Will the USD Peso Break 50 Next Week????

The USD Php closed the week at Php 50! This marks the HIGHEST closing level since November 20, 2008!

While it may be true that the peso reached the 2009 highs at 49.99 THREE times last December, the 50 mark could prove to be the crucial psychological breakout point for the USD peso.

I find it a curiosity how such quotes as indicated by the PDS have been established.

I understand that these PDS quotes have been periodically (intraday) declared by the domestic banking system daily. That’s according to a currency broker.

Last Friday, while Philippine financial markets were open, the USD peso had actually traded at 49.97-50.03 based on online quotes.

Yet, PDS final quote had high of 50, where it closed.

Fascinatingly, post-Philippine financial market trading session, the USD peso closed at significantly past 50. So the opening of the USD peso trade on Monday should be quite interesting.

 

What’s even more intriguing has been strength of the USD peso which emerged in the face of a mixed performance in the region’s currencies.

The USD has been strong relative to ASEAN currencies (with exception to the Thai baht) whereas the USD has been weak relative to East Asian currencies (see upper chart). The peso was the region’s weakest currency this week, based on Bloomberg’s data.

This shows that the Yellen factor (US Fed chair Janet Yellen told the Senate Banking Committee last week of the need to raise rates in March) either had diverse effects on Asian currencies or that Asian currencies have already discounted much of this so as to suppress the reactions of Asian currencies.

Unlike in 2009, where the USD peso touched 49.99 only once, currently, the USD php has lingered within the 50 level for the past two months plus!

In other words, the USD peso has seemingly been raring to breach the 50 threshold, but something or someone has put a lid each time the assault at such level were made.

I proffered here that the 50 level functioned as the Maginot line, where the BSP could have been net sellers of the USD channeled partly through liquidation of US Treasury holdings. See January 22 email Philippine Peso: Internal Dynamics As The Critical Factor; Why the Peso Will NOT Be Immune to External Forces. More on UST holdings below.

Nevertheless, the pressure on the peso has seemingly been powerful.

Even if I am not a fan of charts, present price actions and patterns have revealed of a manifestly strong bias towards a critical and a massive USD php breakout: an 8 year rounding bottom, and or, a 4 year ascending triangle!

And yet the USD Php appears presently situated at the nexus or has been positioned for such monumental move.

Will a historical breakthrough in the USD Php occur next week?

Or will it fail and instead transmute into a major double top?

Meanwhile, the BSP reported that January 2017 Gross International Reserves (GIR) marginally expanded in January 2017: “Preliminary data showed that the country’s gross international reserves (GIR) rose to US$81.04 billion as of end-January 2017… This level was higher by US$0.35 billion than the end-December 2016 GIR of US$80.69 billion, due mainly to inflows arising from net foreign currency deposits by the National Government (NG), revaluation adjustments on the BSP’s gold holdings resulting from the increase in the price of gold in the international market, and its income from investments abroad. These were partially offset by the payments made by the NG for its maturing foreign exchange obligations and by the BSP’s foreign exchange operations.”

Well, one reason for such expansion has been due to a downside revision of December 2016’s GIR. From theBSP’s December GIR report: Preliminary data showed that the country’s gross international reserves (GIR) stood at US$81.05 billion as of end-December 2016… 

So the present January level has even been lower than the old December data. And that’s how growth appears, adjust old statistics lower.

 

Anyway, to give the benefit of the doubt to the BSP, January GIRs had mainly been due to HIGHER gold prices (upper right pane), and again, to a record pile up of currency derivatives (lowest pane).

Interestingly, UST holdings of the Philippine government, most likely via the BSP, was higher by US $.7 billion in December to US $38.5 billion on a month on month basis (middle pane), but was significantly lower on a year to year basis (red line).

However, GIR data showed that the BSP sold US $ .644 in December

The BSP sold US $.133 billion of foreign investments during the month of January.

Has the moderation in the liquidation of the UST holdings been about the latest borrowings by the Philippine government? Or has the net foreign currency deposits by the National Government in January included theparts of the proceeds from the Philippine treasury’s raising of $ 2 billion 25 year bond last January???

Or has the banking system provided the USD requirements of the financial system in lieu of the BSP???

Interestingly, despite so-called improvements, the peso remains enfeebled.

 

The BSP also reported the December and the annual 2016 remittances last week.

December growth rate was a slim 3.6% for both personal and cash remittances. What’s interesting has been the annual growth rate which clocked in at a modest 4.9% and 5% respectively. Recall that remittance growth rate spiked 18.4% and 18.5% last November. These numbers were instrumental in driving the annual growth rates at 4.9% and 5%. Otherwise, remittance growth numbers would have been similar with that of 2015.

This shows that even when the BSP cheered on 2016 numbers which it says surpassed its growth projections, remittance growth rate trend has been slowing down.

