Ghost Month: August 11 - September 6

The PSEi - PSE Composite Index & The Economy

...I guess this should be a signal to start going heavy and long 

Index climbs back on heavy foreign buying

MANILA, Philippines — The stock market recovered yesterday after sinking in the red again on Tuesday, propelled by heavy foreign buying.

The benchmark Philippine Stock Exchange index (PSEi) soared by 125.61 points, or 1.62 percent, to finish at 7,851.46.

The market was not simply up yesterday but it was a strong green day with all indices finishing in positive territory with hefty gains.

Total value turnover was strong at P8.636 billion. Advancing stocks outpaced decliners with a wide gap, 116 to 75 while 52 issues were left unchanged.

Yesterday’s trading session was a stark contrast to Tuesday’s affair when market investors stayed away from local stocks following the higher-than-expected 5.7 percent inflation in July.

Commenting on yesterday’s performance, Gio Perez of Papa Securities said it seemed all the negativity from the previous session had disappeared.

“It felt like all the negativity from Tuesday’s 5.7 percent July inflation figure turned into thin air. The PSEi surged 125.61 points on the back of a net foreign buying figure of P325.8 million, a turnaround from the two days of outflows earlier this week,” Perez said.

Yesterday’s close of 7,851.46 was the index’s highest level since May’s high of 7,906.45.


...bumaba GDP

Philippine economy slows down to 6% in Q2 2018
The gross domestic product for the 2nd quarter of 2018 falls short of market expectations

MANILA, Philippines (3rd UPDATE) – The Philippine economy slowed down to 6% during the 2nd quarter of the year, the Philippine Statistics Authority (PSA) said on Thursday, August 9.

The gross domestic product (GDP) from April to June 2018 is lower than the revised 1st quarter figure of 6.6%. The growth is also slower than the 6.7% recorded during the same period last year.

It also fell short of market expectations. Estimates had ranged from 6.6% to as high as 7%.

Socioeconomic Secretary Ernesto Pernia attributed the slowdown to policy decisions which would "promote sustainable and resilient development."

Pernia said the closure of Boracay "partly made a dent on the economy with growth in exports of services slowing to 9.6% in the 2nd quarter from 16.4% in [the] 1st quarter."

"We are also referring to regulations in the mining sector – the closure of several mining pits and the excise tax on non-metallic and metallic minerals – so that mining and quarrying sector showed a lackluster performance. It is down by 10.9%," Pernia said.

"Moreover, the stricter enforcement of regulations on aquaculture producers at Laguna Lake resulted in the drop of freshwater fish catch," he added.

Pernia said the measures will ensure sustainable and long-term growth for the economy. The policy decisions were also "prudent and judicious."

The GDP is used by various agencies and experts to track the country's growth. The figure accounts for all the finished goods and services produced within the country in a specific period. 


...eto na

Central bank fires off third rate hike

THE Bangko Sentral ng Pilipinas (BSP) raised rates anew yesterday in a more aggressive move as expected, to temper inflation amid signals that prices could remain elevated until next year.

The Monetary Board raised policy rates by 50 basis points (bp) on Thursday, marking the third consecutive tightening move this year as policy makers wanted to rein in price expectations.

This is also the central bank’s strongest response in a decade. The last time the BSP raised rates by 50bp in one go was in July 2008, which saw inflation surge to a 17-year high at 12.2% against a 3-5% target that year.

Rates now stand at 4.5% for the overnight lending rate, 4% for the overnight reverse repurchase rate, and 3.5% for the overnight deposit rate.

“In deciding to raise the BSP’s policy rate anew, the Monetary Board noted that latest baseline forecasts have shifted higher over the policy horizon, indicating some risk of inflation exceeding the target in 2019,” BSP Governor Nestor A. Espenilla, Jr. said in a media briefing yesterday.

The BSP tightened rates by 25bp each during its May and June meetings, at a time when monthly inflation started to log beyond four percent.

Inflation expectations — which play a huge part in terms of price movements — remain “elevated” as of now. The stronger adjustment is likewise seen to “prevent sustained supply-side price pressures,” even after previous tightening moves.

