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Weekly Investment Perspectives November 07, 2007
P hilippine Composite Inde x P e so Y ie ld Curve R OP Y ie ld Curve
T e nor 30-Oct 6-N ov +/ - bps Issue d 30-Oct 6-N ov +/ - bps
1m 4.09 4.09 0 ROP09 4.95 4.92 -3
3m 4.10 4.09 -1 ROP10 5.06 5.05 -1
6m 4.95 4.86 -9 ROP13 5.64 5.70 6
1y 5.77 5.84 7 ROP16N 5.89 5.93 4
2y 6.27 6.33 6 ROP19 6.07 6.11 4
3y 6.37 6.41 4 ROP25 6.44 6.50 6
4y 6.47 6.51 4 ROP30 6.53 6.58 5
5y 6.60 6.61 0 ROP31 6.53 6.59 6
7y 6.71 6.74 3 P e so vs U S D olla r
10y 7.12 7.16 4 30-Oct 6-N ov % Change
30-Oct 6-N ov % Cha nge 20y 8.53 8.53 0 Peso 43.95 43.75 0.46%
PSEi 3783.43 3773.63 -0.26% 25y 9.56 9.61 5
The global equities market declined after initial gains following the Federal Reserve’s rate cut last week. The Fed lowered
their benchmark lending rate by 25 basis points on October 31 in an attempt to uphold an ailing US economy, which in
turn boosted stock prices. However, the rate cut, along with an unexpected growth in the service industry, was not
enough to sustain positive sentiments as reports of hefty losses in the financial market and renewed subprime concerns
negated previous gains. Investors’ confidence was drained after the resignation of Citigroup CEO Charles Prince
following the company’s huge writedown losses due to subprime mortgages, as well as potential additional losses from
Morgan Stanley, Merrill Lynch & Co., and Credit Suisse. US Treasuries continued to rally throughout the week as
investors ran for safety. Asian stocks declined from last week, suffering repercussions from the US market turmoil.
Philippine stocks declined following the long weekend as the US Fed rate reduction was not enough to boost local share prices.
Large financial losses from top US financial firms, declining US retailers, rising oil prices, and poor consumer confidence flattened
local investors’ appetite. Some political unsteadiness may have also dragged local stocks, as well as Ayala Land rejecting local
police conclusions that the Glorietta mall blast was not caused by a gas leak, restoring the possibility of terrorist-related activity.
Ayala claims that findings of their own consultants contradicted those of the police. However, positive macroeconomic data as well
as positive earnings reports from select bluechip issues were able to buoy the local market in the meantime, as investors now look
toward next week’s BSP monetary policy meeting for direction. Year-to-date, the index is up 26.52%.
Peso bond prices decreased over mixed views on whether the BSP will lower the key interest rate following the Federal Reserve’s
25 basis points rate cut last week. The unchanged October inflation posted at 2.7% may give the central bank some legroom to
ease monetary policy; however, rising oil and commodity prices may continue to fuel inflation, causing the BSP to refrain from
cutting rates. To ease the impact of oil prices on domestic commodities, the government has committed to slash import duties on
oil if prices hit specific trigger points. Rates expected to move sideways with an upward bias of 5 to 10 basis points on the back of
renewed risk aversion as well as profit-taking. Peso yields increased an average of 1.9 basis points, led by the 364-day T-bill rising
by 7 basis points to 5.84%.
ROP prices dropped week-on-week with subprime fed fears rekindled among foreign investors. Large financial losses and
declining consumer confidence levels in the US boosted yields, in addition to some domestic unsettlement caused by the still
unresolved Glorietta blast incident and previous impeachment claims against President Arroyo. For the upcoming week, ROP
prices are expected to consolidate at current levels with a downward bias as market cautiousness persists in the near term amidst
lingering concerns on the subprime mortgage rout. ROP yields rose an average of 3.37 basis points, led by ROP13, ROP25, and
ROP31 gaining 6 basis points each to 5.70%, 6.50%, and 6.59% respectively.
Week-on-week, the peso declined 0.30 or 0.46% in value against the greenback, despite the higher odds of another US Fed rate
cut before yearend on speculation that US banks will report mortgage losses from sub-prime borrowers. Market expects the
BSP’s Monetary Board to cut the benchmark interest rate when it meets on November 15. A lower interest rate maybe justified by
a low inflation outlook, tempering the speed of the peso’s appreciation and sustaining domestic consumer spending. However, the
continued inflow of funds in the coming weeks will help support the peso’s strength.
The overall price of consumer goods increased 2.7% in October, replicating inflation in September, as the cost of food, beverages
and tobacco inclined 3.5% from a year ago. The cost of fuel, light and water increased 1%. The peso’s appreciation, which
tempers the cost of importation, and slower money supply growth help contain inflation. Money supply in September grew 11.4%
as exports growth slowed in recent months and as BSP maintains the expanded access to special deposit accounts. BSP has
successfully kept money supply growth below the 20% ceiling for the fourth consecutive month. Monetary policymakers will meet
in November 15 to decide on any change in the benchmark interest rate. BSP maintains the outlook on inflation as the primary
consideration in assessing the direction of monetary policy.
Economic Data Release: Week Ahead
Date Data Estimate Prior (Actual)
Nov 7 Foreign reserves - US$30.902B
Nov 9 Exports 2% - 4%
Sources : Bloomberg, Technistock, PDEx
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