'Hot money' plummets in August amid emerging markets selloff

Foreign funds invested in shares of stock of local listed firms and in other Philippine financial assets dropped sharply last month amid a selloff in emerging markets.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that foreign portfolio investments -- also called "hot money" because of their flighty nature -- fell 60 percent to $999 million in August from $2.5 billion the month before. Inflows also slipped 20 percent from $1.3 billion in August of last year.

Outflows also accelerated from $868 million last year to $1.4 billion this year, thus last year's net inflows of $387 million reversed to net outflows of $442 million last month. This narrowed the year-to-date net inflows from $2.2 billion last year to $2 billion this year.

The BSP blamed the net outflow on the shortened trading brought about by bad weather, and on the traditional unwinding of stock market positions during the "ghost month" of August, an inauspicious time to invest for those who believe in luck. Eight out of every nine dollars of portfolio inflows were invested in Philippine stocks.

Also responsible for the outflow was the US Federal Reserve's hints that it may unwind its economic stimulus this month, the BSP said. Nearly eight out of every 10 dollars that pulled out of the Philippines went back to the US.

Foreign funds have been scaling back their exposure to emerging markets like the Philippines amid signs that the US economy is on the mend, a trigger for the Fed's decision to remove its economic stimulus. The Fed's monthly $85-billion bond-buying -- the third tranche of what has come to be called "quantitative easing" (QE) -- has been responsible for equity rallies around the world.

As a resut of the foreign fund pullout, the Philippine Stock Exchange index has trimmed its gains from a record high of more than 20 percent to seven percent in recent sessions.

source: interaksyon.com

Fed likely to back low-rate policies despite gains

WASHINGTON (AP) - The US economy is strengthening on the fuel of more job growth, rising home prices and solid retail sales. Just don't expect the Federal Reserve to let up in its drive to keep stimulating the economy with record-low interest rates.

Not yet, anyway.

That's the view of economists as Fed policymakers hold a two-day meeting that starts on Tuesday.

On Wednesday, the Fed will issue a policy statement and update its economic forecasts, and Chairman Ben Bernanke will hold a news conference.

source: straitstimes.com

Obama orders $85-billion spending cuts, blames Republicans

WASHINGTON - President Barack Obama has reluctantly ordered an $85-billion austerity drive that could slow the US economy and slash jobs, after blaming Republicans for refusing to stop the "dumb" spending cuts.

Obama complied with his legal obligations and initiated the automatic, across-the-board cuts in domestic and defense spending Friday, following the failure of efforts to clinch a deal with Republicans on cutting the deficit.

The president signed an order bringing the arbitrary cuts into force, saying they should be made in "strict accordance" to US law, and a report by his Office of Management and Budget (OMB) detailing the cuts to each agency.

The measures could mean long lines at US border posts, reduced military readiness, cuts to special needs education programs, and will trim the resources of some emergency services, according to White House officials.

Obama had earlier blamed the austerity time bomb on Republicans, who refused to close tax loopholes for the rich and corporations combined with more targeted spending cuts, in his "balanced" approach to deficit reduction.

"I am not a dictator. I'm the president," Obama said, warning he could not force his Republican foes to "do the right thing," or make the Secret Service barricade Republicans leaders in a room until a deal is done.

"These cuts will hurt our economy, will cost us jobs and to set it right both sides need to be able to compromise," Obama said, before decrying the budget trimming as "dumb" and "unnecessary."

Only three months after winning re-election, and with the extent of his authority in Washington again constrained, Obama bemoaned his inability to do a "Jedi mind-meld" to get Republicans to change their minds, using imagery from Star Wars and Star Trek.

Obama was bound by law to initiate the automatic, indiscriminate cuts, which could wound the already fragile economy, cost a million jobs and harm military readiness, by the end of Friday.

The hit to military and domestic spending, known as the sequester, was never supposed to happen, but was rather a device seen as so punishing that rival lawmakers would be forced to find a better compromise to cut the deficit.

Both sides agree that the sequester is a blunt instrument to cut spending, as it does not distinguish between essential and wasteful programs -- in what Obama has branded a "meat-cleaver" approach.

