US commerce chief warns of disruption from EU privacy rules

June 1, 2018 | 9:13 pm

Washington — US Commerce Secretary Wilbur Ross warned Wednesday that the new EU privacy rules in effect since last week could lead to serious problems for business, medical research and law enforcement on both sides of the Atlantic.
Ross said US officials were “deeply concerned” about how the General Data Protection Regulation would be implemented, while noting that the guidance so far has been “too vague.”
The law which took effect May 25 establishes the key principle that individuals must explicitly grant permission for their data to be used, and give consumers a right to know who is accessing their information and what it will be used for.
Some US officials have expressed concerns about the GDPR, but Ross is the highest ranking official to speak on the law, and his comments address a broad range of sectors that could be affected.
“We do not have a clear understanding of what is required to comply. That could disrupt transatlantic cooperation on financial regulation, medical research, emergency management coordination, and important commerce,” Ross said in an opinion piece for the Financial Times
The costs of the new law could be significant, to the point where it may “threaten public welfare on both sides of the Atlantic,” according to Ross.
“Complying with GDPR will exact a significant cost, particularly for small and medium-sized enterprises and consumers who rely on digital services and may lose access and choice as a result of the guidelines,” he wrote.
“Pharmaceutical companies may not be able to submit medical data from drug trials involving European patients to US authorities, which could delay the approval of new life-saving drugs.”
He added that the US Postal Service has claimed the new rules could prevent EU postal operators from providing the data needed to process inbound mail.
Ross also echoed concerns from other officials that EU requirement that personal data be restricted from the internet address book known as “WHOIS” could hurt law enforcement efforts to crack down on cybercrime and online calls to violence.
“That could stop law enforcement from ascertaining who is behind websites that propagate terrorist information, sponsor malicious botnets or steal IP addresses,” he said.
“These important activities need to be weighed carefully against privacy concerns. They are critical to building trust in the internet, safeguarding infrastructure, and protecting the public. Our respect for privacy does not have to come at the expense of public safety.” — AFP

China’s stock profile to grow as A-shares make MSCI debut

June 1, 2018 | 9:10 pm

Shanghai — More than 200 Chinese companies debuted Friday in MSCI equity indices in what analysts call a small yet significant step in China’s cautious drive to integrate with world markets and tame the volatile “casino” atmosphere of its stock exchanges.
Global equities index compiler MSCI for the first time added around 230 big-cap Chinese shares to its benchmark Emerging Markets Index and other indices used by foreign institutional investors (FIIs) to determine which shares around the world to buy.
The step is expected to lead to billions of dollars of new foreign investment in the Chinese shares by global funds that match their portfolios with MSCI indices.
But China’s equities markets and corporate sector remain immature and prone to scandal. Weak corporate governance, hidden debt, and transparency levels fall far short of Western standards, and MSCI is not jumping in with both feet.
The weighting of mainland China-listed shares, or so-called “A-shares”, in the Emerging Markets Index, for example, was expected to reach only an initial 0.39 percent, a tiny fraction.
As such, the prospect of a future influx of foreign funds failed to excite investors Friday, with several of the biggest companies on the list faltering by midday as renewed fears of a global trade war gripped markets.
They include heavyweights like Kweichow Moutai, the world’s largest distiller, automaker SAIC and consumer appliance giant Midea.
“In the future, we will see more funds pour in, but not initially,” said Jackson Wong, securities analyst with Huarong International Securities.
Wong said that despite MSCI’s imprimatur, foreign investors remain cautious over China’s volatile equities, where government meddling and the irrational decisions of millions of individual retail punters often trump fundamentals.
Wait-and-see
“The upside is limited. A lot of people are playing the wait-and-see game and they are in no rush to get into A-shares right away,” said Wong.
But MSCI says China’s weighting could dramatically rise in years to come if increased global scrutiny brought by Friday’s move leads to hoped-for structural and governance changes in China Inc.
China-related shares already comprise a significant chunk of MSCI’s Emerging Markets Index thanks to big Chinese stocks like Alibaba and Tencent, which list shares overseas.
“The A-shares market is one of the biggest in the world, with more than 3,000 stocks traded. If full inclusion were to happen, China equities could comprise 42 percent of the MSCI Emerging Markets Index, with A-shares alone accounting for about 16 percent,” MSCI’s head of Asia research Chin Ping Chia said in a blog post.
Fearful of destabilisation from full global integration, China has shielded its financial markets even as it became a trading superpower.
But MSCI inclusion is just one of several recent liberalisation milestones.
Since 2014 foreign investors have been able to buy Chinese-listed shares via trading conduits linking Hong Kong’s exchange with China’s $7.4-trillion equities market. A future link-up with the London exchange has also been proposed.
China opened foreign access to its huge bonds market last year, and this year eased restrictions on foreign ownership of Chinese financial institutions, along with other opening-up steps taken amid a trade dispute with the US.
Martin Wheatley, an adviser to hedge fund Oasis Management, said the greater stake that institutional investors will have in China from MSCI inclusion will likely encourage more liberalisation and less reliance on emotional retail traders.
“It’s less about integration than about maturity within China,” Wheatley told Bloomberg Television.
“What you actually need is an institutional (investor) base within China, not just external to China, that values stocks and puts the sort of pressure on companies that you see elsewhere.” — AFP