Prices of widely used goods surged to 5.7% in July, beating market expectations which brought the seven-month average to 4.5%, well above the 2-4% target range.

All 14 economists polled by BusinessWorld last week were sure that the central bank will raise interest rates this week, but were torn as to whether it will involve a typical 25bp increase or stronger. More analysts bet on a 50bp hike following the release of July inflation data on Tuesday.

“The Monetary Board believed that the series of policy rate adjustments thus far in 2018 will help reduce further the risks to inflation…,” Mr. Espenilla added. “Favorable conditions arising from sustained domestic growth also suggest that the economy can accommodate a further tightening of monetary policy settings.”

Thursday’s move is also in keeping with Mr. Espenilla’s hints of a “strong policy response,” versus a “measured” approach previously.

Meanwhile, the BSP chief said he has let go of plans to reduce bank reserves, saying that the 200bps cut introduced this year is sufficient for now. Mr. Espenilla has said the central bank will introduce fresh reserve cuts by next year, or when inflation returns to within target.

The central bank also expects further price spikes over the coming months.

BSP Deputy Governor Diwa C. Guinigundo said inflation is seen averaging 4.9% this year, versus a 4.5% estimate during its June meeting. The pickup is due to the P1 provisional increase in jeepney fares, higher water rates, the scheduled increase in tobacco excise tax, and higher Dubai oil prices.

By 2019, inflation will ease to 3.7%, although faster than the previous 3.3% forecast. Inflation is also seen to average 3.2% by 2020, against a 2-4% target range.

The BSP also noted the need for other government agencies to implement “non-monetary measures” to soften future price increases. The latest estimates do not factor in the passage of the rice tariffication bill, which the central bank said could bring down inflation by 0.2% if implemented during the fourth quarter.

The measure can also trim inflation down by 0.6% for 2019 once cheaper rice is imported to augment dwindling supply of the staple. Rice accounts for nearly a tenth of the consumer basket used in measuring inflation.

Mr. Espenilla said that while inflation is currently “on the high side,” authorities are carefully watching developments and is ready to take necessary actions “as needed.”

Central bank officials are confident the tightening moves — which cumulatively raised rates by 100bps so far this year — will not stunt overall economic growth.

“Certainly we are concerned about the country’s growth prospects. We also say that 6% GDP (gross domestic product) growth, while below our own estimates, is not a low number. It’s pretty decent growth by an economy, especially during this time of uncertainty,” Mr. Espenilla said, while stressing that price control is the BSP’s main mandate.

“We also argue that focusing on inflation right now is not necessarily anti-growth. One can argue it will sustain growth over the medium term.”

The Philippine economy expanded by six percent during the second quarter, well below market expectations and the state’s 7-8% goal. Still, Mr. Espenilla said the Philippine economy “continues to be strong” and can weather higher borrowing rates.

The BSP chief noted there are signs that lending rates “have started rising” to mirror upward adjustments in the benchmark rate, although pointed out that money supply remains “adequate.”

Still, bank analysts said this might not be the last tightening move from the BSP.

“We welcome BSP’s 50bps hike and its readiness to act further,” ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng said.”We believe that this is not the end of BSP’s tightening as the immediate objective to anchor inflation expectations would need further action since inflation is yet to peak and would remain elevated for the rest of the year and early 2019.”


...eto pa

Q2 GDP growth slowdown threatens full-year target

THE Philippine economy grew to its slowest pace in three years in the second quarter, leading some analysts to downgrade their forecasts despite the country remaining as one of Asia’s fastest-growing economies.

Gross domestic product (GDP) — the total amount of final goods and services produced within the country — grew 6% in the three months to June, lower than the revised 6.6% growth recorded in the same period in 2017, according to data released by the Philippine Statistics Authority yesterday.

The second quarter result was also below the revised 6.6% in the first quarter and the 6.8% median estimate in a BusinessWorld poll last week.

This is the slowest pace since the second quarter of 2015 when it recorded a 5.6% growth.

