BAIPHIL Market Watch – 07 Sept 2016

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BAIPHIL MARKET WATCH

07 Sept

2016

Legend Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 46.6000 46.5200

30-D PDST-R1 1.4589% 1.4583%

91-D PDST-R1 1.2006% 1.2500%

180-D PDST-R1 1.7696% 1.8707%

1-Y PDST-R1 2.6521% 2.5711%

10-Y PDST-R1 3.4298% 3.4562%

30-D PDST-R2 1.2137% 1.2019%

91-D PDST-R2 1.2021% 1.2500%

180-D PDST-R2 1.7518% 1.8668%

1-Y PDST-R2 2.6521% 2.5550%

10-Y PDST-R2 3.4268% 3.4510%

Stock Index Current Previous

PSEi 7,719.18 7,764.05

Market Cap (Php Trillion) 12.738 12.794

Total Value (Php Billion) 7.687 5.840

PSEi Performers Closing % Change

Top Gainers

Medco holdings, Inc. 1.25 22.55%

Manila Mining Corp. 0.013 18.18%

Paxys, Inc. 2.75 10.00%

Top Losers

Phil. Realty & Holdings Corp. 0.430 -6.52%

Ginebra San Miguel, Inc. 12.10 -5.91%

PAL Holdings, Inc 5.45 -5.22%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 17,081.98 17,037.63

HANG SENG 23,787.68 23,657.70

SHANGHAI 3,090.71 3,071.89

STRAITS 2,896.55 2,803.24

SET 1,496.90 1,492.52

JAKARTA 5,372.10 5,356.95

Currency Exchange Current Previous

USD/JPY 101.4700 103.9825

USD/HKD 7.7551 7.7552

USD/CNY 6.6700 6.6805

USD/SGD 1.3451 1.3582

USD/THB 34.5740 34.6221

USD/IDR 13,126.50 13,248.00

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,374.89 1,380.00

FTSE 100 6,826.05 6,879.42

DAX 10,687.14 10,672.22

CAC 40 4,529.96 4,541.08

DOW JONES 18,538.12 18,491.96

S&P 500 2,186.48 2,179.98

NASDAQ 5,275.91 5,249.90

Various Current Previous

EUR/USD 1.1244 1.1149

GBP/USD 1.3424 1.3311

Gold Spot (USD/oz) 1,348.70 1,326.30

Brent Crude(USD/bbl) 47.36 47.49

3-M US Treasury Yield 0.30% 0.30%

10-Y US Treasury Yield 1.54% 1.60%

30-Y US Treasury Yield 2.24% 2.27%

PHILIPPINES

The local equities market fell on light trading and profit-taking of foreign investors amid valuation concerns. The PSEi fell 0.56% to

7,764.05. All sectors were in red led by the Services Sector (-0.69%). Market breadth was negative, as decliners (112) outnumbered

advancers (78). There were 51 unchanged shares. Total value turnover was at Php 5.84 billion. Foreign investors were net sellers at Php 611 million.

On the local fixed income space, prices rose given downward pressure on yields especially on the belly following the disappointing non-farm payrolls in the US. Yields were down an average of 5.1 bps, led by the belly which was down 17.7 bps. The long end was little changed, down by only 0.4 of a basis point. The short end bucked the trend, up 7.0 bps.

The Peso strengthened against the dollar as the August non-farm payrolls printing came out below expectations putting doubts on a

September hike. The USD/PHP fell by 10 centavos or 0.22%, closing at the 46.520.

Inflation slowed in August, the government reported. The Philippine Statistics Authority (PSA) showed that the headline inflation

slowed to 1.8% in August from 1.9% in the previous month but was faster than the 0.6% recorded in the same period last year. The preliminary result was lower than the 2% median forecast in a BusinessWorld poll of 13 economists. “Slowdown in the annual increases

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were noted in the indices of food and non-alcoholic beverages and recreation and culture,” the PSA report read. Inflation for food and non-alcoholic beverages slowed to 2.4% in August from 2.7% in the previous month. Likewise, recreation and culture index rose 1.7% from

1.8% in July. Year-to-date, inflation has averaged 1.5%, below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% estimate for 2016. Core inflation, which excludes volatile food and energy prices, rose to 2% from 1.9% in July.

The Bangko Sentral ng Pilipinas has no reason to change monetary policy, its governor said on Tuesday, after data showed inflation unexpectedly eased in August. "There appears to be no strong need to change stance of policy. But we are mindful of possible weather-related supply disruptions as well as financial market volatility from investment re-balancing," Governor Amando Tetangco said in

a mobile phone message. Annual inflation eased to 1.8 percent in August. It was the 16th straight month that the rate had stayed below the central bank's 2-4 percent target range.

The Bangko Sentral ng Pilipinas (BSP) may introduce a 100-basis-point cut in reserve requirements in the next few months, an economist from Natixis Asia said, taking advantage of a benign inflation environment to equip banks with more loanable funds. Natixis senior economist Trinh D. Nguyen said the central bank may trim the current 20% reserve requirement ratio (RRR) to 19%, which

could stimulate bank lending and support brisker economic activity. “Inflation is still at the bottom of the BSP’s target range, allowing the central bank to cut the RRR by 100bps in the coming months to support economic growth,” economist Trinh D. Nguyen said in an e-mail interview. The economy grew by 6.9% during the first half, hitting the low end of the government’s 6-7% target for the year. Chidu

Narayanan, economist for Asia at the Standard Chartered Bank, said he expects the BSP to cut the reserve standard to 15% within this semester in order to “provide more liquidity” in the local financial system. Both economists, however, see the central bank making no changes to current monetary policy rates, which last saw technical adjustments in June as the BSP migrated to

an interest rate corridor. Central to the new scheme is the term deposit facility, which now stands as the main tool to siphon off excess liquidity held by banks in order to drive market rates closer to the 3% benchmark. BSP Deputy Governor Diwa C. Guinigundo said any moves to adjust the RRR -- deemed the highest in Asia -- will be gradual, in order to mitigate any big shock that may follow. The central

bank official said the plan remains on the table, but timing is being considered as the BSP slowly makes progress on capturing excess funds held by banks and trust companies.