World’s biggest AI startup raises $1.2 billion in mere months

June 1, 2018 | 9:09 pm

SenseTime Group Ltd. has raised $620 million at a valuation of more than $4.5 billion just months after scoring a similar amount from investors led by Alibaba Group Holding Ltd. and Singapore’s state investment firm.
Fidelity International and Silver Lake Partners were among the investors in the latest financing, bringing the total amount raised by the three-year-old image recognition startup in the past six months to more than $1.2 billion and tripling its valuation in under a year. Tiger Capital, Qualcomm Ventures and Hopu Capital also participated. The latest funding will go toward research and talent acquisition, SenseTime said in a statement Thursday.
Investors are handing billions of dollars to Chinese artificial intelligence startups, hoping to ride a wave of support from a government intent on becoming the world leader in the technology by 2030. But the growing hype is encouraging everything from video services to language schools to claim AI as integral to their business to win funding. Some investors warn the sector could experience a downturn towards the end of this year if those companies fail to deliver revenue growth.
SenseTime specializes in systems that analyze faces and images on an enormous scale and works with policing bodies across China. The startup said it experienced 400 percent growth in each of the past three years as it encompassed more industries. Business contract revenue is up more than 10-fold so far this year, according to its statement.
The company’s a big contributor to the world’s biggest system of surveillance: if you’ve ever been photographed with a Chinese-made phone or walked the streets of a Chinese city, chances are your face has been digitally crunched by SenseTime software built into more than 100 million mobile devices. The country is ramping up spending on surveillance as it cracks down hard on restive parts of the country, including Xinjiang.
A key focus for SenseTime is its internal talent development program, that seeks to cut its reliance on externally-trained AI developers as the industry hits a global crunch. It’s an effort that will become increasingly important as the U.S. — currently the source of many of the world leading computer science graduates — drafts limitations on how long Chinese students can stay in the country.
Aside from Alibaba, it also counts Temasek Holdings Pte and retailer Suning.com Co. as investors. It’s the largest, according to CB Insights, of a plethora of private AI outfits.
Fellow facial-recognition startup Megvii Inc. raised $460 million last year, while smaller niche players from Yitu to Malong Technologies have also won funding. A key partner, Hangzhou Hikvision Digital Technology, is one of the world’s biggest suppliers of security cameras and developing its own competing AI technology. — Bloomberg