Year-to-date, GDP in the first half grew by 6.3%, which is also below the government’s 7-8% target band for 2018.

Gross national income — the sum of the nation’s GDP and net income received from overseas — recorded a growth of 5.8% in the second quarter, down from 6.6% previously.

In Thursday’s news briefing, Socioeconomic Planning Secretary Ernesto M. Pernia said the economy would have to grow “by at least 7.7%” in the second half to reach the low-end of the government’s growth target for this year.

“Although this growth still puts the Philippines as one of the best-performing economies in Asia, just after Vietnam at 6.8% growth and China at 6.7% growth, and ahead of Indonesia’s 5.3%, this growth rate is less than what we had hoped for,” Mr. Pernia said.

Mr. Pernia cited “policy decisions” in contributing partly to the economic slowdown such as the temporary closure of Boracay Island, and regulations affecting the mining industry such as excise tax on metallic and non-metallic minerals.

Services — the country’s mainstay that accounted for almost half of GDP — led growth among major sectors at 6.6%, faster than the 6.4% recorded in the same period last year.

Meanwhile, industry posted a 6.3% growth, slower than the 7.1% print in 2017.

Manufacturing remained the top contributor to industry growth even as it slowed down to 5.6% from the 7.6% growth in the first quarter and 8% in the second quarter of 2017, chipping in 3.7 percentage points to the 6.3% industry growth.

The construction sector grew by 13.5% in the second quarter compared to last year’s 4.3% and 8.8% in the first quarter.

Mining and quarrying, meanwhile, went the other direction as it declined by 10.9% versus the 6.9% expansion seen in the first quarter and the 19.2% growth in the second quarter of 2017.

Agriculture also grew albeit marginally at 0.2% versus the 6.3% growth posted a year ago.

Mr. Pernia noted the “dismal” harvests in palay (paddy rice), corn, sugarcane, and mango as well as the weak output in coconut including copra, livestock, and poultry.

“[T]his supports our premise that the main reason behind the high inflation is the gross deficiency in the domestic production of food, which was not augmented by imported goods, especially rice,” said the Cabinet official, reiterating the need to lift the quantitative restrictions on rice imports and impose a 35% tariff on the staple food item to help ease food inflation.

“[D]espite the price pressures, domestic demand remained buoyant at 10.1% [growth] — driven by household consumption and investments,” he said.

On the expenditure side, household spending — which made up roughly 56% of second-quarter GDP — was up 5.6% in the second quarter, slower than the 6% growth logged in the second quarter of 2017.

Exports of goods and services expanded at a slower pace of 13% compared to 2017’s 21.4%. Imports, meanwhile, grew 19.7% from 18.6%.

On the other hand, government spending went up by 11.9%, slower than the 13.6% in the first quarter, but faster than the 7.6% in the second quarter of 2017.

Capital formation, which is a measure of private investment, posted faster growth at 20.7% compared to 12.4% in the first quarter and 7.6% last year.

Market players now expect a slower full-year expansion for the country this year following the second-quarter growth turnout, noting that times have turned more “challenging” for the economy amid rising prices.

In separate commentaries, bank economists said they now see full-year GDP growth to be slower than their initial forecasts, leaving slimmer chances to hit the government’s 7-8% goal and could even settle below the 6.7% pace logged in 2017.

ANZ Research has scaled down its forecast to 6.6% from 6.8% following the first semester print, amid concerns on the trend for domestic demand as well as net exports.

ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng was likewise of the same sentiment: “Downward revisions of 2018 GDP forecast are necessary not only as a result of the downside surprise of 2Q and the downward revision of 1Q GDP growth,” he said.

Previously, ING expects full-year growth at 6.8%.

Mr. Cuyegkeng also pointed out that the weaker peso — which has traded above P53 versus the dollar since June — has “not encouraged” significant investments in the export sector. It has likewise failed to lift outbound shipments of goods despite bigger valuations during the first half of the year.

A widening trade imbalance and soft farm output have dragged overall economic activity, aggravated by high inflation which “could have dampened household spending,” the ING analyst added.