The Bangko Sentral ng Pilipinas (BSP) is again seeking amendments to its charter that has been in place for over 20 years, which, among others, will give the regulator more funds and additional powers. The BSP and some groups of the country’s financial institutions aired their proposed amendments to Republic Act (RA) 7653 or the New Central Bank Act, while expressing their general

support to the three Senate bills (SB) on these changes filed by members of the 17th Congress. “The BSP, once strengthened, can be even more responsive in meeting the challenges to the economy and the financial system over the coming decades,” BSP Governor Amando M. Tetangco, Jr. said during the meeting of the Senate Committee on Banks, Financial Institutions and Currencies. The BSP is

seeking amendments that would improve its corporate viability, monetary stability, and financial stability. Mr. Tetangco cited SB No. 1027 sponsored by Senator Francis G. Escudero, which focused on these three salient features in amending the BSP charter. Mr. Escudero is also the chairman of the Senate Committee on Banks, Financial Institutions and Currencies. On corporate viability, the BSP backed the

P150-billion increase in its capitalization proposed in SB No. 1027 to augment the current P50 billion. It also proposed a review conducted every five years by the Monetary Board, Department of Finance and Department of Budget and Management to verify if the central bank requires additional capital, which it may get from a reserve fund from the bank’s profits. If that is insufficient, government shall appropriate

the balance. It also wants the authority to establish aggregate gross allowances and create reserve buffers, as well as the restoration of its tax exempt status and attainment of unsecured BSP claims as preferred credit due to the public nature of its funds. With respect to monetary stability, the BSP asked for the power to issue its own securities, the removal of constraints in the growth of monetary aggregates

and credits, and the reinstatement of the central bank’s authority to obtain information from private individuals and entities. On financial stability, the BSP is seeking formal oversight over payment and settlement systems of the country and the expansion of its regulatory and supervisory functions to include money changers, payment system operators, and Internet banking and payment services. For the banking

industry’s part, Cesar O. Virtusio, managing director of the Bankers Association of the Philippines (BAP), said the group sees the need to amend RA 7653, and will submit a position paper on its specific proposals. “The banks plead from these amendments fairness and reasonableness of regulation,” Mr. Virtusio said. Suzanne I. Felix, executive director of the Chamber of Thrift Banks (CTB), said that while

CTB also supports the amendments, its members said the existing threshold on the central bank’s authority to transfer shares should not be lowered to 10% but remain at 20%. This suggestion was included in a paper submitted by the CTB to the Senate on the amendment of RA 7653 last Friday. “CTB appreciates that there is a need to respond to contemporary challenges by amending the present BSP charter in

order that the BSP remains effective in its conduct of monetary policy and supervision of financial institutions,” said Ms. Felix. Senator Franklin M. Drilon, Senate president pro-tempore and sponsor of SB No. 16 which also seeks to amend the BSP Charter by expanding its regulatory authority, said it is important that acts by BSP personnel be seen with a presumption of regulatory unless there has been a clear

showing of bad faith or gross ignorance of policy as provided for by jurisprudence. The third bill on amending the BSP charter, SB No. 859, was sponsored by Senator Ralph G. Recto. The Senate will create a matrix to compare the three bills. The amendments will be discussed further in weekly technical working group meetings this month, to be attended by lawmakers and representatives from the BSP, BAP, CTB,

and the Rural Banks Association of the Philippines. The government has raised P65 billion from retail Treasury bonds (RTBs) and will continue to accept offers until next week,

arming the Duterte administration with initial financing for its plans to ramp up public spending for infrastructure, social services and human capital development. The Bureau of the Treasury on Tuesday awarded P65 billion in its initial offer of RTBs with a 10-year tenor that fetched a coupon rate of 3.5%. The RTBs were met with P123.735-billion tenders, more than four times the original P30-billion

offer. “It’s a very good turnout of our auction [yesterday] to price the RTB. We will start our offer period until next week,” National Treasurer Roberto B. Tan told reporters after the auction. The public offering of the debt papers starts today and ends on Sept. 16. The 3.5% coupon was higher than 3.4208% prevailing in the secondary market and deemed “very reasonable” for both investors and the government , Mr.

Tan said. The rate is also just slightly more than the 3.25% fetched in the last RTB sale held in August 2013. “It just means that the pric ing has been quite stable if you are referring to 2013 and that very small uptick,” Mr. Tan said. A bond trader described yesterday’s sale as having a “very good turnout.” “It was very well-received because the market is still very liquid and the pricing is appropriate,” the trader

explained. “The Philippines is still fundamentally very sound, but the market has to watch out for external factors like a possible Fed rate hike and oil price movements,” the trader said. The National Treasurer described the amount raised as “just a buffer.” “We are not yet filled out for year... There will be subsequent auctions that are going to be part and partial of our cash position,” Mr. Tan explained. “The

proceeds are generally going for the financing program for the year, as you know we are ramping up our infrastructure expenditures as well as the provisions of the social services, human capital development, this is part and parcel of the whole financing for the government.” The government plans to borrow a total of P674.8 billion in 2016, about 5% less than the P710.8-billion programmed in 2015, and still in favor

of domestic sources. This, in turn, is expected to help the economy grow between 6-7% this year. Mr. Tan also told reporters yesterday that the government plans to raise $500 million by selling global bonds next year to help finance a P3.35-trillion national budget that has

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been submitted to Congress. The government plans to raise P126.26 billion ($2.7 billion) from global bonds and official development assistance loans to help fund the proposed 2017 spending plan. An official of the First Metro Investment Corp. (FMIC), a lead arranger and

selling agent for the RTB, said the government is likely to sell more bonds during the offer period. “I think getting to P100 billion should be fairly achievable, there is still a lot of liquidity in the market and this will attract interest to small inves tors,” Christopher Ma. Carmelo Y. Salazar, FMIC senior vice-president, said on the sidelines of an investor briefing on the offer in Makati City yesterday. The government

raised P150 billion in its August 2013 RTB sale. RTBs, which target small investors who can buy as little as P5,000, are considered low-risk, higher-yielding savings instrument issued by the national government. The bonds mature in 10 years, with interest payments made quarterly that are subject to withholding tax. The Treasury tapped 15 selling agents for the RTB sale: BDO Unibank, Inc.; China Banking

Corp.; Citibank N.A.; Development Bank of the Philippines; East West Banking Corp.; Land Bank of the Philippines, Metropolitan Bank & Trust Co.; Philippine Bank of Communications; Rizal Commercial Banking Corp.; Security Bank Corp.; ING Bank; BPI Capital Corp.; Robinsons Bank Corp.; BDO Capital & Investment Corp. and FMIC.

Government revenues from so-called "sin" products are expected to be higher next year, the Department of Finance (DOF) said

Monday. The DOF said tax collection from cigarettes and alcoholic products are expected to rise 8.7 percent to P173.19 billion in 2017

from P159.36 billion this year. Excise tax collection from tobacco next year is seen to jump 7.6 percent to P120.66 billion while revenues from excise tax on alcoholic beverages are seen to increase by 11 percent to P52.53 billion, data from the 2017 Budget of Expenditures and Sources of Financing showed. The projected collection growth next year, however, is slower compared to this year's increase of 12.4

percent. The finance department is studying raising sin taxes as part of President Rodrigo Duterte's tax reform program to of fset an expected decline in income tax collection with lower personal and corporate income levies.

