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Treasury bill rates seen steady as central bank halts tightening

RATES of Treasury bills (T-bill) on offer today are expected to move sideways amid steady demand following the decision of the central bank to keep key interest rates steady.
The Bureau of the Treasury (BTr) is offering P15 billion worth of T-bills today, broken down into P4 billion, P5 billion and P6 billion in three-month, six-month, and one-year debt papers, respectively.
Bond traders said the short-term securities on offer today will likely move sideways as investors start to wind down their bids for the year.
“For the bills, I’m looking at sideways movement to five basis points higher [from the previous auction],” a trader said in a phone interview last Friday.
Last week, the Treasury made a full award of the T-bills it placed on the auction block, borrowing P15 billion as planned versus total tenders amounting to P23.549 billion.
The Treasury accepted P4 billion as planned for the 91-day debt papers out of the P7.65 billion offered by banks. The average rate declined by 4.4 bps to 5.35% from the 5.394% quoted in the previous offer.
The government also made a full award of the 181-day T-bills, borrowing P5 billion as planned versus total offers of 8.525 billion. The average yield rose 3.9 basis points to 6.344% from 6.305% previously.
It also fully awarded the 364-day papers, accepting P6 billion out of the total bids at P7.374 billion. Its average yield climbed 7.8 bps to 6.585% from the 6.507% tallied in the previous auction.
According to the PHP Bloomberg Valuation Service Reference Rates, the three-month, six-month and one-year papers were quoted at 5.651%, 6.36% and 6.703%, respectively, on Friday.
“The rates will move sideways since the recent decision of the MB (Monetary Board) was already expected given the low inflation,” the trader added.
The Bangko Sentral ng Pilipinas (BSP) kept its benchmark rates steady on Thursday, holding its interest rates at a nine-year high 4.25-5.25%.
Last week’s policy decision marks the end of the BSP’s five straight tightening moves this year as inflation is seen to decelerate faster than initially expected.
BSP Assistant Governor Francisco G. Dakila, Jr. said in a press briefing on Thursday that the central bank projects inflation to return to “below four percent by around the end of Q1 2019,” well within the government’s 2-4% target band.
“The demand for the bills will be lighter as we usher in the holidays. Some of the clients will likely hold their cash until next year by January,” the trader said.
Meanwhile, another trader said market participants will also take into consideration the Federal Reserve’s policy meeting on Dec. 18-19, where the US central bank is expected to raise rates anew.
“If the Fed will also take a pause, then it might give some relief rally,” the trader added.
The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in Treasury bonds.
This is part of a P888.23-billion borrowing plan this year from local and foreign sources to fund the budget deficit and support increased government spending.

Malaysian company interested in banana JV

A MALAYSIAN company is interested in pursuing a joint venture with banana planters in the Philippines to tap the China export market, according to an official of the Malaysian Chamber of Commerce and Industries Philippines Inc (MCCI).
In an interview, MCCI president Edward Ling, said: “There is possibly a company might go into cultivation of banana.” He did not disclose the name of the company.
“Their plan is to initially get about 200 acres of land, to work with the local people,” Mr. Ling said.
According to the Philippine Statistics Authority (PSA), banana production increased 2% year-on-year in the three months to September to 2.43 million metric tons (MT).
PSA said that Davao Region remained the country’s top contributor, with a share of 38.2%, followed by Northern Mindanao with 21.3% and SOCCSKSARGEN with 12.5%.
Mr. Ling said that the potential investor became interested in pursuing the project after the Philippine Investment Forum 2018, which was held in September.
Asked where the bananas would be grown, Mr. Ling said: “It could be in Mindanao, it could be (in Luzon).” — Reicelene Joy N. Ignacio