New Defense Secretary Chuck Hagel warned that the sequester could endanger the military's capacity to conduct its missions.

"Let me make it clear that this uncertainty puts at risk our ability to effectively all of our missions," said Hagel. The Pentagon's budget is set to be slashed by roughly $46 billion.

The president appeared irritated but combative as he spoke to reporters after meeting with his chief foes -- House Speaker John Boehner and Senate Republican Minority Leader Mitch McConnell -- and allies Democratic Senate Majority Leader Harry Reid and top House Democrat Nancy Pelosi in the Oval Office.

Boehner emerged from the talks to signal to reporters that Republicans would not budge on Obama's key demand for a deal that would raise tax revenues.

"Let's make it clear that the president got his tax hikes on January 1. This discussion about revenue in my view is over," Boehner said.

"It is about taking on the spending problem in Washington."

Even Obama's defeated election rival Mitt Romney got in on the action, slamming the president in a rare interview, complaining he was "blaming and pointing" at Republicans and not leading the country.

In the report to government agencies, the OMB said non-exempt defense programs would be cut by 13 percent this year and domestic programs would be sliced by nine percent.

In cash terms, reductions for the military amount to just over $42 billion, with a similar sum coming from non-defense related spending.

OMB Director Jeffrey Zients told Boehner in a letter accompanying the report that the cuts would be "deeply destructive to national security, domestic investments, and core government functions."

The political stalemate is likely to be prolonged, as the president's tactics are based on a strategy of pinning blame on Republicans for the pain of the sequester, which may take weeks to become evident.

The next point of leverage is likely a bill to fund government operations, which Congress must pass by March 27, or see the government shut down.

Both sides indicated that they would seek to avoid that scenario, meaning that the sequester cuts may remain in place -- unless a way can be found to make equal spending reductions that are less punitive.

Although the cuts trim domestic and defense spending, they do not touch entitlements -- social programs like Medicare health care for the elderly and pension schemes.

Many budget experts say that only cuts to those programs will be able to restore the prospect of long-term fiscal stability.

source: interaksyon.com

Workers beg Romney to stop latest Bain outsourcing

FREEPORT - Being told to train his replacement was humiliating and surreal, but Tom Gaulrapp said the worst part was when the plant's US flag was taken down before the Chinese engineers arrived.

Gaulrapp decided it was time to take a stand against outsourcing and the man he blames for the loss of his job: Republican White House hopeful Mitt Romney, who founded the private equity firm that owns the Freeport, Illinois auto parts plant.

Romney's ties to Bain Capital have burdened the Republican nominee's hopes of winning the November 6 election as Democrats unfavorably paint him as a corporate raider who pioneered the outsourcing of US jobs to countries with lower labor costs.

Romney denies the charge, but his claim to be a man who could revive the economy and boost the prospects of American workers rings hollow here.

Gaulrapp thinks it would only take a phone call from the candidate who's vowed to create 12 million jobs in the United States to save the 170 jobs at Sensata Technologies that are about to leave this already economically depressed town of 26,000.

"What we'd like is a miracle," Gaulrapp, who has worked at the plant for 33 years, said with a sigh that acknowledged how unlikely it is that his wish will be granted.

"We'd like Mitt Romney to come to Freeport, see what this is doing to this community, and contact his friends that run Bain Capital and say 'this is absolutely the wrong thing to do' and save our jobs."

The Romney campaign declined to comment on the situation at Sensata, but a spokeswoman contacted by AFP noted that the former Massachusetts governor retired from Bain in 1999 and his investments there are controlled by a blind trust, effectively nullifying his links to the firm.

Romney's campaign recently set up a website -- business.mittromney.com -- defending his record at Bain and the "thousands" of jobs he saved or created by "fixing companies that were broken and giving new companies a shot at success."

'A Taste of the Romney Economy'

But the situation in Freeport is a classic example of how what's best for a company is not always what's best for American workers, said Freeport Mayor George Gaulrapp, who is no relation to Tom.

"You can't keep sending your jobs offshore and still have a middle class," said the mayor.