The letter and intent behind the declaration of state of lawless violence to preserve peace and order in the country is investment positive, but the government must communicate its policies better, central bank Governor Amando M. Tetangco Jr. said on Tuesday. "So far, it has not yet affected ... market sentiment, and I think the objective is really to improve peace and order and security in

the country which is a good objective," Tetangco told reporters on the sidelines of the Euromoney Philippines Investment Forum in Taguig City. On Monday, before flying to Laos for the Association of Southeast Asian Nations (ASEAN) summit, President Rodrigo Duterte signed the proclamation putting the entire country under state of lawless violence, said Executive Secretary Salvador Medialdea. The President

primarily ordered the Armed Forces of the Philippines and the Philippine National Police to suppress lawless violence in Mindanao and to prevent lawless violence from spreading and escalating in other places, within the parameters of the Constitution and civil and political rights. Tetangco noted the letter and intent of the declaration is investment positive for country. "That is going to be positive for investments

of the government." "In the mean time, what would be needed is to communicate the policies more ... better to explain the act ions as well as the intent," he added. Duterte, however, said the declaration was not intended to curtail human rights and neither did he intend to suspend the writ of habeas corpus. "It's not martial law, but I am inviting now the Armed Forces of the Philippines – the military and the

police – to run the country in accordance with my specifications," he said. Asked to comment on how Duterte lambasted United States President Barack Obama, Tetangco noted there was no negative impact on the market. "If you look at market behavior so far – yesterday and this morning – we have not seen any negative market reaction," he said. Obama on Tuesday canceled what would have been his first

meeting with Duterte, after the Philippine chief executive described him in vulgar terms. "Yesterday ... the peso strengthened against the US dollar, and today it's range bound, so there's been no negative reaction so far as the foreign exchange market is concerned," Tetangco said. "Now, I think the market will be influenced more by what the Fed will do and what the other advanced economies will do. So it's gonna

be more externally driven at this point in time," he said. Philippine Stock Exchange President Hans Sicat on Tuesday downplayed the possible negative effect – on the market – of

President Rodrigo Duterte's declaration of a state of lawless violence. "It's not a fundamental issue," Sicat told reporters on the sidelines of the Euromoney Philippine Investment Forum in Taguig City. Sicat attributed the current downtrend to prospects of an interest rate hike in the US. "The market volatility, to begin with, is because of the potential rate increase ... So signals are coming for balancing

and rebalancing now." On Monday afternoon, Duterte placed the country under a state of lawless violence. Late Friday, a bomb explosion rocked Davao City – the President's hometown – killing 14 people and wounding more than 65 others. In an interview with reporters on the sidelines of the same forum, Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the declaration was actually good for

investment in the country. "In the mean time, what would be needed is to communicate the policies more than better, to explain the actions, as well as he intent," Tetangco said. By proclaiming a state of lawless violence, Duterte primarily ordered the Armed Forces of the Philippines and the Philippine National Police to suppress lawless violence in Mindanao and to prevent lawless violence from spreading

and escalating in other places, within the parameters of the Constitution and civil and political rights. The country’s biggest business groups are supporting President Duterte’s declaration of a nationwide “state of lawless

violence,” as they downplayed fears raised by some quarters that this could lead to the imposition of martial law. While this was seen as a move to help curb rising incidence of criminality, the groups also called on the administration to set clear parameters for the declaration. Two former Presidents—Pampanga Rep. Gloria Macapagal-Arroyo and Manila Mayor Joseph Estrada—as well as Mr.

Duterte’s allies in Congress also are supporting the declaration. The reactions were issued before the President signed the proclamation of a “state of national emergency on account of lawless violence.” One of the President’s key allies in the Senate called on Malacañang to put on paper the declaration to ensure consistency in its enforcement within set parameters while it was in effect. “Better to pu t it in writing so

that the terms, the instructions, the directions can be referred to time and again and won’t change, because it is now in writing,” Senate President Aquilino “Koko” Pimentel III told reporters. “If it is not yet written, my advice, my suggestion is let’s put this in writing,” Pimentel said. Perry Pe, president of the Management Association of the Philippines, said on Monday that the declaration, following the deadly

bombing in Davao City on Friday, was meant to allow soldiers to back up the police in setting up checkpoints and increasing patrols. “I think he has information which we don’t have. He campaigned on peace and order and that he will try to solve criminality in six months and he’s exactly doing that,” Pe said. However, there should also be a formal issuance, whether in the form of an executive order or a

proclamation, to set the scope of the declaration, he said. Mr. Duterte placed the entire nation under a state of lawless violence hours after the blast, which left 14 dead and 68 wounded. The declaration is allowed under Article VII, Section 18 of the 1987 Constitution as part of the President’s powers as Commander in Chief. In a text message, John D. Forbes, senior advisor at the American Chamber of Commerce

of the Philippines, said business required security in order to operate. “Our members have experienced police and military actions in many countries in the fight against global terrorism, including in the Philippines. We do not see civil rights being affected by the state of lawless violence, a constitutional authority of the President to use the Armed Forces. Hopefully, more acts of terrorism will be prevented so as to

guarantee security for Filipinos,” Forbes said. For his part, George T. Barcelon, president of the Philippine Chamber of Commerce and Industry, said the declaration was necessary in light of the threats. “The protection of innocent lives takes priority so the tightening of (security) against a heinous group is a must,” he said. Sergio R. Ortiz-Luis Jr., president of Philippine Exporters Confederation Inc. saw no

civil rights being curtailed by the declaration, which, he said, was just part of Mr. Duterte’s drive against terrorism and criminality. Arroyo said the President’s decision to declare a state of lawlessness was the “right thing” to do in the face of threats from drug lords and the Abu

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Sayyaf, which earlier claimed responsibility for the Davao bombing. “When I used to have those problems in Mindanao, I would ask [then Davao City] Mayor Duterte to handle them for me. And he handled them very well in his time for me. So I’m sure he’ll handle just as well, if

not better, for himself,” she said. Based on her experience, Arroyo said the public need not fear the military and police abusing their powers under the declaration because they never did under her watch. Even if they did, she said the President would handle them better. She used her constitutional powers to repel a security threat four times during her nine years in power. She declared a state of rebellion in

Metro Manila in May 2001 to stop the mob of Estrada supporters from storming Malacañang and in July 2003 in response to the Oakwood mutiny launched by the Magdalo Group led by then Navy officer Antonio Trillanes IV. She declared a state of emergency in Febr uary 2006 to nip in the bud a coup d’etat allegedly hatched by a military-communist-political alliance, and martial law in November and December

2009 to prevent lawlessness in Maguindanao Sultan Kudarat and Cotabato City in the wake of the Ampatuan massacre. In a statement, Estrada called on the Filipinos to unite behind Mr. Duterte in his quest to suppress terrorism and criminality. Pimentel said the declaration was far from the feared martial law and would not affect civil liberties. “We are not in the extreme yet (the most extreme be ing martial law).

It’s just actually a call or order from the President that the military should help the police in law enforcement,” he said. Sen. Francis Escudero said those worried about the President’s declaration may take the legal recourse and seek the Supreme Court’s wisdom for clarity on Mr. Duterte’s move. There has yet to be jurisprudence on the declaration, including whether or not it could be issued just verbally,

or if a presidential proclamation or administrative order would be necessary, Escudero said. He assuaged concerns over the possibility of a creeping martial law, saying the status invoked by the President in the wake of the Davao City bombing would not suspend civil liberties. Several senators took to the Senate floor on Monday to condemn the attack as they appealed for sobriety and unity among

the public. In a privilege speech, Sen. Richard Gordon condemned the “impunity and ignominy” of the Abu Sayyaf bandit group, which is believed to be behind the attack, as he said “we are all pained by the carnage.” To allay concerns over the declara tion of a state of lawless violence, Gordon said the blue ribbon committee, which he chairs, would be open to complaints about abuses that authorities might carry

out while the nation is under the expanded law enforcement status. In a statement, Speaker Pantaleon Alvarez said the Abu Sayyaf had already claimed responsibility for the bombing even though one of its officials denied it. “We are sure that the military wil l pursue the Abu Sayyaf until this band of murderers is neutralized. We are also confident that the government will continue to pursue the anti-illegal drug