Global narrative continues for Commonwealth with latest tie-up

LIFESTYLE boutique Commonwealth recently released its shoe collaboration with adidas Consortium, a partnership that the people behind the former said is special in more ways than one.
Launched at the Commonwealth store at the Rockwell Power Plant Mall in Makati City last Thursday, the adidas ZX 500 RM Commonwealth is inspired by the coastal living of Virginia Beach, Los Angeles, and the Philippines.
It marks the first time that Commonwealth has partnered with adidas Consortium.
The ZX 500 RM Commonwealth is constructed from synthetic suede with translucent monofilament mesh underlays and TPU-welded overlays for structure, with embroidered three-stripe marks and heel details in aquatic colors.
It boasts of a BOOST midsole for optimum cushioning and a durable rubber outsole. Light touches such as a co-branded insole, Consortium tongue label, and Commonwealth woven label on the lateral ankle complete it all.
For Commonwealth Philippines owner Mike Concepcion, their partnership with adidas Consortium is something they take special pride in as they not only got to tie up with one of the top brands in the world, but it also speaks of the global narrative of Commonwealth.
“This is a project that we did with adidas Consortium. Adidas Consortium, to put it simply, is the Tier Zero of the brand, or the highest assortment that the brand has. And we are part of the Consortium Collective which is a group of select retailers around the world. I think there is no more than 50 of us. And within that it’s a bit exclusive in itself to be chosen to partner for a shoe. We are lucky and privileged to be given an opportunity to do such. It’s a first for the brand and first for the Philippines and we are proud of that,” Mr. Concepcion said in an interview with BusinessWorld at the shoe launch on Dec. 13.
“Being a retailer it’s always something you look forward to, working with a big brand like adidas. It really makes this a global narrative. It’s going to be sold around the world, Paris, New York, and Tokyo. And I think it’s a culmination of where we are as a brand and says a lot of what you can expect from us. The story ties in the best of the brand from its beginnings in Virginia Beach, and then opening in LA and opening here,” he added.
Mr. Concepcion went on to say that their collaboration with adidas Consortium is anchored on mutual respect and shared values, making their partnership only fitting.
The adidas ZX 500 RM Commonwealth is now available for P9,300. — Michael Angelo S. Murillo

Yields on government debt end flat after BSP decision

By Mark T. Amoguis
Researcher
YIELDS ON government securities were flat last week after the central bank kept policy settings steady amid easing inflation expectations.
Bond yields, which move opposite to prices, inched up by an average of 4.05 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates posted on the Philippine Dealing System’s Web site on Dec. 14.
“Market players reacted to the BSP (Bangko Sentral ng Pilipinas) policy decision as well as concerns about fresh supply in the pipeline,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila branch.
Michael L. Ricafort, economist at Rizal Commercial Banking Corp., said: “Short-term PHP BVAL yields continued to seasonally go up, though slightly in recent weeks, as the accounting year-end draws closer, amid some premium for crossing-the-year funds/deposits (some balance sheet management/window-dressing activities).”
Last Thursday, the central bank’s policy-making Monetary Board (MB) halted its tightening streak for this year as it sees inflation moderating.
The MB voted to keep benchmark interest rates unchanged on Thursday, keeping the range at 4.25-5.25%, which remains at a nine-year high.
Before this pause, in its bid to curb rising inflation expectations, the BSP implemented five back-to-back interest rate hikes since May, totaling to 175 bps.
Last Thursday, the central bank also revised lower its inflation forecasts until 2020. It now sees inflation averaging at 5.2% this year, down from a previous forecast 5.3%. The BSP also now expects inflation to decelerate to 3.18% next year (from 3.5%) and 3.04% by 2020 (from 3.3%).
Inflation eased to 6% in November from a nine-year high of 6.7% recorded in September and October. This brought the year-to-date average at 5.2%, still beyond the 2% to 4% government’s official target.
Bank analysts said the BSP is now at the end of its tightening cycle as inflation is becoming less of a problem.
Two economists also said on Friday that the central bank may now proceed with planned cuts in banks’ reserve requirement ratio next year as inflation is sure to go down. Reducing the mandated bank reserves will free up more cash in the financial system, as lenders can now deploy more funds for lending and investments.
Yields went sideways across the board at the close of the market on Friday. Rates of the 91-, 182-, and 364-day Treasury bills increased by 6.4 bps, 6.10 bps, and 8.6 bps, respectively, to fetch 5.651%, 6.360%, and 6.703%.
At the belly, yields on the two-, three-, four-, five-, seven-, and 10-year Treasury bonds rose by 5 bps, 4.1 bps, 4.3 bps, 4.9 bps, 5 bps, and 1.5 bps, respectively, to 6.776%, 6.876%, 6.952%, 7.011%, 7.058%, and 7.025%.
Meanwhile, rates of the 20- and 25-year debt papers dipped by 0.10 bp and 1.2 bps, respectively, to close at 7.494% and 7.533%.
For this week’s trading, RCBC’s Mr. Ricafort said: “[S]hort-term PHP BVAL yields could continue to slightly go up, as seen in recent weeks, as the accounting year-end about two weeks away.”
He added that markets will also anticipate the widely expected 0.25% Fed rate hike on Dec. 19.
For his part, ING’s Mr. Mapa said this week’s bond yields “will likely move sideways with most dealers out for the holidays while traders also awaiting borrowing program for 1Q 2019 and also wary of fresh supply in the near term.”

