and engage in tie-ups with money transfer agents in various countries has made it easier for overseas Filipinos to send money to the Philippines. According to projections made earlier by the BSP, remittances for 2010 would hit $18.79 billion, marking an 8-percent increase from the $17.4 billion registered in 2009. “Given the steady levels of remittances through November, the projected full year 2010 remittance level will likely be achieved,” Tetangco said. Citing documents from the Philippine Overseas Employment Administration, approved job orders for Filipino workers totaled 624,045 last year. The newly hired Filipinos were expected to continue fueling remittances to the Philippines this year, the central bank said. For 2011, the BSP said it expected another 8-percent growth in remittances. Remittances are a closely watched economic indicator given that these largely fuel consumption of Filipino households. Consumption is a bigger driver of the Philippine economy than investments. Economic managers have admitted that money sent by overseas Filipinos was a huge source of stimulus for the domestic economy. There are an estimated 10 million Filipinos working abroad. The Philippines is the fourth-biggest remittance-receiving country after China, India and Mexico. Although the government takes growth in remittances as positive news, economic managers agree that the big number of Filipinos working or looking for jobs abroad is an indication that local employment opportunities are not readily available at home. PAGASA expects above-average rainfall for most of first semester THE WEATHER bureau expects the country to experience above normal rainfall for most of the first half, a development seen easing power supply concerns but raising crop damage fears. "Southern Luzon down to Mindanao will be experiencing on average greater than 120% ... [rainfall] due to the La Niña [weather pattern]," said Daisy S. Ortega, senior weather specialist at the Philippine Atmospheric Geothermal and Astronomical Services Administration (PAGASA). Continuous rains have affected eight regions in the country and Ms. Ortega said Albay province, for example, had seen precipitation levels hit 235.5 millimeters, 156.3% above normal. The above average rains could extend to May this year, she said. A dry spell last year caused by the El Niño phenomenon led to brownouts in parts of the country including Metro Manila. Mindanao was particularly affected and yesterday Dennis S. Gana, National Power Corp., spokesman, said the rains would help in "maximizing operations" of hydroelectric plants in the South. "In Mindanao, these rains will maximize the use of Agus [hydroelectric] complex, stabilizing the water levels at Lake Lanao," he said. The dry spell also led to negative agricultural sector growth for most of 2010. While officials have forecast a recovery this year, excessive rains and the resulting floods could extend the sector’s woes. Antonio S. Nangel, head of the National Irrigation Administration, said the government was working to mitigate the impact on agricultural output. "We are developing and improving the drainage system. If we don’t improve this, there will be flooding and crops will be submerged," he said. The National Disaster Risk Reduction and Management Council yesterday reported that total damage from the continuous rains had risen to P1.626 billion, of which P417.715 million comprised the toll on farms.

U.S. Stock Futures Drop as Jobs's Medical Leave Spurs Speculation on Apple U.S. stock futures pointed toward a drop for benchmark indexes as Apple Inc. Chief Executive Officer Steve Jobs’s leave of absence spurred concern over the prospects for the world’s second-largest company. Apple, which closed at a record in New York last week, slid 6.2 percent in Germany. Futures on the Nasdaq-100 Index, of which Apple comprises 21 percent, sank 1.3 percent in an electronic holiday trading session that ended at 11:30 a.m. New York time. Standard & Poor’s 500 Index futures expiring in March lost 0.3 percent and Dow Jones Industrial Average futures declined 0.1 percent. Apple is the second-biggest company in the S&P 500 by market value and is not in the 30-stock Dow. U.S. exchanges were closed today for Martin Luther King Jr. Day. Jobs, who is a cancer survivor, is taking a leave of absence to focus on his health, putting the company in the hands of Chief Operating Officer Tim Cook for the third time in seven years. Cook will be responsible for the day-to-day operations, with Jobs continuing as CEO, Apple said. Jobs took an almost six-month break to have a liver transplant in 2009. “It’s a corporate setback and a negative for the stock,” said Michael Yoshikami, who owns Apple shares and oversees $1 billion at YCMNet Advisors in Walnut Creek, California. “Investors may be less negative this time because we’ve been down the road before when Tim Cook did a great job navigating the company in Steve Jobs’s absence, and Apple probably has its product replacement cycle set for the next two years. Still, the stock could sell off 10 to 15 percent and bring technology stocks down on sentiment.”

Crude Oil Declines as Trans Alaska Pipeline Restarts Oil dropped, halting last week’s rally, as the operators of a pipeline from Alaska restored flows to the U.S., the largest crude consumer. Futures slid as much as 0.8 percent as Alyeska Pipeline Service Co. said it had completed repairs on the Trans Alaska Pipeline System. The line carries 11 percent of U.S. crude production. Equity markets dropped in the U.S. and Europe. “The resumption of the Alaska North Slope Pipeline has helped check oil prices,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “Crude has been in a continuous uptrend since November. Now we are seeing milder weather and anticipating the end of winter. I’d expect prices to stall before reaching $100, and perhaps retrace a bit.” The February contract fell as much as 71 cents to $90.83 a barrel in electronic trading on the New York Mercantile Exchange, and was at $91.02 at 3:14 p.m. London time. There is no floor trading on Nymex today because of a U.S. holiday. Brent crude for March settlement dropped 79 cents to $97.59 a barrel on the ICE Futures Europe exchange in London. Alyeska Pipeline restarted the Trans Alaska pipeline and expects throughput to rise to 500,000 barrels a day within 24 hours, Michelle Egan, a company spokeswoman, said in an e-mail. The system resumed operation at 10:18 a.m. Alaska time, the company said in a statement. Producers on the state’s North Slope, who had been asked to scale back output to 12 percent of normal earlier today, are now free to resume normal operations. The closure of the pipeline forced BP Plc, Exxon Mobil Corp. and ConocoPhillips to cut production from the North Slope area, pushing up crude prices.

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: 17 January 2011

17 January 2011

USD/PhP: 44.49 + 0.26 PSEi: 4148.16 + 16.12
USD/JPY: 82.92 PFINC: 928.35 - 0.94
EUR/USD: 1.3317 BDO: 56.45 + 0.45
GBP/USD: 1.5867 BPI: 57.55 - 0.20
PDSTF3M: 1.2327 MBT: 64.75 - 0.95
Prices as of 4:00pm Source: Bloomberg, Reuters



PH stocks firm up
By Doris Dumlao
Philippine Daily Inquirer

MANILA, Philippines—Local stocks opened the week in an upbeat mood as investors hunted for bargains following last week's steep fall.

The main-share Philippine Stock Exchange index added 16.12 points or 0.39 percent to 4,148.16.

Investors loaded up on shares of blue chips and second-liner stocks that pulled back last week.

Monday’s upswing was led by the industrial and property counters which both surged by around 1.37 percent. Only the financial counter traded in the red.

Value turnover stood at P5.05 billion. There were 81 advancers that edged out 64 decliners while 38 stocks were unchanged.