and anticrime campaign along with the offensive operations against the Abu Sayyaf, until the bandits are wiped out,” Alvarez said. President Rodrigo R. Duterte’s plan to sell his government’s first global bond is eliciting a tepid response from foreign investors

as the nation’s existing dollar debt is the costliest in Asia. A series of credit-rating upgrades won during the six-year rule of his predecessor, Benigno S. C. Aquino III, saw the yield premium demanded by money managers to hold the notes over Treasuries shrink to the smallest among Asian sovereigns that issue dollar debt. Mr. Duterte’s administration, which took office following his landslide victory in

a May election, plans to raise $500 million to plug next year’s budget deficit, according to Treasurer Roberto B. Tan. It’s also seeking at least P30 billion ($644 million) this month from retail investors. “Long gone are the days when the Philippines has to pay a premium on its bond,” said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management Plc, which

oversees £301.4 billion ($401 billion). “We won’t get involved as the bonds simply have very little value.” While Aberdeen Asset and Standard Life Investments say the narrow premium on the bonds makes them too expensive, Union Investment Privatfonds GmbH sees a “rare” opportunity to buy the debt of Southeast Asia’s fastest-growing economy. The size of the proposed issuance by the Philippines is its

smallest in at least two decades. The nation tapped the international market only once each year after staying away in 2013. The investors spoke before Friday’s bombing in the Mindanao city of Davao that killed 14 people. “Yes, we will look at the deal,” said Sergey Dergachev, a senior money manager at Union Investment in Frankfurt who helps oversee €13.5 billion ($15 billion). “The Philippines is a relatively rare

issuer and fundamentally one of the strongest credits in Asia.” The small size of the planned sale also makes the “deal attractive in some way,” he added. The nation’s dollar bonds offer an extra yield of 95 basis points over Treasuries, according to indexes compi led by JPMorgan Chase & Co. indexes. That compares with spreads of 238 in Indonesia, 207 in Malaysia and a premium of 204 for Asia.

Philippine bonds have handed investors an 11% return so far in 2016, extending gains to a third year, JPMorgan indexes show. Sovereign debt in Indonesia and Malaysia has rebounded from losses in 2015 to earn 19% and 8.8%, respectively. After Friday’s bombing, Mr. Duterte declared a nationwide state of lawless violence, allowing him to use the military to assist the police to fight crime. The government

will go ahead with selling retail debt on Tuesday, Finance Secretary Carlos G. Dominguez III said Saturday. Eduardo V. Francisco, president of BDO Capital & Investment Corp. which is one of the six banks in charge of the sale, is confident that the bombing won’t impact the issue. “The economy and the prospects are strong,” he said. A shrinking supply of global debt from Asia also burnishes the appeal of

Philippine bonds. Dollar bond sales in the region, excluding Japan, have declined 9.1% to $107.3 billion this year through Sept. 5, according to Bloomberg-compiled data, as a weaker yuan and falling local borrowing costs prompted Chinese companies to raise funds domestically. “Getting exposure to Asian sovereign credit in hard currency in the primary market is by far the most liquid, cheapest and

best opportunity to get the bonds,” said Mr. Dergachev. While Mr. Duterte’s administration prefers to fund its budget deficit with domestic debt, the government is well-positioned to tap the global bond market when the opportunity arises, Mr. Dominguez said last week. Though the Philippine government has yet to decide the timing of the proposed issuance, borrowers may rush to raise funds before the Federal

Reserve increases interest rates. Issuers from Saudi Arabia to Russia and Brazil plan tens of billions of dollars in deals between September and US elections in early November. Mr. Duterte has asked Congress to expand the 2017 budget by 12% to $72 billion so he can fulfill key election promises to increase spending on the police, education and infrastructure. Domest ic demand for Philippine dollar

bonds has also played a key role in shrinking the yield premium, according to Standard Life. Local banks buy the notes to put to work money remitted by Filipinos working overseas equivalent to about 9% of GDP. The proposed $500-million issue will replace a similar amount of maturing debt next year, so there will be competition for the securities, according to Kieran Curtis, the London-based investment

director for emerging-market debt at Standard Life, which oversees $360 billion. “We generally consider that spreads are too tight in Philippine bonds to offer an attractive return,” Mr. Curtis said. “It wouldn’t be high on our priority list right now.”

The Philippine Stock Exchange index (PSEi) will trend toward the 8,400 mark next year, according to COL Financial Group, Inc., with local equities having to survive uncertainties arising from the leadership transition and the looming rate hikes in the United States. In a media briefing in Mandaluyong City on Monday, COL Financial Vice-President and Head of Research April Lynn C. Lee-Tan

said the local equities market will continue to perform well under the administration of President Rodrigo R. Duterte. “We be lieve that the Duterte administration inherited a very strong balance sheet from the PNoy (President Benigno S. C. Aquino III) administration,” Ms. Lee-Tan noted. “The debt levels have been going down; we’re now down 45% for debt-to GDP (gross domestic product) and, of course, the

primary balance is positive. Aside from that, borrowing cost right now is very low for the government since the past administration enjoyed 10 ratings upgrades,” she added. COL Financial further cited the 10-point socioeconomic agenda of the government, particularly the acceleration of infrastructure development across the country. “One of the things that will make it easier for the new administration to

improve infrastructure is the fact that it already has a rich pipeline of project for execution. The Duterte administration is inheriting 14 projects already in the bidding stages, so this is already equivalent to 3.40% of GDP or P459 billion,” Ms. Lee-Tan said. The economic agenda also includes initiatives for human capital development, which COL Financial expects to allow the country to take advantage of the

“demographic window” or when the productive population expands to more than 55% of the total. “Notwithstanding our positive v iew, of course, there are short term risks that we see. First would be the possible ballooning of the budget deficit,” Ms. Lee-Tan said. Accelerating

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spending largely on infrastructure development while cutting taxes could supposedly lead to a bigger deficit and eventually t o higher borrowing costs, although the government has vowed to cap the budget shortfall at 3% of GDP and explore new revenue measures. “The

reason why this is a concern is it could lead to a negative impact on our credit ratings or possible credit rating downgrades, which could lead to higher interest rates. But for us, we believe that this is not so much of a risk. The 3% deficit-to-GDP is still acceptable for investors because we can still maintain our 45% debt to GDP ratio,” Ms. Lee-Tan said. The brokerage further flagged as potential downside the

outcome of the first six months of Mr. Duterte’s administration, as rolling out projects could prove challenging during the period. The expensive valuation of local equities serves another risk, according to COL Financial, with the market currently trading around 19 to 20 times when measured in terms of price against earnings. “For end-2017, we’re targeting the PSEi to get around 8,400, so the upside

potential is a bit limited because we’re already at 7,800 for the month of September,” Ms. Lee-Tan said. The benchmark index has gained over 12% thus far into the year, with foreign investors maintaining a net buying position of about P47.84 billion. Gainers also continue to outnumber losers, 185 to 69, while three remain steady. The stock market has started correcting possibly toward the 7,300 level, according

to COL Financial, bolstering the case for foreign and local investors alike to buy back Philippine equities. Ms. Lee-Tan, however, noted the PSEi will unlikely settle beyond the 7,800 mark by yearend. Investors continue to await the US Federal Reserve’s decision to hike rates although “we now have a more subdued rate hike expectation.”