Cebu Pacific adds daily flight from Clark to New Bohol international airport

CEBU PACIFIC is adding a daily flight from its hub at the Clark International Airport in Pampanga to the New Bohol (Panglao) International Airport.
In a statement over the weekend, the budget carrier said the daily flights will leave Clark at 9:55 a.m. and arrive in Bohol at 11:20 a.m. Return flights will depart from Bohol at 11:50 a.m. and land in Clark at 1:15 p.m.
“We are excited to commence operation of our newest route in Clark. As we expand our fleet and our route network, we look forward to supporting economic growth in Clark and its surrounding areas as well as in the province of Bohol through tourism and logistics support,” Cebu Pacific Director for Airport Services Dindo Fernando said in the statement.
The company is currently expanding its hub in Clark to connect more passengers from the Northern and Central Luzon. In September, Cebu Pacific said it wants to increase by 75% the number of flights from the Clark International Airport by end-2018.
Aside from new routes, additional frequencies are also expected to boost Cebu Pacific activity in Clark to 3,711 flights or 620,540 seats.
Cebu Pacific said it started serving flights from the Clark International Airport in 2006. It has been flying to Bohol through the Tagbilaran Airport since 2004.
The Gokongwei-led carrier flew a total of 11.1 million domestic passengers during January to September period.
In the first three quarters of the year, Cebu Pacific listed operator Cebu Air, Inc. slumped to a loss of P518 million from a net attributable income of P42 million in the same period last year due to rising jet fuel expenses and the weakening of the Philippine peso against the US dollar. — Denise A. Valdez

China set to triple ethanol production capacity by 2020

GUANGZHOU, CHINA — China is set to more than triple its ethanol production capacity by 2020, a government researcher said on Tuesday, with demand for the commodity expected to surge as the country shifts toward cleaner fuels.
The nation is currently building or seeking approval for new ethanol plants with capacity to produce 6.6 million tonnes of the biofuel a year, Dou Kejun, a researcher at the China National Renewable Energy Centre, told an industry event in the country’s south.
China had an ethanol production capacity of 2.8 million tonnes in 2017, he said.
The country last year said it would require gasoline supplies nationwide to be blended with ethanol by 2020, a move that would require about 15 million tonnes of the biofuel annually.
That target is being widely watched by global biofuel markets as China is unlikely to meet its ethanol needs through domestic production.
Growth in Chinese production would take the country “quite close” to the volumes needed by 2020, Dou told Reuters on the sidelines of the event. Although he added that the process was “dynamic” and subject to change.
Other attendees at the event said China would need to import significant volumes from overseas suppliers such as the United States and Brazil.
“It will be a great opportunity for American and Brazilian ethanol,” said Feng Wensheng, a manager at major producer Henan Tianguan Group Co Ltd.
He added that the industry should lobby the government to reduce tariffs on corn imports and expand the corn import quota, with most ethanol in the future expected to be produced from the grain.
Feng estimated current capacity at around 3.38 million tonnes, including recently approved plants still under construction.
Of those, corn-based ethanol capacity is around 1.45 million tonnes, while facilities relying on cassava make up 1.7 million tonnes.
China also uses wheat, sorghum and rice to make the biofuel in some parts of the country.
There is also around 7 million tonnes of idle capacity at alcohol facilities, part of which could be turned into fuel ethanol production capacity, Feng said. — Reuters