Prices of widely used goods trended above four percent since April and even hit 5.2% in June. Year-to-date, inflation has averaged 4.5% as of end-July to surpass the 2-4% target range.

Nomura economists Euben Paracuelles and Charnon Boonnuch also flagged a possible scaling down of their 6.9% growth estimate for 2018 given dismal turnout for agriculture, mining, manufacturing and services.

“Still, we expect an acceleration of growth in H2, led by investment spending as the government makes more progress in implementing infrastructure projects, which should crowd-in private sector spending,” Nomura said.

Rajiv Biswas, chief economist at IHS Markit, said the easing growth momentum meant the central bank and the state economic managers “face a more challenging economic outlook.”

“Looking ahead, we expect the slowdown in GDP growth to continue over the second half of this year as tighter monetary policy and higher inflation weighed on consumer spending,” said Capital Economics Senior Asia economist Gareth Leather in a note.

“The economy is likely to expand at a decent pace over the next year, although growth will fall well short of the government’s target of 7-8% target. On the plus side, demand should be supported by a big increase in infrastructure spending,” he added.

Angelo B. Taningco, economist at Security Bank Corp., likewise revised the GDP growth forecast for 2018 downwards by 0.3 percentage points to 6.5% from 6.8% previously, adding that a 7% full-year growth is unlikely as inflation is expected to remain elevated for the rest of the year.

Economists cited key risks to growth such as further increases in world crude prices, and the escalating US-China trade war which could affect Philippine export products. 


...why our market is down, 2nd day na

(Turkey's) Lira crisis hits Asia’s currencies as marts run for cover

ASIAN CURRENCIES were battered on Monday with the Indian rupee touching a record low as the ongoing crisis in Turkey spilled over to emerging markets and investors flocked to safe-haven assets.

The Turkish lira tumbled to a record low, weakening as much as 13.34%, over concerns about Turkish President Tayyip Erdogan’s rigid control over the economy and a worsening diplomatic rift with the United States.

“If investors continue to be concerned about the events in Turkey, and they likely will be, we could see more pain in store when it comes to risk appetite in the week ahead,” Jameel Ahmad, global head of currency strategy & market research at FXTM wrote in a note. Investors fear the sell-off in the lira could have a ripple effect in global financial markets with the euro, the South African rand and Mexico’s peso already on the receiving end from Turkey’s crisis.

Mr. Erdogan, who has called himself the “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

Worries about the exposure of European banks to crisis-hit Turkey prompted investors to bid up safe havens like the US dollar and Japanese yen. The dollar index added 0.07% at 96.423 while the yen strengthened 0.58% by 0535 GMT.

“Today’s market is a little bit more about recalibrating the investment agenda. Investors want to reduce their position. Kind of like, once bitten, twice shy,” said Taye Shim, head of research at Jakarta-based Mirae Asset Sekuritas.

The Philippine peso opened 0.08% weaker at P53.18 to the greenback and traded P53.18-53.375 before closing 0.44% weaker at P53.37.

The Indonesian rupiah plunged nearly one percent on to its weakest since October 2015, after data showed on Friday the country’s current account deficit, a major concern for global emerging market investors, swelled in the second quarter to the largest in nearly four years.

Indonesia’s central bank is intervening to defend the rupiah, a senior official said on Monday.

“The bank intervening in both the FX and bond market can only smooth excessive movement in the rupiah not change its direction,” said Gao Qi, FX Strategist (EM Asia) at Scotiabank.

China’s yuan slid 0.5%, in line with regional peers.

“A worsening yuan is like pouring oil on a fire,” said Mirae’s Mr. Shim.

The People’s Bank of China lowered the yuan midpoint rate to 6.8629 per dollar, its weakest level since May 31, 2017, which was 0.3% softer than Friday’s fix of 6.8395.

Last week, the yuan fell for the ninth straight week, the longest weekly losing streak since 1994. It has fallen about 9% against the dollar since the end of March.

South Korea’s won and the Taiwan dollar weakened 0.48% and 0.32% respectively.