The audit of all metallic mines in the country has been completed with validated results due out within the week, according to an

Environment official. “We’re going to announce Thursday. We’re just validating them,” Environment Undersecretary Leo L. Jasareno, who

oversees the nationwide audit, said in a phone interview on Friday. So far, the Department of Environment and Natural Resources (DENR) has suspended 10 mines since the beginning of the audit on July 8. Eight nickel miners which represent 8% of the country’s total nickel output were covered by the suspension order. In addition, the audit on non-metallic mines may commence within the month. “We can start

groundbreaking on the field by the second week of September,” Mr. Jasareno added. A total of 65 non-metallic mines operate in the country. Nonmetallic mines will be reviewed in the same way local metallic mines were assessed. The audit was conducted to assess the compliance of miners with environmental standards and social development. A mining audit team was established with representatives

from the DENR, the Mines and Geosciences and the Environmental Management Bureaus, and third party clusters such as agriculturists and social development experts, among others. Miners have welcomed the audit as it is seen to weed out irresponsible mining c ompanies and leave the industry with more sustainable ones.

Overregulation and increasing tax burdens continue to dampen the confidence of local company CEOs and business leaders in

terms of revenue growth prospects for their companies and industries over the short term. Based on this year’s Philippine CEO

Survey Report, 65 percent of the 119 company leaders polled said they were “very confident” about their business growth prospects in the next 12 months. This was a deterioration from last year when 73 percent of business leaders said they were “very confident” of their prospects. A different trend, however, was seen over the medium term prospects of company leaders. This year’s survey—which was

conducted by Isla Lipana & Co./PwC Philippines for the 14th Management Association of the Philippines (MAP) International CEO Conference—showed that 69 percent of CEOs were “very confident” about their business growth prospects over the next three years. This was higher than the 62 percent reported in last year’s poll. Similarly, overall confidence in the Philippines was much higher this year, with

65 percent of the respondents believing that the government could hit a 6- to 7-percent gross domestic product (GDP) growth. For 2017, 59 percent of the respondents were confident that the same level of GDP growth could be met. In last year’s report, only 52 perc ent were optimistic that the economy could expand by 7-8 percent in 2015, while only 48 percent believed that the same GDP growth could be

attained for 2016. MAP president Perry Pe explained in a briefing Monday that the higher confidence in the economy could be attributed to the completion of the national elections, the promise of the Duterte administration and the 10-point economic agenda that proposes higher infrastructure spending, stability of business environment and inclusive growth.

A typical household consuming 200 kilowatt-hours (kWh) a month will pay less for electricity this September, the Manila Electric

Co. (Meralco) said on Tuesday. The residential rate for a typical household is lower by P0.0451 per kWh this September, bringing the per

kWh charge down to P8.46. "This translates to a reduction of around P9 in the electricity bill of a household with monthly c onsumption of 200 kWh." The decline in power rate this month is due to the lower transmission charge, which more than of fset a higher generation charge, according to Meralco. "This month’s overall rate is lower by P0.09 per kWh compared to September 2015’s P8.55 per kWh ,"

Meralco said. Plans to merge state-owned Land Bank of the Philippines and Development Bank of the Philippines have been abandoned by the

oversight body for government-owned or -controlled corporations (GOCCs). In an en band resolution, the Governance Commission for GOCCs (GCG) canceled Executive Order No. 198 issued by then-President Benigno Aquino III earlier this year green-lighting the DBP-LandBank merger. In a statement on Tuesday, Department of Finance spokesperson Paola Alvarez noted the en banc resolution was

signed by GCG Chairman Jaime Ma. Flores III and Commissioners Michael Cloribel and Samuel Dagpin Jr. Finance Secretary Carlos Dominguez III and Budget Secretary Benjamin Diokno, as ex-officio members of the GCG, also signed the resolution. Dominguez earlier said he was thumbing down the planned merger as it would not serve the public interest to transform the two institutions into one, given

their different functions. LandBank serves the agriculture sector while DBP takes care of the needs of industry, he said. “Bo th were created for different purposes, I don’t see any rational reason to put them together.” Dominguez noted the merger cannot be done without a law passed by Congress. Aquino has claimed that the GCG has the power to merge state firms without congressional approval. Dominguez

pointed the two banks were set up via legislation, saying the merger could only be considered legal through legislation. He noted DBP was mandated to provide long-term financing which requires bankers with markedly different skills set than those needed to extend short-term credit to farmers – LandBank's primary job. On February 4, Aquino issued EO 198 – providing for the merger, with LandBank as the

surviving entity becoming the country’s second largest bank in terms of assets. According to EO 198, the merger was subject to the consent of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC). Dominguez said, however, that “being number one or number two doesn’t matter.” More important was for the banks to perform their respective functions effic iently, with

service to the public the top priority. Following its recommendation, the GCG will send President Duterte a memorandum informing him about the resolution to abandon the merger.

Metro Pacific Investments Corp. (MPIC) is keen on entering the aviation industry by working with the government on building new airports in the country. "For Metro Pacific we want airports to be our next new industry – vertical as we call," Karim Garcia, MPIC vice president for business development, told reporters on the sidelines of the Euromoney Philippines Investment Forum in Taguig City on

Tuesday. "'Cause right now we're into roads, rail, water, power, and we want to be in airports for sure," he added. MPIC's subsidiaries include Metro Pacific Tollways Corp., Maynilad Water Holding Company Inc., Metro Pacific Light Rail Corp., MetroPac Water Investments Corporation., Metro Pacific Hospital Holdings Inc., MPIC-JGS Airport Holdings Inc., Porrovia Corporation, Fragrant Cedar Holdings Inc.,

Neo Oracle Holdings Inc. Metro Global Green Waste Inc., and MetroPac Logistics Company Inc. "We are always interested in improving the infra of this country," Garcia said, noting that the company will intends to support government direction – whether it will continue to

BAIPHIL Market Watch – 07 Sept 2016

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focus on the Ninoy Aquino International Airport (NAIA) as the country's main gateway, or create new airports. "I think what we need from this government is sort of a clear direction of what they want to do in terms of our international gateway," he said. If the government

decides to focus on improving NAIA, Garcia said MPIC will be ready to help. "There are ways to improve NAIA ... Takes political will, but there are ways to improve it," he said. If the government takes on the task of building new airports, MPCI will be willing to work with the administration. "If their direction is to take a greenfield option ... these are all issues that we'd be more than happy to help advice our

government on," he said. Philippine Airlines (PAL) is looking to open a new route from Clark, Pampanga to Incheon in South Korea, as the flag carrier

shifts some of its flights to help decongest the Ninoy Aquino International Airport (NAIA), Manila’s main international gateway. PAL President and Chief Operating Officer Jaime J. Bautista told reporters that they are in talks to launch a Clark-Incheon route, alongside plans to move as much as 10 flights per day from NAIA to the Clark International Airport. “We are now working on a possible C lark-Incheon