Plant worker Pam Lampros, 53, is worried she's going to lose her home so investors like Romney can make a bigger profit.

"It just hurts after so many years of hard work and dedication," said Lampros, a 34-year veteran at the non-unionized plant who had hoped to retire from there.

"It's for corporate greed, more or less."

Sensata, which is majority-owned by Bain Capital, purchased the automotive sensors unit from Honeywell for $140 million in cash in January 2011.

With annual revenues of $130 million and valuable patents, the unit was a good buy. But with 75 percent of the revenue generated in Asia, it made sense to ship production to Sensata's facilities in China, the Netherlands-based company said.

"It's better to be closer to one's customers," Sensata spokesman Jacob Sayer told AFP, citing transportation and other logistical advantages.

Sayer acknowledged that the decision to shift production to China is "an unfortunately event" for Freeport and said he understands why it could be "difficult" for the workers to train their replacements.

He has no idea why -- or if -- the US flag was removed before the Chinese engineers and technicians arrived.

"We didn't request it. I can tell you that," Sayer said, adding that the company has been leasing the facility from Honeywell and has no involvement in grounds maintenance.

The workers have had nearly two years to prepare for the plant closure. Some have found new jobs and those who remained were given retention bonuses to help keep operations going until the last pieces of equipment are shipped elsewhere.

They got riled up in June when Romney visited nearby Janesville, Wisconsin and talked about how jobs were his top priority -- at the same time they were being told to train their Chinese replacements.

After months of pursuing Romney's campaign with protests and petitions, the Sensata workers set up camp in the fairgrounds across the road from the plant on September 12 in hopes of drawing more attention to their cause.

In a nod to both the "Hoovervilles" of unemployed workers that sprung up during the Great Depression and the Occupy Wall Street movement, about a dozen people have since been sleeping in tents staked into the cold, hard ground.

Mark Schreck, 36, a registered Republican, even brought his children a couple of times.

"This isn't a Republican issue or a Democrat issue, this is an American issue," he said, noting it is the second time his job has been outsourced to China, despite both operations being profitable -- just not profitable enough.

"We're in trouble. I'm not that old and when I grew up American industry and technology was huge. My folks and my uncles all worked in good jobs and retired from them," Schreck said as he sat by a smoking campfire on the windy fairgrounds.

"It's hard to grasp how bleak it is out there. I've been looking for work since last January and I'm not finding any."

source: interaksyon.com

Foreign exchange reserves climb to $80.8-B in August

MANILA - The country's foreign exchange reserves climbed to $80.8 billion in the first eight months of the year, well above the Bangko Sentral ng Pilipinas' full-year forecast of $78 billion.

In a statement, the BSP on Friday said the country's gross international reserves increased by $1 billion from the end-July level of $79.8 billion.

At the end-August level, the GIR can cover 11.9 months of imports of goods and payments of services and income.

Alternatively, the eight-month forex hoard allows the country to settle 10.9 times over its external debt based on original maturity, and 6.6 times its obligations based on residual maturity. Residual maturity includes portions of long-term debt that are due within a year.

The BSP ascribed the country's strong GIR position to income from the central bank's forex operations and investments abroad, foreign currency deposits of the national government and revaluation gains of gold holdings.

Excluding short-term liabilities, the country's net international reserves likewise increased $1 billion to $80.8 billion at end-August.

Ample forex reserves help prop up the peso and keep domestic inflation at bay. Inflation averaged 3.2 percent in the first seven months of the year, or at the low end of the BSP's full-year target range of 3-5 percent.

The peso meanwhile has scaled to four-year highs on the strength of strong foreign portfolio investments. Data from the BSP showed that net inflows of "hot money" at end-July rose by more than three-fold to $963 million from a year ago.

On Thursday, BSP Governor Amando Tetangco Jr. said the central bank was keeping tabs of domestic money supply growth, which rose 7.1 percent in June largely because of strong foreign capital inflows. Any expansion in domestic liquidity that is faster than demand tends to bid up inflation.