India’s rupee, which has been the region’s worst performing currency so far this year, weakened more than one percent hours before consumer inflation data for July was due. A Reuters poll found that July inflation was expected to be 4.51% versus a five-month high of 5.0% hit in June.

Inflation remains a central concern for India, with rising crude oil prices adding to imported inflation. Moreover, recent erratic Indian monsoons have dimmed the outlook for winter-harvested crops in a largely agriculture-reliant economy. 


...well, sila na nagsabi

Fitch: Rate hikes could weigh on growth

THE CENTRAL BANK’s stronger tightening step last week could initially dampen growth, a Fitch Ratings analyst said, although robust domestic demand should continue to support expansion.

Stephen Schwartz, head of sovereign ratings for Asia Pacific at Fitch, said gross domestic product (GDP) growth could take a hit following an aggressive rate hike from the Bangko Sentral ng Pilipinas (BSP) at its Aug. 10 policy meeting.

This comes after a disappointing six percent GDP expansion in the second quarter.

“As you note, the Q2 GDP outturn was below expectations, and [Thursday’s] 50bp rate hike by the BSP could put some further downward pressure on growth for the remainder of the year,” Mr. Schwartz said in an e-mail interview when sought for comment.

Economic expansion eased to its weakest pace in three years due to slower growth in consumer spending, even as this was offset by a surge in state spending.

By industry, exports contracted from a year ago while farm output stood flat, the Philippine Statistics Authority announced Thursday last week.

That same day, the BSP tightened rates by 50 basis points in a bid to temper inflation expectations, even as it acknowledged that supply pressures — which are beyond the central bank’s scope — have been driving prices higher.

Despite this, the Philippines will remain a growth leader in Asia Pacific even though the government’s 7-8% target may be missed this year.

“Nevertheless we still expect the Philippines to be a strong growth performer this year and next, due to a combination of strong domestic demand and a still-resilient external environment despite rising risks from the escalation in trade tensions between China and the US,” the credit analyst added.

As of its last review, Fitch expected the Philippine economy to grow by 6.8% this year, faster than 2017’s 6.7% pace.

Actual GDP growth averaged 6.3% last semester, as the first-quarter place was revised lower to 6.6%.

In December, Fitch upgraded the Philippines’ credit rating to “BBB” — or one notch above minimum investment grade — with a “stable” outlook. This was affirmed early July in the face of strong growth prospects, although the debt watcher flagged rising inflation, rapid bank lending and a wider trade gap as key risks to the outlook.

Fitch analysts had then flagged that the Philippine economy is facing “overheating” risks, but said the BSP’s policy tightening moves may help contain such risks.

The BSP introduced back-to-back rate hikes in May and June of 25bp each, before whipping up a tougher response last week as inflation continues to surge. Prices of widely used goods jumped by 5.7% in July to mark a fresh multiyear high, which pulled the year-to-date average increase to 4.5% against the central bank’s 2-4% full-year target range.

The BSP now sees full-year inflation averaging 4.9% this year and 3.7% next year.

BSP Governor Nestor A. Espenilla, Jr. has said that the Philippine economy is robust enough to “accommodate a further tightening” in interest rates.

In a separate statement issued yesterday, the inter-agency Financial Stability Coordination Council (FSCC) said its members were working to “strengthen” long-term finance through various policies geared to ensure the country’s resilience amid “volatile” times.

“Financial markets are extraordinarily volatile this year and the FSCC continues to assess the possible impact to the Philippines of changing macro-financial conditions,” said Mr. Espenilla, who heads the FSCC as chairman.

“The challenge is to intervene early enough so that systemic risks do not build up but not too early that they derail our own growth momentum. We continue to be cognizant of this delicate balance, nurturing innovations and ideas while providing appropriate prudential oversight.”

The FSCC held its quarterly meeting yesterday. It is composed of the BSP, the Department of Finance, Bureau of the Treasury, Insurance Commission, Philippine Deposit Insurance Corp. and the Securities and Exchange Commission.


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