route within the year,” Mr. Bautista said on the sidelines of a loan signing ceremony in Pasay City on Monday. The PAL chief said they are looking to open daily flights under the new route, which would make use of an Airbus 320 or 321 aircraft. This comes amid plans by the flag carrier to transfer some of its flights to the Northern Luzon airport to help decongest NAIA and minimize the costs of flight delays. “The only

way for us to grow is through flights to Clark. There’s congestion here in Manila, so we cannot expand our operations so we have to look for other airports and that’s what we are trying to do,” Mr. Bautista said. PAL is looking to transfer five to 10 daily flights from NAIA to Clark “within the year,” against an average of 150 flights out of Manila per day. “It will take some time for you to prepare for a flight. We need

ground handlers, caterers, and refuelers. We are now working with that,” added the PAL official. “We would like to save on costs, because you know an airline, it’s a very competitive business and for us to be able to offer affordable fares, we need to be cost-conscious.” Mr. Bautista estimated losses of $60 per minute of flight delay. Earlier, PAL has also canceled 29 flights from Manila to select local

destinations, which Mr. Bautista said was part of moves to help decongest the NAIA during the lean season. Also on Monday, PAL officials inked a $38-million financing deal with the local arm of Cathay United Bank (CUB) to acquire a new A321 aircraft. PAL and CUB officials signed a 12-year syndicated term loan in a ceremony at the Marriott Grand Ballroom, which will finance the acquisition of a new A321

aircraft. In a speech, CUB Executive Vice-President Arnold Kan said the financing deal is the sixth between the Taiwanese bank and the flag carrier, but is the first to be led by the bank’s commercial banking unit in Manila which secured a license in October 2015 after a new law allowed the full entry of more foreign lenders. PAL’s Mr. Bautista said its refleeting plan forms part of the company’s three-tiered

strategy to expand its flight network to achieve five-star status by 2020. A unit of integrated gaming resort developer Bloomberry Resorts Corp. has obtained a favorable ruling from the Supreme Court

in its legal dispute with the Bureau of Internal Revenue (BIR) which had wanted to subject casinos to the regular 30 percent corporate income tax. In a disclosure to the Philippine Stock Exchange on Tuesday, Bloomberry said the SC had granted the certiorari petition of its unit Bloomberry Resorts & Hotels Inc. (BRHI) against the imposition of corporate income tax on BRHI as a licensed casino

operator of the Philippine Amusement and Gaming Corp. (Pagcor). BRHI, the casino operator at Solaire Resort & Casino along Manila Bay, filed the petition in 2014 to nullify the provision of Revenue Memorandum Circular (RMC) No. 33-1013 issued in 2013 by then BIR Commissioner Kim Henares that imposed corporate income tax on casinos. The BIR ruling created lot of jitters on the gaming industry as

investors like Bloomberry had come in on the assumption of a competit ive cost structure versus regional gaming hubs. In a decision dated Aug. 10, the High Court affirmed Bloomberry’s argument that as contracting party of Pagcor, it was subject only to the 5 perc ent franchise tax on its gross gaming revenue, in lieu of all taxes, as provided under Section 13(2) of the Pagcor Charter (Presidential Decree No. 1869).

“This Supreme Court decision will allow Pagcor and BRHI as an integrated casino resort to revert to the original license fee structure of 15 percent and 25 percent license fee (inclusive of the 5 percent franchise tax) for high rollers/junket and mass gaming respectively,” the disclosure said. To neutralize the impact of the much-ballyhooed BIR ruling, Pagcor earlier came out with an interim solution of cutting

gaming operators’ license fees by 10-percent of gross gaming revenues. From the start, however, gaming operators were one in saying that such license fee adjustment was but a “temporary measure” to address the unilateral BIR action and was not intended to modify, amend or revise the provisional licenses. A petition for writ of certiorari is a document which a losing party files with the Supreme Court

asking for a review of the decision of a lower court.

ASIA-PACIFIC

Japanese stocks extended gains on Tuesday, helped by buying in such defensive stocks as food companies, but overall trade was

subdued as investors waited for U.S. markets to reopen after a holiday. The Nikkei ended 0.3 percent higher at 17,081.98 points. The

broader Topix gained 0.7 percent to 1,352.58, with 1.542 billion shares changing hands, lower than 30-day average trading volume of 1.838 billion shares. The JPX-Nikkei Index 400 advanced 0.6 percent to 12,160.56. Meanwhile, the Mothers index, which lists start-up companies, rose 1.0 percent to 939.58, its highest closing level since Aug. 16.

China stocks closed up on Tuesday supported by consumer staples and automobile shares, but gains were limited on concerns that regulators are moving to reduce leverage in the country's financial markets. The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.7 percent, to 3,342.63 points, while the Shanghai Composite Index gained 0.6 percent to 3,090.71 points. The

start-up ChiNext board outperformed the market and finished up 2.1 percent on Tuesday. The consumer staples sector was among the top gainers with its subindex rising 1.0 percent. Automobile shares rallied, led by Anhui Jianghuai Automobile, whose shares jumped nearly 9.8 percent at one point, ending the day up 7.9 percent.

Hong Kong shares finished firmer on Tuesday, with the benchmark index rising for a fourth consecutive day as investors continued

searching for high yields. The mood in the Hong Kong market has been buoyed by a flood of capital pouring in from the mainland since last

week, as investors there actively hunt for yields in a low-interest rate environment. Chinese investors are also trying to get a head start on buying Hong Kong shares ahead of the expected November launch of a cross-border investment link between Shenzhen and Hong Kong.

BAIPHIL Market Watch – 07 Sept 2016

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Some analysts pointed out that investors have become cautious after the key index hit a series of one-year highs in recent days. The Hang Seng index rose 0.6 percent, to 23,787.68, while the China Enterprises Index gained 1.1 percent, to 9,938.39 points.

Southeast Asian stock markets were steady on Tuesday mirroring Asian markets, with investors now eyeing the results of the policy

meeting in Australia for cues. All the 33 economists polled by Reuters expect the Reserve Bank of Australia (RBA) to stand pat, following

the rate cuts in August and May. Meanwhile, Singapore shares held on to the previous session's gains, up 1.1 percent, with oil and gas shares leading the rally. Thai shares rose marginally, supported by consumer non-cyclicals.