US payrolls rise 223,000 as jobless rate matches historic low

June 1, 2018 | 9:02 pm

US hiring rose more than forecast in May, wages picked up and the unemployment rate matched the lowest in almost five decades, indicating the strong labor market will keep powering economic growth.
Payrolls increased 223,000 following a revised 159,000 gain, Labor Department figures showed Friday. The median estimate of analysts surveyed by Bloomberg called for 190,000 jobs. Average hourly earnings increased 2.7 percent from a year earlier, more than projected, while the jobless rate fell to 3.8 percent from 3.9 percent to match April 2000 as the lowest since 1969.
The report reinforces expectations for Fed policy makers to raise interest rates when they meet June 12-13, and may spur bets on two more hikes this year after that, rather than one. Steady hiring and lower taxes will bolster consumer spending, helping to support the projected rebound in U.S. growth this quarter and continuing to trim the unemployment rate. Wage gains, while positive in the latest report, have yet to show a sustained acceleration.
“The job market is red hot,” Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. Still, “it’s only going to get harder to find workers. We’ll see trend job growth begin to cool.”
President Donald Trump tweeted an hour before Friday’s release that he was “looking forward to seeing” the figures, spurring market speculation that the report would be upbeat, and it was. In addition to payrolls topping economists’ forecasts, the unemployment rate had been projected to remain at 3.9 percent, while wage gains exceeded estimates for 2.6 percent.
Upward Pressure
The jobless rate fell further below Fed estimates of levels sustainable in the long run, a potential source of upward pressure on wages and inflation, according to some economists. The fiscal boost from the Republican-backed tax cuts may also boost inflation at a time when the economy is near full employment, while a protracted trade war, sparked by Trump administration tariffs, would pose a growth risk.
Revisions to prior reports added a total of 15,000 jobs to payrolls in the previous two months, according to the figures, resulting in a three-month average of 179,000.
Economists estimate that monthly payroll gains of less than 100,000 are sufficient to keep pushing down the unemployment rate, which is derived from a separate Labor Department survey of households and is near levels considered consistent with at or below full employment.
The payroll gains in May were fairly broad-based, with construction adding 25,000 jobs and manufacturing adding 18,000. Service providers boosted employment by 171,000, led by increases in retail; education and health services; leisure and hospitality; and transportation and warehousing. Auto and parts makers and temporary help services recorded declines.
The number of employed people in the workforce rose by 293,000, the report showed, while the number of unemployed decreased by 281,000, helping push down the jobless rate.
Labor Health
The participation rate, or share of working-age people in the labor force, decreased to 62.7 percent from 62.8 percent the prior month. The employment-population ratio, another broad measure of labor-market health, rose to 60.4 percent from 60.3 percent. Fed Governor Lael Brainard noted in a speech Thursday that the employment-to-population ratio for prime-age workers remains about 1 percentage point below its pre-crisis level.
The participation rate remains a closely-watched measure for central bankers. While improving prospects for employment and wages are helping attract people who were on the sidelines of the job market, the retirements of older workers have been exerting downward pressure on participation.
The tight job market is helping lift worker pay. Average hourly earnings rose 0.3 percent from the prior month, topping projections for 0.2 percent, following a 0.1 percent gain, the report showed. The 2.7 percent gain for the 12 months ended in May followed a 2.6 percent advance.
A separate measure, average hourly earnings for production and non-supervisory workers, was even more upbeat, increasing 2.8 percent from a year earlier, the most since mid-2009. That followed a 2.6 percent gain in April. — Bloomberg

Crypto attacks are rising as rogue miners exploit flaw

June 1, 2018 | 8:59 pm

One of the most-feared quirks of cryptocurrencies is becoming more of a headache.
Over the past few weeks, rogue operators of some of the computer networks that perform the complex calculations that verify transactions for various coins are attacking their own networks again. This time it’s Bitcoin Gold, an offshoot of the most widely known form of digital money, with a $717 million market capitalization.
Such 51 percent attacks, in which so-called miners gain control of the majority of the network’s computing power to falsify transactions, are generating ill-gotten gains that risk collapsing the value of the coins. Under attack for more than a week, Bitcoin Gold is down about 25 percent since May 18.
Similar attacks have targeted Verge, Monacoin and Electroneum, according to Autonomous Research LLC. To gain power over a coin with a market cap of $500 million, an attacker may need to spend as little as $778 an hour, according to Autonomous.
After all, many of these smaller coins — and there are now more than 1,600 of just the major ones — have ballooned in value, becoming valuable targets for criminals. Some bad actors also may want to torpedo one coin to boost the value of another, Spencer Bogart, partner at Blockchain Capital LLC, said in an email.
The stable of miners supporting many of these coins is still small, so reaching that 51 percent threshold is relatively inexpensive, especially now that manufacturers like Bitmain have begun putting out more powerful and less expensive mining machines that produce more coins. Earlier this year, Bitmain said it’s created machines capable of mining Bitcoin Gold, creating an uproar among some of the network’s users.
“Infrastructure with small communities is fragile, and unless private, has no network effects,” Lex Sokolin, global director of fintech strategy at Autonomous Research. “But the irrationality of the markets recently have priced everything — altcoins, ICOs — highly, which means that the reward to hacking has increased. This creates a fertile ground for more bad actors across the industry, from hacking to phishing to 51 percent attacks.”
Bitmain said in a statement that its equipment helps prevent attacks by not only exponentially increasing the barrier to entry, but by also making it counter-productive for a bad actor with a high number of its so-called ASIC miners to launch an assault.
To make it harder to execute an attack, Bitcoin Gold plans to upgrade its network software via a so-called hard fork. It’s also tweaking its algorithm, to make it harder for computers — which can easily gain and aggregate network power — to mine its coins. Many coins are also working toward getting rid of miners altogether.
“It will offer more protection for the simple reason there’s less power out there configured to mine on the algorithm we are planning to use vs the algorithm we have now,” said Edward Iskra, a spokesperson for Bitcoin Gold.
Some of the smaller networks also may not have as many developers working to fix their bugs and defend their networks. The Bitcoin Gold attack targeted exchanges that didn’t do enough checking of their customers before letting them trade large amounts of funds.
“In many ways, these attacks are inevitable,” Bogart said. “It’s the equivalent of leaving a vault unlocked but still expecting it to secure valuable assets.” — Bloomberg

