BVAL rates forecast ranges: 5yr: 2.703% – 2.863%; 10yr: 3.002% – 3.382%
Pay short duration/Buy the curve’s belly/Receive long end on dips

Week ahead (Sep 28-Oct 02): We expect an unchanged policy rate in the Monetary Board’s meeting this week (Oct 1). In turn, local bond yields will be locked in sideways movement with subdued trading activity. Market participants look forward to the release of Treasury’s borrowing plan for October. US treasuries may provide some leads to onshore bond yields as the US Fed Chair Powell’s warning of an uncertain US recovery path lacking a new fiscal stimulus coupled with US election jitters may weigh on the US treasury curve.

Key fiscal data that’s difficult to ignore is BTr’s hefty cash position that rose by Php1.1tn (due to proceeds of Php516bn from the retail treasury bond sales) over the 8-month period. Bond trading would be guided by the fact that BTr has the funding capacity: 1) for a hefty 4Q budget deficit (with Bayanihan II disbursements); and, thus, 2) reject bids in succeeding auctions if BTr’s acceptance will cause bond yields to spike in the secondary market. It remains uncertain whether BTr will run down its hefty cash position and cancel some auctions (or starve the market of government debt securities) as we end 2020.

Previous week’s recap (Sep 21-25): BSP's maiden 28d bill offering had a favorable reception, fetching an average rate of 1.83%. Before the BTr’s t-bill auction and reissuance of FXTN 10-65, the market lacked strong direction. The t-bill auction offering of Php20bn was fully awarded as investors sought liquid instruments after being precluded in BSP’s bill sales. BTr rejected all bids for the 10yr bond reissuance despite the offering of Php30bn being oversubscribed. Had BTr relented, the 10yr yield would likely fetch an average of 3.33%. The yawning budget deficit of Php740bn as of Aug, was ‘market neutral’.
 

USDPHP forecast range: 48.40 – 48.70
Tactical sell USD/Long-term underweight PHP

Week ahead: USD’ strength may persist with lingering global risk-off sentiment coupled with expected lackluster US labor data. Aside from the US Fed Chair Powell’s warning of an uncertain recovery path, US election uncertainty may be gaining traction. Our trader sensed corporate demand for USD during end-month week will support higher USDPHP. The range of 48.40-70 may hold for the currency pair with the bias slightly skewed to the upside. Break of technical resistance at 48.68 paves the way to 48.71 and 49 after. Initial support is at 48.35. BSP is on hold in this week’s meeting but the PMI mfg index for Sep may provide some lift to PHP. Elsewhere, the US non-farm payroll survey of less than 1mn (Sep) enhances global risk-off that’s likely to heighten demand for safe haven currencies led by USD.

Previous week’s recap: BSP’s report of a hefty current account surplus of 5.3% of 2Q GDP failed to deter the USDPHP’s drift higher to 48.61--the highest since Sep 10th. USD rallied on the risk of rising number of Covid-19 case infections in the US/Eurozone and the Fed’s Chair Powell’s caveat on the US recovery lacking a new fiscal stimulus package in 4Q20. Towards end-week, US equity markets sold off materially with the VIX edging higher in sync with a strong USD.

PSEi forecast range: 5,700 – 5,900 Accumulate PSEi

Week ahead: With BSP on hold and lacking fresh leads, the PSEi may track global equity markets under the spell of risk-off. A PMI manufacturing index of 49 (survey) or better in Sep from the previous 47.3 may elicit biddish sentiment. However, our local equities PM highlighted a market prone to the risk of a sell on news, if global risk-off sentiment were to prevail this week.

Previous week’s recap: At the close of Thursday’s session, PSEi declined 1.6% week-on-week. However, the week to-date foreign outflows were down 44.3%. Despite muted foreign selling pressures, the market’s lackluster outcome implied the lack of relevant market catalysts and thin trading volumes. PSEi was one with the regional markets in having a disappointing end-week as most markets faced the backdrop of hefty corrections in the US risk asset markets due to nagging risk-off sentiment.

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