Stella McCartney sees fast fashion as environmental threat

FASHION designer Stella McCartney called on business leaders and politicians to help the industry reduce its impact on the environment.
McCartney, whose luxury clothing label avoids material like leather due to its impact on land and water resources, said disposable apparel known as “fast fashion” is wrecking the planet. Her remarks, while sidestepping specific names, referred to companies that move trends from the catwalk to shop hangers as quickly as possible, including Asos Plc and Boohoo Group Plc.
“People wear, on average, fast fashion about three times before it’s thrown away,” McCartney said at an event in Bloomberg’s European headquarters in London hosted with Vanity Fair magazine. “We need to educate.”
Her remarks added to the scrutiny of fast fashion companies. Last month, UK lawmakers wrote to the heads of online retailers including Amazon.com, Inc. and Asos to seek evidence about the environmental and social impacts of selling cheap clothes.
Retailers who can supply cheap and trendy clothes quickly have grown in popularity in recent years. Buoyed by social media platforms like Instagram, the companies offer cheap clothing that consumers are unlikely to wear more than a few times.
Fast fashion is “creating an enormous trash problem,” said Cara Smyth, founder of the Fair Fashion Centre. “It’s about a $3.6 billion textile waste problem, in America. It is important to know that it is not only the company’s fault but the consumer’s fault.”
One of the other environmental concerns with fast fashion is the process through which online orders are delivered. The need to ensure that garments reach consumers as quickly as possible could mean that more fossil fuels are used in getting those items to market.
“We haven’t yet understood what is the carbon footprint of online,” said Stephen Brenninkmeijer, an angel investor and a fifth-generation retailer from the family behind C&A Group. “Online is a tricky business, and I hope that people like Amazon are looking at that as well.”
McCartney urged larger companies to follow her call because “big industry leaders have a much bigger impact than I do. Business leaders have to man-up.”
The materials which fashion companies use is also an increasingly important topic for designers that are seeking to boost their sustainability credentials. Along with refusing to use leather, McCartney also sources its viscose or rayon from sustainable forests. Earlier this year, Levi Strauss & Co. launched an initiative to eliminate many chemicals from its jeans manufacturing process.
Consumers and investors alike are both demonstrating an increasing appetite for sustainability when deciding where to put their money.
“There is no shortage of capital in the world that wants to go in this direction” said David Fass, Macquarie Group CEO for Europe the Middle East and Africa. “The hearts and minds argument of the common man on the street, has been won. My feeling is that what the financial services business needs to do, is to be working with the real innovative companies of today.” — Bloomberg

Peso to drop ahead of Fed meet

THE peso is expected to weaken this week as the dollar will likely strengthen amid safe-haven buying, propelled by expectations of another rate hike from the US Federal Reserve.
On Friday, the peso plunged to a one-month low of P52.88 versus the greenback from the previous close, as market players reacted to the local central bank’s decision to keep rates steady.
Week-on-week, the local unit also weakened from its P52.71 finish last Dec. 7.
Traders interviewed said the peso will likely decline further this week amid expectations that the US central bank will raise benchmark rates anew at its Dec. 18-19 meeting.
“Despite mixed remarks from US policy makers, majority are still in agreement about the need to raise interest rates gradually,” a market analyst said yesterday, adding that this will put downward pressure on the local currency starting Tuesday towards the end of the week.
Despite the anticipated Fed rate hike, expectations for policy tightening in the US next year dwindled as investors become wary about a potential economic growth slowdown.
Meanwhile, a foreign exchange trader said on Friday that the foreign exchange market will see “quiet trading” for this week, even as the greenback is expected to strengthen amid “repatriation of flows of multinational (companies).”
Aside from this, economic and political concerns in China and the Eurozone could prompt investors to prefer the safer greenback.
“The downbeat economic reports from China, France and Germany are on top of concerns regarding UK Prime Minister Theresa May’s ability to convince the British parliament to approve the Brexit deal,” the analyst added.
Amid anticipated headwinds for the peso this week, traders said these might be tempered by the seasonal influx of dollars from overseas Filipinos in time for the holidays.
For this week, the analyst expects the peso to trade between P52.60 and P53.10 versus the dollar, while the trader gave a P52.80-P53 forecast. — Karl Angelo N. Vidal