US oil poised for weekly loss as record output weighs on price

June 1, 2018 | 8:46 pm

Oil in New York headed for a second weekly loss as U.S. output surged, pushing the American marker to near its weakest level in more than three years against global benchmark Brent.
West Texas Intermediate futures are down 1.5 percent this week as pipeline bottlenecks in the Permian Basin add to pressure from unprecedented levels of U.S. production. Brent crude is 1.5 percent higher this week even as investors await news on whether OPEC and its allies will agree to boost production. Some members are meeting in Kuwait this weekend to discuss matters related to the group.
Hedge funds invested in U.S. oil are betting pipeline bottlenecks will make Texas crude even cheaper. The constraints mean WTI is unable to keep up with Brent, which climbed last month following President Donald Trump’s decision to reimpose sanctions on Iran, and as Venezuelan output plunged amid an economic crisis. The difference is giving trading giants an opportunity to export millions of barrels as shale output continues to surge.
“The U.S. crude complex has been recently undermined by a well-documented and potent cocktail of logistics constraints,” PVM Oil Associates analyst Stephen Brennock wrote in a report. “The capitulation of the WTI-Brent arbitrage is the market giving its clearest signal yet that U.S. pipeline capacity is being maxed out.”
Also at the forefront of investors’ minds is OPEC and its allies’ next step on their agreement to curb output. Saudi Arabia and Russia said last week that they are considering boosting production to ease potential supply disruptions in Iran and Venezuela. The proposal is yet to be approved by other partners, and officials from some have said they aren’t in favor.
WTI for July delivery traded at $66.87 a barrel on the New York Mercantile Exchange, down 17 cents, at 11:10 a.m. in London, after dropping 1.7 percent on Thursday. Total volume traded Friday was about 20 percent below the 100-day average.
Brent for August settlement was little changed at $77.56 a barrel on the London-based ICE Futures Europe exchange. July futures expired Thursday after adding 9 cents to $77.59 a barrel. The global benchmark is at a $10.88 premium to WTI, having settled at the widest since February 2015 on Thursday.
Surging Production
U.S. crude production rose to 10.77 million barrels a day, the highest in weekly data going back to 1983, the Energy Information Administration said Thursday. Output has risen for 14 straight weeks as drillers put more rigs to work.
Still, the incentive to export means the EIA report also showed a surprise decline of 3.62 million barrels in nationwide inventories. Crude grades on the U.S. Gulf Coast are surging, with prices in East Houston the strongest versus WTI since at least 2016 and Light Louisiana Sweet the strongest in three years. — Bloomberg