Crude prices extended gains on Tuesday, buoyed after top producers Russia and Saudi Arabia agreed to cooperate on stabilizing the oil market, but a lack of immediate action to rein in output capped gains. London Brent crude for November delivery was up 12 cents at $47.75 a barrel by 0330 GMT (1130 ET), after settling up 80 cents on Monday. The global benchmark on Monday hit a near one-

week high of $49.40 after the Russia-Saudi news, but has since pared gains after Saudi Energy Minister Khalid al-Falih said there was no need now to freeze production. He added, however, that freezing output was one of the preferred possibilities. NYMEX crude for October delivery did not settle on Monday due to U.S. Labor Day holiday. It was trading roughly 20 cents higher from late Monday, up 87 cents at

$45.31 a barrel. It rose as far as $46.53 on Monday, the highest since Aug. 30. Russian Energy Minister Alexander Novak said Russia and Saudi Arabia were moving towards a strategic energy partnership and that a high level of trust would allow them to address global challenges. The Organization of the Petroleum Exporting Countries and non-OPEC producers such as Russia will hold informal talks in

Algeria later in September. Several OPEC producers have called for an output freeze to rein in the glut, which arose as supplies from high-cost producers such as the United States soared. Brent rallied to above $50 a barrel in late August, helped by growing talk of a coordinated production freeze, but prices have since fallen as few believe OPEC will act. Russia's Novak said he was open to ideas on what cut-off

period to use if producer countries decided to freeze output. Novak said outright oil production cuts may also be discussed in Algeria. Qatar's energy minister Mohammed al-Sada was quoted as saying on Monday that the state welcomed the agreement between Saudi Arabia and Russia, adding that oil markets were on their way to re-balancing. Meanwhile, Iran expects to complete a pipeline and a

terminal to export a new grade of crude by year-end, boosting the country's drive to ramp up oil production to pre-sanctions levels. While Bank of Japan Governor Haruhiko Kuroda has indicated an openness to new ideas, at least one measure -- buying foreign

bonds -- appears to be off the table as the central bank explores its options for monetary stimulus. Prime Minister Shinzo Abe told reporters at the close of a Group of 20 meeting in Hangzhou, China, late on Monday that such purchases are illegal under the Bank of Japan Law if they are meant as a form of currency intervention. Abe’s comments follow suggestions by one of his economic advisers,

Koichi Hamada, that the BOJ could buy foreign bonds to help weaken the yen, even though U.S. officials would probably object. Hamada also noted that Japan’s finance ministry has the right to intervene in currency markets if it sees the need. A weaker yen has been a key, though largely unstated, goal of more than three years of unprecedented monetary stimulus under Kuroda. The currency has strengthened

by about 16 percent this year, though, undermining BOJ policy and eroding its benefits for the Japanese economy. Faced with f alling inflation and expectations, the BOJ said in July that it would undertake a "comprehensive assessment" of its stimulus program ahead of its policy meeting Sept. 20-21. In a speech Monday, Kuroda indicated a willingness to add stimulus, including through new measures. In an

effort to generate 2 percent inflation, the BOJ is currently buying about 80 trillion yen of Japanese government bonds every year. Economists have questioned whether that pace can be sustained. Abe didn’t comment Monday on the yen’s current exchange rate. He expressed confidence in Kuroda’s methods and said the government would take firm action on foreign-exchange if necessary.

Australia’s central bank stood pat on interest rates as policy makers await further inflation data and the U.S. Federal Reserve’s

next move. In his final meeting, Reserve Bank of Australia Governor Glenn Stevens and his board left the cash rate at 1.5 percent

Tuesday, as forecast by all 26 economists surveyed. The central bank has cut twice in the past four months and traders see little chance of further easing until after the release of third-quarter consumer-prices data late October. “Inflation remains quite low,” Stevens said in a statement. “Given very subdued growth in labor costs and very low cost pressures elsewhere in the world, this is expected to remain the

case for some time.” Australia’s economy is being underpinned by increased resource exports, a housing construction boom and an uptick in tourism and education helped by a currency that’s fallen from its mining-boom heights. But anemic wage growth and weak inflation are signaling plenty of spare capacity which, along with the impact from zero or negative rates in Japan and Europe, prompted the central bank

to last month take borrowing costs to a record low. “In Australia, recent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports,” Stevens said. “Labor market indicators continue to be somewhat mixed, but suggest continued expansion in employment in the near term.” “Taking account of the available

information, and having eased monetary policy at its May and August meetings, the board judged that holding the stance of pol icy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Stevens said. Traders predict incoming Governor Philip Lowe could resume cutting the benchmark rate by December, though they see a

move in the first quarter of next year as more likely. Outside rates and a weaker currency, fiscal policy is the other obvious lever to aid the economy. But Treasurer Scott Morrison has made it clear -- following warnings from rating agencies about the country’s AAA score -- that he’s focused on paying down debt instead of using low rates to borrow to fund infrastructure projects that could increase

productivity. “Australia has always been a net importer of capital, especially in the private sector,” Morrison said in a Bloomberg Address late last month. As a result, “we have less head room for government debt than other advanced economies that fund their own debt, and that’s why ratings agencies tend to be very focused on Australia’s deficit and debt position.”

REST OF THE WORLD

European shares fell on Tuesday, dropping back from their highest levels since January , hit by weak U.S. data and a slump in France's Ingenico Group, which led Europe's tech sector lower. The pan-European STOXX 600 index fell 0.3 percent, after reaching its highest level since January in the previous session. The market fell away in afternoon trade after the U.S. ISM services index dropped by

BAIPHIL Market Watch – 07 Sept 2016

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the most since the financial crisis. The growth-sensitive banking sector fell the most, losing 1.7 percent. Banks have been under pressure, their profitability undermined by low interest rates. Germany's blue-chip DAX ended in positive territory, helped by a jump in Fresenius SE.

The medical company was up 6.4 percent after it said that it was buying Spain's biggest private hospital chain, Quironsalud, for 5.76 billion euros ($6.42 billion).

U.S. stocks rose slightly on Tuesday, nudging the Nasdaq to a record high close, as economic data bolstered views the Federal Reserve may decide against raising interest rates in the near term. The S&P financial index, which tends to rise with expectations for higher rates, slipped 0.2 percent, while the S&P utilities index, which tends to benefit from a lower rate environment, rose 1.1 percent. A

weaker-than-expected reading on the U.S. services sector in August added to views the Fed will refrain from raising interest rates at its meeting this month. Stocks should benefit from a continued environment of low rates and the Fed on the sidelines as long as economic data doesn't show significant slowing, he said. The chances of a rate hike in September dropped after the data, according to CME Group's

FedWatch tool. The Dow Jones industrial average closed up 46.16 points, or 0.25 percent, to 18,538.12, the S&P 500 gained 6.5 points, or 0.3 percent, to 2,186.48 and the Nasdaq Composite ended up 26.01 points, or 0.5 percent, at 5,275.91, a record high. Advancing issues outnumbered declining ones on the NYSE by a 1.43-to-1 ratio; on Nasdaq, a 1.15-to-1 ratio favored advancers. About

6.6 billion shares changed hands on U.S. exchanges, above the 6.0 billion daily average for the past 20 trading days, according to Thomson Reuters data.

German factory orders increased less than forecast in July as domestic weakness damped a surge in investment-goods demand from the euro area. Orders, adjusted for seasonal swings and inflation, rose 0.2 percent from June, when they fell a revised 0.3 percent, data from the Economy Ministry in Berlin showed on Tuesday. The median in a Bloomberg survey was for an increase of 0.5 percent.