CAB lowers fuel surcharge level

AS THE PRICE of jet fuel drops, the Civil Aeronautics Board (CAB) has brought down the allowable fuel surcharge level for Jan. 1 to Feb. 28, 2019 to Level 3 from the current Level 4.
“For October to November 2018, the price of jet fuel averaged to $88.20 per barrel, with the USD exchange rate of P53.41 for the same period. This is equivalent to P29.63 per liter, which corresponds to Level 3 of the Passenger Fuel Surcharge Matrix,” CAB said in an advisory on Friday.
Philippine Airlines (PAL) and Cebu Pacific started implementing a Level 3 fuel surcharge in September to help it recoup losses from growing expenses for jet fuel.
The CAB allowed the airlines to implement a Level 4 fuel surcharge for the November to December period. However, the airlines did not implement the additional charge on passengers, citing increased competition.
A Level 3 fuel surcharge is equivalent to an additional P74-P291 on domestic flights, and P381-P3,632 for international flights, depending on distance traveled. Level 4 fuel surcharge brings this up to P108-P411 for domestic flights, and P543-P5,189 for international flights.
Under the approved CAB resolution on passenger fuel surcharges, the government is required to announce the surcharge level every two months based on a two-month average price of jet fuel according to the Mean of Platts Singapore (MOPS). Airlines must then secure an approval from the CAB before it implements the increase.
Alexander G. Lao, president and CEO of Cebu Pacific subsidiary Cebgo, told reporters last week the company decided to leave its ticket prices unchanged in order to remain competitive in a price-sensitive market.
While PAL and Cebu Pacific both started collecting surcharges in September, budget carrier AirAsia Philippines chose not implement the fuel surcharge.
If the price of jet fuel continues to drop until it reaches below P21 per liter, airlines will no longer be allowed to impose a fuel surcharge. — Denise A. Valdez

India sugar output may drop next year as drought cuts cane planting

MUMBAI — India’s sugar production could fall in 2019/20 as farmers are struggling to plant cane because of a drought in two of the country’s top producing states, according to multiple industry officials and traders.
A drop in production would slash exports from the world’s second-biggest sugar producer and support global prices that have fallen 15 percent so far in 2018.
“Many farmers couldn’t plant cane in Maharashtra and Karnataka due to water scarcity. This will reflect in next year’s production,” said Prakash Naiknavare, managing director of The National Federation of Cooperative Sugar Factories Ltd, a sugar processor trade group.
Cane is a perennial crop harvested 10 to 16 months after planting. The western state of Maharashtra is the country’s second-biggest sugar producer, while southern state of Karnataka ranks third.
India’s production during the 2019/20 marketing year could fall to between 28 million tonnes and 29 million tonnes from this year’s estimated 31.5 million tonnes to 32 million tonnes, Naiknavare said.
Maharashtra’s production could fall 16.7 percent to 7.5 million tonnes in the next season, he said.
The sugar marketing year runs from October to September.
“We don’t have enough water for cane planted last year. Planting on new areas is not possible,” says Shrikant Ingale, who was planning to plant cane on 7 acres (2.8 hectares) in the village of Mhada, about 350 km (210 miles) southeast of Mumbai.
Maharashtra received 23 percent less rainfall than normal this year during the June to September monsoon season, while the rainfall deficit in Karnataka’s cane growing region was 29 percent during the period.
Production may fall by half in Maharashtra’s central part of Marathwada, where people are struggling to secure drinking water, said B. B. Thombare, managing director of Natural Sugar & Allied Industries, a sugar mill based in the region.
Apart from water scarcity, an infestation of white grubs will curtail production next season.
Farmers usually keep a ratoon crop, but this year many are uprooting those plants because of the white grub infestation and water scarcity, said Sanjay Khatal, managing director of the Maharashtra Co-operative Sugar Factories Federation.
The ratoon crop is the root stub of the cane after the first harvest that remains in the ground for a second harvest, but that must be removed to kill off the grubs.
After record production in the 2017/18 year, Indian mills were struggling to export the surplus and sought the government help for overseas sale and to support local prices.
A decline in sugar output could lift local prices and prompt the government to halt export incentives, said a Mumbai-based dealer with a global trading firm.
“Indians shipments would be limited next season. Mills will find it more lucrative to sell in the local market than overseas,” the dealer said. — Reuters