What’s next for Italy as populists take over

June 1, 2018 | 8:44 pm

Rome, Italy — Italy’s new coalition government due to be sworn in Friday promises a mix of far-right, anti-establishment and eurosceptic policies, raising questions about what the future holds for the eurozone’s third largest economy.
As the League and Five Star Movement (M5S) prepare to take charge, here are answers to five pressing questions.
Could Italy leave the euro?
Despite outspoken criticism of the European Union from both parties and the presence in cabinet of arch eurosceptic Paolo Savona, the M5S-League government programme does not call for a unilateral exit from the eurozone.
M5S has publicly abandoned the idea of a referendum on the euro, and while the League signed the programme and therefore has committed to staying in the single currency, in the past it has called the euro “a failed economic and social experiment” but proposed reforms and an eventual coordinated exit along with a number of other countries in the long term.
Recent polls suggest 60-70 percent of Italians oppose a pullout.
How will markets respond?
A tumultuous campaign, inconclusive election results, political deadlock and fears of fresh elections put the markets in a spin.
The prospect of a M5S-League accord was initially met with some relief — until the coalition revealed their government programme.
In reaction to the costly measures and eurosceptic tone, key financial indicators pointed to decreasing investor confidence in Italy.
The spread or difference in yield between Italian and German 10-year government bonds, exceeded 300 points at the start of the week, compared to 130 three weeks ago. However it had soared to nearly 600 points in 2011 helping push out Berlusconi.
Long-term partnership?
Both Luigi Di Maio of the Five Star Movement and League leader Matteo Salvini insist they intend to stay the course for a full five-year mandate and implement their programme.
But their parties only have a 32 vote majority in the Chamber of Deputies and it is wafer thin in the Senate.
And they will have to keep a tight rein on their MPs — especially those who view the new alliance with scepticism — to go the distance.
Who is really in charge?
M5S holds more clout in the new coalition having won almost 33 percent in the March election, compared to the League’s 17 percent.
But Salvini is a rising star, who has seized pole in position and claims to represent the 37 percent who voted for the right-wing coalition in which he campaigned.
Meanwhile the shadow of M5S founder Beppe Grillo, an outspoken former comedian, still looms large over Di Maio’s party.
A question mark also hangs over the fate of flamboyant former premier Silvio Berlusconi. Part of the right-wing alliance with Salvini, Berlusconi begrudgingly gave the green light for the League and M5s to make a deal without his Forza Italia party.
But the ageing media tycoon disapproves of the new government programme. After a recent court ruling overturned a ban on him holding public office, he could once again be able to exert influence and has promised “reasonable and critical opposition”.
What can the president do?
President Sergio Mattarella’s refusal to accept Savona as economy minister forced the coalition to appoint a team that may offer greater reassurance to Brussels.
Elected by a centre-left parliament, Mattarella has pointed out that not only does he have the power to veto ministers but he can also reject any law deemed financially non-viable.
He is also the guarantor of Italy’s international commitments and intends to keep a close eye on any move to alter Italy’s role on the world stage, especially given Salvini’s scathing comments on the EU and praise for Russian President Vladimir Putin. — AFP

Fognini slams attention on ‘NextGen’ youngsters

June 1, 2018 | 8:31 pm

Rome, Italy — Fiery Italian Fabio Fognini launched into a tirade against supposed preferential treatment for the ATP’s ‘NextGen’ players at the French Open.
The 18th seed said it was unfair that young players who have yet to impress at Grand Slam tournaments are given matches on show courts, claiming they should “eat more pasta, run and win matches” before being hailed as stars.
The last male player to win his first Grand Slam tournament while under the age of 25 was Juan Martin del Potro at the 2009 US Open, with current youngsters like 21-year-old Alexander Zverev and Denis Shapovalov, 19, yet to make their mark on the biggest stage.
“This Next Generation thing is bullshit, I don’t like all this attention,” Fognini told Italian media after beating Elias Ymer 6-4, 6-1, 6-2 to set up a third-round clash at Roland Garros with 23-year-old Briton Kyle Edmund.
“Rafa at 18 won Paris, now we have Shapovalov who is 25 in the world, is improving but at the same time plays the first match on the Suzanne Lenglen court and the second on Court Number One.
“When I see the programme of the day I am puzzled when I find instead (Garbine) Muguruza v (Svetlana) Kuznetsova, for example, who play elsewhere.”
Rafael Nadal, Roger Federer and Novak Djokovic all claimed their maiden Grand Slam titles before turning 22.
Zverev is the second seed in Paris having already won three Masters titles in his career and is considered a serious threat at Roland Garros, despite the fact he is yet to reach a major quarter-final.
Shapovalov was knocked out in the second round by world number 70 Maximilian Marterer on Thursday, while fellow young hopefuls Chung Hyeon and Andrey Rublev are missing the French Open through injury.
The ATP has promoted its young guns through their ‘NextGen’ series since the start of last season, playing a ‘NextGen’ Finals in Milan last year for the best eight players aged 21 and under.
“The ATP does many good things, but I don’t agree with this one, I don’t understand this NextGen thing,” continued Fognini.
“I don’t agree with all this attention given to these young players.
“I hope they will play well, Shapovalov will surely be among the top five in the world. If someone plays well he is going to get attention anyway and can do like Nadal.
“They play well, (Karen) Khachanov, Rublev, Zverev, Shapovalov, they all play well. But there is such a fuss made about them, I don’t like it, I don’t agree.
“Winning 10-8 in the fifth on court 27, you have to go through that, not playing against Federer on Chatrier. They have to eat more pasta, run and win matches.” — AFP