The BSP has brought its policy rates to record lows of 3.75 percent and 5.75 percent for the overnight borrowing and lending windows, respectively. Its policy-making Monetary Board is set to meet next week to decide on any further adjustment.

DBS earlier said it expects the BSP to cut policy rates by another 25 basis points before the end of the year given benign inflation and economic weakness brought about by the Euro zone debt crisis and the US economy's tentative recovery.

source: interaksyon.com

Bill Clinton offers rousing defense of Obama at convention

CHARLOTTE, N.C. - Former President Bill Clinton gave a rousing defense of President Barack Obama's handling of the weak US economy on Wednesday and issued a detailed attack on Republican Mitt Romney in a speech that electrified the Democratic National Convention.

Folksy, long on detail and showing he is still a master orator nearly 12 years after he left office, Clinton gave a more cogent defense of Obama's actions as president than perhaps the current resident of the White House himself.

Obama, he said, cannot be blamed for the weak economy he inherited in 2009 and has set the foundations for strong economic growth—if voters will give him more time and re-elect him on Nov. 6.

"Listen to me now," said Clinton. "No president—not me, not any of my predecessors—could have fully repaired all the damage that he found in just four years."

Obama finds himself in a vulnerable position with the US jobless rate at 8.3 percent, and Clinton's role was to try to make it easier for him.

If Americans "renew the president's contract, you will feel it," he said. Clinton received roaring applause from thousands of Democratic supporters who jammed the convention hall in Charlotte, North Carolina.

"Folks, whether the American people believe what I just said or not may be the whole election. I just want you to know I believe it. With all my heart I believe it," he said.

Obama joined Clinton on stage after the speech for an image of party unity.

The Democrats' most popular elder statesman, Clinton was once an Obama adversary who has since patched up old wounds. He used a stem-winder of a speech that began in TV's prime time and stretched way beyond it to urge Americans to give Obama four more years.

Clinton capped the second night of the convention with a speech that reminded voters of the budget surpluses and job growth he led in the 1990s during his two terms in the White House.

Clinton gave point-by-point criticism of Romney, who is running neck and neck with Obama in opinion polls, and congressional Republicans. He accused Romney of wanting to overhaul government entitlement programs Medicare and Medicaid in a way that would reduce benefits for poor children and seniors, he said.

"If he's elected and he does what he promised to do then Medicare will go broke in 2016," said Clinton.

Romney's criticism of Obama for allowing states to have waivers from work requirements in a welfare law Clinton signed is misplaced, said the former president.

His appearance followed a sometimes chaotic day at the convention, where Obama had to personally intervene to force back into the party platform language declaring Jerusalem to be the capital of Israel.

Democrats also scrambled to move Obama's Thursday night speech indoors. He had wanted to accept the Democratic nomination in an open-air stadium jammed with tens of thousands of supporters to portray an image of strength as he faces a tough re-election fight.

But the threat of thunderstorms from remnants of Hurricane Isaac forced convention organizers to switch the speech to a much smaller location, the Time Warner Cable Arena. –Reuters

source: gmanetwork.com

Oil rises in Asia on Fed stimulus hopes

SINGAPORE - Crude advanced in Asia on Thursday as hopes rose that the US Federal Reserve would kickstart the economy of the world's largest oil consumer, analysts said.

New York's main contract, light sweet crude for delivery in October rose 43 cents to $97.69 a barrel and Brent North Sea crude for October delivery gained 48 cents to $115.39.

Hopes for a fresh round of quantitative easing from the Fed were boosted Wednesday when minutes of its last policy meeting were published, IG Markets said in a report.

The minutes from the Federal Open Market Committee meeting three weeks ago showed there was support by "many members" for additional stimulus to the US economy soon unless economic data turns around.

"Having spent the last few months watching from in the stands, QE3 is now sitting on the bench waiting for the call to come on as a last-gasp substitute," the IG report said, referring to a new round of quantitative easing.

"That is how things look this morning after Fed minutes stated that another round of large-scale asset purchases could happen 'fairly soon'."