Prada will stop selling $550 monkey figure decried as racist

PRADA SPA will stop selling a $550 monkey figurine after social media users in the US called out a strong resemblance to racist caricatures historically used to dehumanize black people.
The monkeys are a part of Prada’s new “Pradamalia” line of small items like keychains and toys featuring cartoon creatures that come in several colors. The black and brown versions have oversized red lips, a traditional hallmark of blackface.
“They are imaginary creatures not intended to have any reference to the real world and certainly not blackface,” the company said in a statement. “Prada Group never had the intention of offending anyone and we abhor all forms of racism and racist imagery. In this interest, we will withdraw all of the characters in question from display and circulation.”
This marks the latest instance of a fashion house using imagery that’s at best tone-deaf, at worst, racist and exploitative. In November, Dolce & Gabbana angered Chinese customers with a video ad campaign that showed a Chinese model struggling to eat spaghetti and pizza with chopsticks.
Swedish apparel chain Hennes & Mauritz AB apologized after it featured a black child modeling a hoodie with the text “Coolest monkey in the jungle.” Some of its South African stores were vandalized and had to be closed temporarily.
The incident comes as Prada tries to plot its comeback. Prada, which is finally emerging from three years of falling profits set off by a slowdown in China and compounded by a failure to recognize that the internet had fundamentally transformed the luxury business, saw sales grow 9% in the first half of 2018. — Bloomberg

Draghi defends euro as guard vs ‘illiberal’ regime

EUROPEAN Central Bank (ECB) President Mario Draghi defended the results of two decades of European political and monetary integration against the return of “illiberal” policies and regimes.
Speaking in his native Italy, where a euro-skeptic populist government is openly flaunting European Union (EU) rules, Draghi listed the euro’s successes, while admitting that not all have benefited equally from it. He said that lower than expected prosperity in some countries was due to domestic policy choices and to an incomplete monetary union.
The creation of the euro was an “exceptional,” even “anti-historical” response to a “century that had seen dictatorships, war and misery,” he said in a speech in Pisa at the Sant’Anna School of Advanced Studies commemorating the single currency’s 20th anniversary. In his remarks he didn’t make any reference to current monetary policy.
“The challenges that have arisen have become ever more global in nature and need to be tackled together, not alone,” he said. “This is even more true for Europeans, both at the level of their individual nations and for the continent as a whole: rich but relatively small; strategically exposed, militarily weak.”
DEFENSE OF RIGHTS
Draghi’s last scheduled appearance for the year, came just two days after announcing the end of his flagship bond-buying program and with less than a year before the conclusion of his term. He refrained from triumphalism in marking the euro’s anniversary but pushed back against two common criticisms of the single currency leveled by European nationalist and anti-establishment movements, from Brexit Britain to France’s Yellow Vests.
Draghi said the euro is not an expression of the globalization process, but rather is a natural consequence of the creation of an integrated continental market, which has allowed relatively small European countries to remain competitive and defend their way of life in an increasingly interconnected world. He said the EU has protected people against the worst consequences of globalization, for example by strengthening common rule-making and protecting workers’ rights.
He also denied that the economic under-performance of some euro-area countries could be reversed by leaving the single currency and ignoring EU deficit rules.
ITALY’S WOES
This message has a particular resonance in Italy where the government led by Giuseppe Conte is facing tensions with the EU over a budget plan that tests the bloc’s rules. While Italy is seeking to pacify the European Commission by offering a new lower deficit target for 2019, EU leaders and financial markets have continued to express concern over spending plans that could increase the country’s huge debt pile.
Draghi stressed that blaming Europe isn’t fair considering that Italy’s low growth “dates back a very long time before the euro.” He warned against nostalgia for a past that was not as rosy as some politicians like to remember.
“As the history of Italy has shown, monetary financing of government debt did not lead to real long-term benefits,” he said. “In the 1970s, maintaining a growth rate similar to its European peers required repeated devaluations. Inflation reached unsustainable levels and hit the most vulnerable in society.” — Bloomberg

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