Canada hits US with billions in retaliatory tariffs in steel row

June 1, 2018 | 8:26 pm

Prime Minister Justin Trudeau told a news conference the US tariffs were “totally unacceptable.”
“These tariffs are an affront to the long standing security partnership between Canada and the United States, and in particular, an affront to the thousands of Canadians who have fought and died alongside their American brothers in arms,” he said, noting the US national security justification for its measures.
“We have to believe that at some point, common sense will prevail. But we see no sign of that in this action today by the US administration,” the prime minister said.
The Canadian tariffs, which Foreign Minister Chrystia Freeland said are proportional to the US duties, will be applied to US steel and aluminum as well as consumer products from July 1.
These items include yogurt, coffee, sugar, toilet paper, sailboats, mattresses, washing machines and lawn mowers — all aimed at exerting pressure on key US states that export a lot to Canada.
At the same time, Ottawa will challenge the “illegal and counterproductive” US measures under the North American Free Trade Agreement (NAFTA) and at the World Trade Organization, said Freeland.
The tit-for-tat trade spat comes after nine months of negotiations between Canada, Mexico and the United States to revamp NAFTA bogged down.
Washington had granted Canada and Mexico an exemption on the metal tariffs to give the parties time to successfully negotiate a new free trade deal.
But Washington rejected the latest offer from its neighbors to accept a larger US share of North American auto manufacturing in exchange for the US dropping other contentious demands.
Trudeau said he spoke with US President Donald Trump last week and offered to fly to Washington and sit down with him to hammer out the “final details of NAFTA because there were broad lines of a decent win-win-win deal on the table.”
But Vice President Mike Pence called back this week to set a NAFTA sunset clause as a precondition for the meeting, which both Canada and Mexico had rejected.
Trudeau said he replied that “there was no possibility of any Canadian prime minister signing a NAFTA deal that included a five-year sunset clause.”
“Obviously, the visit didn’t happen,” he said.
Late Thursday, President Donald Trump said in a statement it was made clear to Trudeau that the US “will agree to a fair deal, or there will be no deal at all.”
“The United States has been taken advantage of for many decades on trade. Those days are over,” he said.
Meanwhile, last month and earlier Thursday, Ottawa also unveiled measures to stop transshipments of steel and aluminum into the North American market, hoping to satisfy US concerns and avert a trade war.
But hope faded when US Commerce Secretary Wilbur Ross announced that the United States would impose tariffs of 25 percent on steel and 10 percent on aluminum from Canada and others from Friday.
Freeland noted that the United States has a US$2 billion trade surplus with Canada in steel, and that “roughly half” of all US steel exports go to Canada. — AFP

