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IRC
Market Update
_______________
Outlook & Strategy
IRC
Market Update
_______________
Outlook & Strategy
Metrobank Trust Banking Group
05 October 2011
US markets near bear market • Stock Markets posted worst quarter since 2008 crisis
amid lingering concerns on economy, Europe’s ailments• The MSCI All World Index plunged 18%, $2.59 trillion
lost in total market cap – Thomson Reuters Datastream
• Fall continues after on brewing crisis in Europe, markets approaching bear territory
• US Fed chief Bernanke says economy “close to faltering,” urges Congress to take steps
• Labor market to remain sluggish for some time, Fed’s $400B “Operation Twist” is significant but not a game changer
16.7% drop from 12,724 peak
8% rebound from low
Dow fell to 10,403 low Tue or 18.2% from peak
USD climbs to highest since Jan• US Dollar index climbs amid fears of contagion in
Europe• Euro plunges, wipes out gain for the year, weighed
down by the lack of visible solution to its debt problems • Sharp rise in USD may be coming to an end as investors
see rebound in Euro and commodities
16.7% drop from 12,724 peak
8% rebound from low
Greece Snarls Eurozone Sentiment• Greece admitted it will miss its deficit targets, cash from
EU-IMF-ECB on hold• EU finance ministers are moving to put up firewall
around Greece to protect other countries by recapitalizing banks
• EU now mulling private sector hair-cut due to Greek exposure
• Moodys downgrade Italy 3 notches to A2, outlook negative
• Fragile market mood, political uncertainty and funding risks
• Parliament approves E54B austerity plan, balanced def by 2012
China Mfg steady• HSBC PMI show China Mfg activity steady at 49.9, below
50• Second month of slow activity after 4 months of decline • Official govt PMI @ 51.2 vs 50.9, second monthly rise• C/A surplus revised lower to $87.8B from 98.4B•
Slowdown in other parts of the world also evident
Australia Mfg Index 42.3 in Sep, below 50Taiwan PMI 44.5 vs 45.2 in Aug, 4th declineIndia PMI 50.4 vs 52.6 on weak exports
The Asian Selloff
Indo -20% from high, -9.5% YTD
Thai -24% from high, -16% YTD
Korea -23% from high, -17% YTD%
Sing -21% from high, YTD
PSEi Far better off
– Sept PSEi -8%, fell to a low of 3715 on 26 Sep amid gloomy outlook by US Fed on economy and deepening Greek worries
– Quarter-end window dressing allowed boosted PSEi by 7.5% in 3 days, pushing to index to 4000
– Lowest since Sep 2008– NFS by -$78M, continuation of -$160M in Aug, YTD +$328M– Banks were top sells, defensives top buys
-16% from high
-8.8% YTD
Foreign selling continue in PSEi
– P
Locals supporting market; 63% of T/O
T/O last week increased dramatically to $170M from $130M
PSEi Outlook: range-bound
– 3700 support, 4000 resistance– Market to be volatile– Cash is king– But current levels an excellent opportunity to
position – Top picks: SMPH, URC as top defensive
options– TEL, GLO for yield play >10%– AGI, AP, DMC, for growth
Oil, Gold lower
– Oil falls to $75 on bleak economic outlook and as Libyan crude exports return to market
– Brent is fast returning to the $100 support due to easing concerns on supply tightness
– Gold not spared from deepening US slowdown, eurozone debt crisis, price plunge almost 17% from >$1900 record high
– Investors dump gold for cash to cover losses in other markets– Sharp rise in USD also trigger exit from metal
Gold @ 1614Oil @ $75
The opposing forces of offshore sentiment & long-term fundamentals
1Y
3Y5Y
7Y
10Y
20Y
25Y
T-Bills Auction - 10/03/201191d 182d 364d TOTAL
Offer 2.000 3.000 4.000 9.000Tenders 3.362 2.220 2.000 7.582
Accepted 0.000 0.000 0.000 0.0001.7 0.7 0.5 0.8
Ave RateIf accepted 2.775% 3.296% 3.469%
Prev 0.690% 0.682% 1.133%Change 2.085% 2.614% 2.336%
9/19 9/11 9/19
REJECTED
FXTN 25-9; 7.625% cpn (NEW)09.28.11
Offer 9.000Tenders 30.818 3.4 x
Awarded 9.000 100%Coupon 7.625%Range 7.250%-7.625%
Average 7.510%Prev Ave 8.140%
Chg vs Prev -0.630%
MARKET DRIVERS:•Sep Inflation release: 10/4
•Median Est.: 4.9% (vs. Aug: 4.7%)•Next big thing: RTB issuance
•Tenors: 10 and 15Y•Target Volume: Min of Php 50 to 60Bn•Target Date of Auction: Oct 11•Target Issue Date: Oct 20•Indicative Rates:
o 10Y: 6 to 6.25%o15Y : 7%STRATEGY: Position funds for the upcoming RTB. 15Y offers relative value: higher premium and new benchmark tenor point.
Market Snapshot
9/30/2011 mom Δ ytd ΔFFR 0%-0.25% 0.00% 0.00%ECB 1.50% 0.00% 0.50%BOE 0.50% 0.00% 0.00%3mo US$Libor 0.37% 0.05% 0.07%12mo US$Libor 0.86% 0.06% 0.08%3mo USTBill 0.02% 0.01% -0.10%2yr UST 0.24% 0.04% -0.35%5yr UST 0.95% -0.01% -1.05%10yr UST 1.92% -0.31% -1.38%30yr UST 2.91% -0.69% -1.42%
ROP 13 Price 109.01 (1.52) (5.41) (mid) Yield 2.24% 0.66% 0.25%
Spread 208 65.00 74.00
ROP 21 Price 99.23 (2.68) 2.12 (mid) Yield 4.10% 0.34% -0.26%
Spread 228 62.00 122.00
ROP 30 Price 146.75 (6.92) 2.25 (mid) Yield 5.44% 0.44% -0.22%
Spread 310 90.00 122.00
1 yr CDS 87.90 35.23 42.50 5 yr CDS 252.82 90.38 125.26 Source : Bloomberg
10-yr Comparables Sept 30, 2011
Mid Price mom ∆ YTM mom ∆ +10y UST mom ∆
Brazil 12.75% 1/15/2020 161.25 -6.81 3.99 0.64 234 86Panama 9.375% 5/15/2020 139.46 -1.95 5.04 0.19 334 43Colombia 11.75% 2/25/2020 153.98 -5.51 4.08 0.53 242 76Indonesia 4.875% 5/05/2021 101.27 -5.63 4.71 0.70 284 100Turkey 5.625% 3/30/2021 102.54 -4.41 5.28 0.57 343 86Philippines 4.00% 1/15/2021 99.23 -2.68 4.10 0.34 228 62Vietnam 6.75% 1/29/2020 97.86 -6.12 7.09 0.96 544 119Sri Lanka 6.25% 10/04/2020 97.56 -4.22 6.61 0.62 484 88Venezuela 6.00% 12/09/2020 56.00 -4.44 14.96 1.31 1316 158Pakistan 6.875% 6/1/2017 77.10 -5.43 12.66 1.60 1155 167Source: Bloomberg
Market’s current top concerns:
Global growth
EU sovereign debt
Inflation threat has lost momentum.
Rates expected to remain low.
Maintain sufficient cash, stay nimble.
Nibble, don’t rush.
Market surprises to the downside.