The minutes said: "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial strengthening in the pace of the recovery."

source: interaksyon.com

Global economy week ahead: US tiptoes around the euro crisis

WASHINGTON - The US employment report for May will measure America's economic resilience to the political turmoil in Europe that is weakening the global growth outlook.

Manufacturing slumped in both China and the euro zone in May, Britain is in recession, Brazil is stagnating and India's growth is faltering, leaving the United States as a relative bright spot in an uncertain world.

Home sales in the United States are perking up, consumer sentiment reached a four-year high in May, and the pace of job layoffs has slowed over the past month, all pointing to a gradual healing in the US economy.

Falling gasoline prices also are pumping up spending power into consumers' pockets. While there are some soft spots—capital goods orders are weak and manufacturing eased in May—it is not enough to derail a plodding US economic recovery.

The government's closely watched monthly jobs report due out on Friday could prove pivotal.

If employment gains accelerated in May to 150,000, the consensus in a Reuters poll and up from the 135,000 monthly average over the past two months, it would suggest the economy has regained internal momentum and has greater ability to withstand the headwinds from Europe.

"The global economy is struggling. There is recession in Europe, a slowdown in emerging markets that hasn't fully run its course and China decelerating. To offset this trend, you have modest growth in the United States and Canada," said Craig Alexander, chief economist at TD Economics.

"Political risks are high but if Europe muddles through, a risk that has not yet fully run its course, we should see moderate US growth continue," he said.

A weaker jobs number and a rise in the unemployment rate from the current 8.1 percent level, however, would suggest that businesses are growing increasingly wary as financial markets display unease over Europe and the rest of the world slows.

Narim Behravesh, chief economist at IHS Global Insight, said he sees little evidence yet that Europe's problems have spilled over to the United States. He said he is tempted to think that the slowdown in emerging markets is temporary, reflecting the lagged effects from their monetary tightening in the latter half of 2011. Additionally, a fresh round of stimulus measures promised by China should prevent a serious slump.

"We will probably see another couple of months of mixed data and then a firming, as long as Europe steers clear of crisis," he said.

European high-wire act

But Europe is casting a long shadow.

European Union leaders are playing a high-wire act in trying to convince the Greek public ahead of fresh elections on June 17 that they must stick to their austerity program if they wish to remain in the euro zone monetary union.

But as governments and banks draw up contingency plans to handle a possible Greek euro-zone exit, and polls show the leftist anti-austerity camp holding a lead in Greece, investors' hopes are diminishing for a happy ending in Europe.

Further complicating the picture is Spain, where the banking system needs recapitalizing and regional governments are running short of cash. This makes Spain highly vulnerable to market attack if Greece were to leave the euro. Italy, Portugal and Ireland could then be in the line of fire.

"The situation in Europe is becoming more uncertain," Michelle Meyer, a Bank of America economist, warned clients.

Lacking a clear road map for how EU leaders plan to stabilize the financial system and shore up monetary union, investors are fleeing the euro. It has lost more than 5 percent of its value in less than a month to reach a 22-month low against the dollar.

The weakening euro raises concern about spillover effects to the United States economy, even if Greece stays in the euro zone.

A costlier US dollar makes US exports more expensive in world markets, and if Europe sinks into recession, the United States will lose one of its primary export markets.

But the trade impact on the US economy would be quite small. Trade with Europe accounts for only a sliver of total US output, or 1.3 percent, and Bank of America said that recent research shows that exchange rates are far less of a factor today in determining import prices than they were in prior decades.

The International Monetary Fund, Bank of International Settlements and the US Federal Reserve have found that the pass-through effects of exchange rates to import prices have declined to about 20 percent from 50 percent in 1970s and 1980s. And the Organization for Economic Cooperation and Development found it would take a 10 percent depreciation of the euro against the dollar over one year to shave 0.1 percentage point from annual US growth in gross domestic product.

The primary impact on the United States from a worsening European crisis would be from financial markets turmoil.

If global stock markets plunged and the banking system in Europe seized up, Craig Alexander at TD Economics said, "It would be a mess. It would be welcome back to Lehman Brothers in 2008." –Reuters

source: gmanetwork.com