Factory activity best in five months

June 1, 2018 | 8:11 pm

By Elijah Joseph C. Tubayan
Reporter
PHILIPPINE manufacturing activity saw “solid improvement” in May, picking up for the third straight month on growing demand despite “intensified” cost pressures passed on to customers via higher prices, according to the latest monthly tracking IHS Market conducted for Nikkei, Inc.
The Philippines’ Purchasing Managers’ Index (PMI) rose to 53.7 in May from 52.7 in April, marking the highest reading for the year, so far.
The PMI consists of five subindices, namely: new orders, which has the biggest weight at 30%, output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items (10%). It is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial firms.
A reading of 50 separates those above that mark signaling expansion from the preceding month, from those below it denoting contraction.
”Growth in the Philippines manufacturing economy gained pace in the middle of the second quarter as demand conditions improved further. New business expansion picked up noticeably, encouraging factories to scale up production. Increased demand lifted purchasing activity which, in turn, boosted inventories,” the report read.
”Survey data showed further signs of improvement in client demand in the wake of the tax reform measures, which were put into effect at the start of the year. New business inflows grew at the fastest rate since November last year, even as export sales growth cooled.”
In the face of increased demand, firms ramped up production, resulting in the fastest output growth in five months.
However the report noted that the rise in input costs “intensified” last month, due to “supply shortages, a weaker peso, higher global commodity prices and tax reforms.”
“As a result, firms raised selling prices again, with the rate of increase remaining solid, reflecting efforts to pass on higher costs to their customers,” it said.
Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) that is the first of up to five such system tweaks in the pipeline, slashed personal income tax rates and sought to offset the expected foregone revenues by hiking or adding taxes on several items and removing the value added tax exemption of various sectors when the law took effect on Jan. 1.
Some economists have blamed the TRAIN for pushing monthly inflation beyond the central bank’s 2-4% full-year target range in March (4.3%) and April (4.5%).
Bernard Aw, principal economist at IHS Markit, said in the report that improved demand showed that the “adverse impact caused by the new tax reforms has clearly subsided.”
However he added that inflation may still remain elevated, which will “raise expectations for another rate hike in June,” following the Bangko Sentral ng Pilipinas’ (BSP) 25-basis point hike last May 10 that was the first increase in nearly four years. The central bank’s Monetary Board is scheduled to review policy next on June 21.
The BSP said on Thursday that consumer prices likely picked up by 4.6-5.4% last month, surpassing April’s pace that was itself the fastest in more than five years.
Mr. Aw added that rising inflation pressures may take a toll on firms’ profit margins.
“PMI data showed firms raising selling prices at a slower rate in May amid rising costs, suggesting that companies may have a threshold of the extent to which their customers can bear higher prices without affecting demand. The good news is that improving demand conditions permitted firms to share some of the higher costs with their customers,” he said.
Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., said in an e-mail on Friday that manufacturing’s continued improvement despite higher costs was a result of 2017’s record $10.049-billion foreign direct investments (FDIs). Such capital inflows, he explained, “fundamentally led to increased manufacturing activities, especially once some of these FDIs become completed/online”.
He added that consumers’ purchasing power remained strong, “resulting in higher consumer spending (which accounts for about 70% of the Philippine economy), especially on consumer-related industries that may have benefitted in terms of higher demand, sales, income, as well as increased production/manufacturing activities.”
Mr. Ricafort also noted that increased government spending, particularly on infrastructure, has supported manufacturing activities as well as the growth of the real estate and construction industry. Latest available data from the Budget department show overall state spending grew 29% year-on-year to P1.033 trillion while infrastructure and other capital outlays surged 47.5% to P222.7 billion in the four months to April.
Security Bank Corp. economist Angelo B. Taningco said in a separate e-mail that it was local inflation that led to softer exports of manufactured goods last month.
“I think the weakness in export orders was largely induced by domestic inflation increasing more than inflation in the export markets, leading foreign buyers to prefer less of Philippine manufactured products,” he said in an e-mail.
The latest Philippines PMI report noted that increase in hiring “remained fractional” in May despite higher sales, noting even “reports of staff cuts to reduce costs”.
Still, the report noted that business confidence about output in the next 12 months remained elevated, as majority of respondents surveyed said they are confident of faster output growth in the coming months due to product launches, new outlets, higher sales forecasts, promotional activity and increased productivity.