Orders were down 0.7 percent from a year earlier. The report follows a series of data signaling that economic momentum in Europe’s largest economy has cooled. Business confidence slumped the most since 2012 in August and a gauge for private-sector activity fell to the lowest level in 15 months. Still, the Bundesbank maintained in its last monthly report that growth should pick up in the current quarter. The

ministry’s report showed that export orders were bolstered by a 12.1 percent surge in euro-area demand for investment goods, according to the report. Domestic orders fell 3 percent, the most since August last year. “The sideways movement of orders speaks for more subdued momentum in manufacturing in autumn,” the Economy Ministry said in an e-mailed statement. “The business climate in manufacturing has

cooled of late, even though it remains above its long-term average.” Swiss economic momentum accelerated in the second quarter, exceeding that of the euro area and hitting its fastest pace since

2014. Gross domestic product rose 0.6 percent in the three months through June, after gaining a revised 0.3 percent in the prior quarter, the State Secretariat for Economic Affairs in Bern said on Tuesday. That jump, helped by government consumption and foreign trade, beats the 0.4 percent increase forecast by economists in a Bloomberg survey. A year after suffering an exchange-rate shock, the export-

oriented Swiss economy appears to be finding its footing again. Demand in countries such as Germany is recovering and local c ompanies are finding ways to cut costs and improve productivity. Unemployment is low by European standards and the strong franc, which the central bank says is overvalued, is buttressing domestic consumption by lowering the cost of imports. The Swiss National Bank, whose quarterly

policy announcement is scheduled for Sept. 15, is using a deposit rate of minus 0.75 percent coupled with a pledge to intervene in foreign-exchange markets to prevent the franc from appreciating. It admitted to buying up foreign currency to stabilize the franc in the wake of the Brexit vote. As a result of the surging franc, Swiss consumer prices plunged the most since 1950 last year. The SNB, whose mandate is to

maintain price stability, forecasts an inflation rate of minus 0.4 percent for this year, improving to 0.3 percent in 2017 and 0.9 percent in 2018. It will update those forecasts next week. Consumer prices fell 0.1 percent in August, compared with both a month and a year earlier, a separate release from the Federal Statistics Office showed on Tuesday.

U.S. services sector activity slowed to a 6-1/2-year low in August amid sharp drops in production and orders, pointing to slowing

economic growth that further diminished prospects for an interest rate hike from the Federal Reserve this month. Tuesday's

downbeat report from the Institute for Supply Management (ISM) came on the heels of data last week showing a slowdown in job growth in August, a contraction in factory activity and weak automobile sales. The ISM said its non-manufacturing activity index fell 4.1 percentage points to a reading of 51.4, the lowest since February 2010. The drop from July was the largest monthly fall since the 2008 financial crisis,

with the ISM saying a majority of companies had noted a slowing in their level of business. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity. After the report, interest rate futures FFU6 were pricing in a 15 percent probability of a rate increase at the Fed's upcoming Sept. 20-21 meeting. The odds for a December rate hike were even. The ISM

reported last week that factory activity contracted in August for the first time in six months. The ISM manufacturing index, however, remains above the threshold associated with a recession. Economists said while the ISM surveys did not directly feed into the calculation of gross domestic product, the weak August readings suggested economic growth could be slowing. The Atlanta Fed is forecasting GDP ris ing at a

3.5 percent annual rate in the third quarter. The U.S. economy grew 1.0 percent in the first half of the year.

Signature Analysis & Forgery Detection – 17 September 2016 Developmental Course on Treasury Products - Bond Duration – 17 September 2016 Establishing Internal Controls in Banks – 24 September 2016 Developmental Course on Treasury Products - Spot, Forwards and FX Swaps – 24 September 2016 Fraud Risk Management –24 September 2016 Developmental Course on Treasury Products - Interest Rate Swaps – 01 October 2016 Establishing Internal Controls per BSP Cir. No. 871 – 01 October 2016 Basic Leadership and Effective Supervision Seminar (BLESS Program) for Bank Supervisors – 07 & 08 October 2016 Introduction to Financial Regulatory Reporting and Related Financial Control Standards – 08 October 2016 Developmental Course on Treasury Products - Currency Swaps/Forward Rate Agreement – 08 October 2016 IT Risk Management, IT Risk Rating System, and IT Regulatory Updates – 14 October 2016 Enterprise Risk Management – 15 October 2016 Developmental Course on Treasury Products - Bootstrapping – 15 October 2016 BSP Cir. No. 706, AMLA Law, RA 10365 and the AML Risk Rating System – 21 October 2016 Risk Management and Risk Based Supervision – 21 October 2016 Developmental Course on Treasury Products - Financial Options – 22 October 2016 Advanced Workshop on Banks Frauds and Forgery Detection – 22 October 2016

BAIPHIL Market Watch – 07 Sept 2016

Page 9 of 10

Tax Accounting for Various Banking Products and Services, and Regulatory Remittances and Corporate Taxation of RBU and FCDU – 22 October 2016 Labor Laws for Bankers – 22 October 2016 Supervisory Expectations on Compliance Systems for Board and Senior Management – 28 October 2016 Trade Financial Commercial Crime – 29 October 2016 Overview of Outsourcing Framework (Knowing the Essentials When Outsourcing) – 12 November 2016 Advanced Project Management – 19 November 2016 PFRS-based Financial Statements (Internal FS & the Annual Audited FS) by Philippine banks – 19 November 2016

For details, please contact BAIPHIL via telephone (853-4457/519-2433) or email training@baiphil.org.

SEPTEMBER 1-15

01 Ma. Agnes J. Angeles - Past President

02 Ma. Diwata A. Lingatong - Standard Chartered

08 Vanessa C. Chua - JP Morgan

08 Gregorio M. Yaranon, Jr. - Maybank Phils

09 Maria Teresita R. Dean- ChinaBank Savings

09 Ma. Gina A. de Guzman - Assoc. Life Member

11 Carol P. Warner - Security Bank

12 Arnelito M. Ocampo - Sterling Bank

14 Elma D. Valenzuela - CARD SME Bank

EFFECTIVE NET WORTH - The shareholders' equity of a corporation, plus subordinated debt.

Effective net worth is particularly useful in closely held corporations, since executive officers in

these entities are also its owners. Subordinated debt can include debentures or loans to the firm by

an owner. Such owners' loans are considered an extension of the company's net worth, provided a

subordination agreement is already in place.

BAIPHIL Market Watch – 07 Sept 2016

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Why when astonished would someone say, “Well, I’ll be a monkey’s uncle”?

During the famous Scopes trial in 1925, a Tennessee schoolteacher, John T. Scopes, was accused of

breaking that state’s law by teaching Darwin’s theory of evolution rather than the Biblical origins of

mankind. The trial was a sensation and astonished many who had never heard that humans might be

related to the apes, and from this came the expression, “Well, I’ll be a monkey’s uncle.”

REFERENCE COMPILED AND PREPARED BY: RESEARCH AND INFORMATION COMMITTEE FY 2016-2017

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star GMA News ABS-CBN News Bulletin Today PSE

Reuters Bloomberg CNN Wall Street Journal Investopedia Brainy Quotes Goodreads Corsinet- Trivia

Director: Maria Teresita R Dean (ChinaBank Savings) Chair: Sheryll K. San Jose (Equicom Savings Bank) Member: Rachelle A Fajatin (Equicom Savings Bank)

DISCLOSURE: The BAIPHIL Market Watch (BMW) is for informational purposes only. The content of the BMW is sourced

from third party websites and may be subject to change without notice. Although the information was compiled from sources believed to be reliable, no liability for any error or omission is accepted by BAIPHIL or any of its directors, officers or employees, and BAIPHIL is not under any obligation to update or keep current this information