Duterte to sign loan, cooperation agreements with South Korea

June 1, 2018 | 8:08 pm

By Minde Nyl R. Dela Cruz, Reporter
PRESIDENT Rodrigo R. Duterte is set to sign four memoranda of understanding (MoU) with the South Korean government during his first official visit on June 3 to 5.
“There will be an MOU between the Department of Transportation, DoTr, and the Ministry of Land, Infrastructure and Transport of ROK (Republic of Korea) concerning cooperation in the field of transport(ation),” Foreign Affairs Undersecretary Ernesto C. Abella said in a press briefing on Friday.
“Then also a Memorandum of Understanding on Scientific and Technological Cooperation between the DoST (Department of Science and Technology) and the Ministry of Science and ICT of the Republic of Korea,” he added.
“Third, there’ll also be a loan agreement on the New Cebu International Container Port Project between the Government of the Republic of the Philippines and the Export-Import Bank of Korea. That will be with the DoF.”
“And also a Memorandum of Understanding between the Department of Trade and Industry, DTI, and the Ministry of Trade, Industry and Energy on Trade and Economic Cooperation,” Mr. Abella also said.
The undersecretary said this visit was planned ahead following Mr. Duterte’s meeting with South Korean President Moon Jae-In at the Association of Southeast Asian Nations (ASEAN) Summit in November 2017.
Mr. Duterte is also expected to attend in Seoul the Department of Agriculture’s E-Mart Philippine Food Festival, a business luncheon forum hosted by DTI, and a summit meeting.
“[P]art of the meeting will be (in) reference to the Marawi rehabilitation. Republic of Korea donated US$100,000 to the Philippine Red Cross,” Mr. Abella said.
Mr. Duterte will also meet with the Filipino community in South Korea. Mr. Abella said there are about 68,000 Filipinos there.
For its part, the banana industry has urged the Philippine government to push for tariff reduction on exports to South Korea.
“I hope that they (Philippine government officials) will give important focus on this (tariff) issue,” Stephen A. Antig, executive director of the Pilipino Banana Growers and Exporters Association, Inc., said in an interview last Friday.
Mr. Antig said the sector is hopeful that Philippine government representatives would find ways to discuss the issue in a bilateral setting given that its trade with South Korea is anchored on the ASEAN (Association of Southeast Asian Nations)-Korea Free Trade Agreement (AKFTA).
Under the AKFTA, bananas are included in the list of “sensitive” commodities that tariff issues cannot be negotiated upon.
“We saw our competitors persuade the country to reduce their tariff (on bananas) to zero…because they have bilateral agreements,” he said.
Latin American country Peru is among those that would have zero tariff by next year, while Vietnam, Ecuador, Costa Rica and Honduras will enjoy zero tariff by 2022.
The Philippines, currently the top banana exporter to South Korea with a 79% share, pays a 30% tariff, according to Mr. Antig.
He pointed out that while the country remains the leading banana source for South Korea, its share has actually gone down from 99.8% in 2012.
South Korea is the Philippine’s third biggest banana market after Japan and China.
Mr. Antig said five representatives of the banana sector have been invited and will be joining the President’s trip. — with a report by Carmelito Q. Francisco

Cavitex widening, Marina flyover sees early completion

June 1, 2018 | 8:07 pm

By Denise A. Valdez
ADVANCED completion in July is being targeted for the Manila-Cavite Expressway (Cavitex) road-widening project and the construction of the southbound Marina flyover.
After an ocular inspection on the site on Friday, Department of Public Works and Highways (DPWH) Secretary Mark A. Villar told reporters that the construction may finish earlier than its original August deadline.
MPCALA Holdings, Inc. President Luigi L. Bautista said contractors were advised to finish construction of both the additional lanes and the Marina left-turn flyover earlier than scheduled.
“We’re talking of the lane widening of R1 expressway, one lane on both sides. And then the other project is the Marina left-turning flyover. So both of these are originally scheduled to be finished in August. We told the contractors to finish it end of July,” he said.
Cavitex Infrastructure Corporation (CIC) is working to add one lane on both sides of the expressway, which Mr. Bautista said will increase road capacity by 25%.
Meanwhile, the southbound flyover will eliminate stop-and-go operations at Pacific Drive. “For the longest time we have a signalization there eh. Right now you need not stop. You just go straight to Macapagal using the left-turn flyover,” he noted.
Mr. Bautista said the company invested P800 million in the two projects. Once completed, the company is looking to work on expanding the toll plaza by adding 15 new toll booths.
“With the toll plaza, we’re adding five permanent toll booths plus an additional 10 portable toll booths that will be put in place in a fish bone configuration. So all in all we have additional 15 toll booths. Siguro [Maybe] by the end of fourth quarter,” he told reporters.
MPCALA Holdings is also working on Segment 4 and 5 extensions, which are still part of the government concession agreement. Segment 4 will connect Cavitex to the Cavite Laguna Expressway (CALAEx), while Segment 5 extends from Kawit to Rosario. Mr. Bautista said Segment 5 may also be extended up to Tanza and Naig, which would mean an additional 7 kilometers.
“Segment 5 is around P22 billion. We’ll finish the feasibility study by about end of June. (Then) we’ll be submitting the business proposal…. Segment 4 is going to be constructed concurrently with CALAEx. That’s P1.2 billion. That’s only 1.2 kilometers,” he said.
When all upgrades on Cavitex are completed, toll fees are expected to increase as well, upon approval by the Toll Regulatory Board.
MPCALA Holdings, which is part of Metro Pacific Investments Corp. (MPIC), is the private concessionaire for the Cavitex project.
MPIC is one of three Philippine units of Hong Kong-based First Pacific Co. Ltd., others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls.

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