Unless the Philippine government plans to export a majority of its citizens then this should be expected, as the law of diminishing returns eventually engulfs the OFW dynamic. The only hope is that OFW income rises to offset such diminishing returns.

The sad part is that when risks of protectionism become a reality, then this will most likely adversely impact both OFW exports and income.

Of course, no one also knows of the accuracy of the BSP’s declared numbers.

What can be said has been that the peso continues to weaken despite the positive flows indicated from GIRs and OFW remittances numbers.

This reveals that either these numbers may not be credible or that local dynamics or credit expansion has signified as the more powerful influence in the peso’s ongoing dilemma. And such credit inflation has now percolated into prices in the economy (see next post: Signs of Historic Times? Online Broker Warns of Wild Speculative Punts!)

One must not forget of the influence of the global US dollar shorts too!

I believe that by the yearend, the returns of the USD peso will beat the PSEi for a third straight year.

BW-SSO Price Actions and Market Manipulations Signify as Twin Symptoms of the Raging Credit Bubble!

The Phisix closed up by a marginal +.12% to lift year to date gains to 5.77%.

The week’s activities appear fixated mainly to buoy the index. Within the basket, advancers trampled decliners by a ratio of 3 to 1 even as the broader markets went in favor of the decliners by a modest margin of 46.

Only one sector suffered a decline, the largest, the holding sector, which accounted for 39% of the PSEi. That’s mainly because the 4 majors suffered deficits for the week, namely, SM (-3.03%), AC (-.25%), JGS (-3.36%) and AEV (-1.42%).

Nevertheless, gains by the rest neutralized losses by the holding sector.

Despite the broad based advance within the PSEi 30, gains had apparently been dispersed.

This continues to exhibit of the ongoing intense volatility or price instability underneath the seemingly calm surface.

And these sharp price gyrations are related to operations to pump or bolster the index.

 

The facelifting operations via price fixing process on the PSEi operate virtually untrammeled.

For the week, a remarkable 70.21 points came about just to push the headline index higher. Such accounted for .97% of last week’s close! Remember, the PSEi was up by only .12%. Thus, 70.21 divided by 8.51 (.12%) equates to 8.25 or 8.25x the gains represented by the topline. Such also means without these 3 day price fixing at the close the Phisix would have been a lot lower.

Friday’s .24% mitigated decline should be an example. At pre-market intervention phase, the PSEi was down by a hefty .59%. However, a massive pump on ALI (+2.25%) and TEL (+1.5%) would have turned the headline index into positive had SM not suffered a dump (-.74%). Nevertheless, the pump reduced the pre-runoff losses by more than half!

The numbers involved in manipulations have been breathtaking!

ALI closed the week up 3.27%. This means that the interval between the pre-market intervention and the closing bell which pushed ALI by +2.25% last Friday delivered 68.81% of the week’s gains! 

TEL closed up 2.7% for the week. This means Friday’s price fixing translated to 55.5% share of the gains for the week!

This shows that 5 hrs of trading in 5 days are really a waste of time. That’s because the gist of the gains or losses has been derived from last minute pump (and dumps)! Worst, a TGIF pump!

Yet, unknown to most, the massive volatility being exhibited by prices of PSEi issues are manifestations of the mountain of distortions generated by the continued manipulation in support of the index. It’s a concrete sign of pricing disorder. The market is being systematically deformed.

And these direct manipulations piggyback on the indirect manipulations by the BSP channeled through negative interest rates.

If the Philippine stock markets stand on solid grounds as alleged by the mainstream then all these would not be necessary. Res ipsa loquitur

Aside from these, I have been pointing out of the emergence of multiple accounts of BW-SSO price actions at the PSE.

Arthaland Corporation (ALCO) should be a prime candidate (lower window). ALCO had delivered a stunning 34.78% gain for the week, a shocking 387.5% from the start of the year and staggering 738.1% over the past 52 weeks. ALCO’s price looks like an ICBM that has just been launched from the missile base.

These growing incidences of vertical price movements have not been isolated from the progressing entropic developments at the PSEi as a result of massive manipulations.

Most will be rationalized from a demand shock—new information that alludes to G-R-O-W-T-H regardless of the validity of its premises.

In reality, both market manipulation and vertical prices are symptoms of the mortal sins of unabated credit expansion or currency debasement.

To quote again John Maynard Keynes: As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

And also the great Henry Hazlitt: Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce

Understand first that vertical price spirals were conspicuous in several PSEi issues during the 33% 6 month January to July 2016 meltup. These price spikes led to numerous record highs. Unfortunately, such gains failed to hold, hence most came crumbling down. Some were even afflicted by Newton’s Law.

However, the plunge protection team came into action. They saved the Phisix from another the bear market test through a low volume 2 week meltup, viz from end of the week December through New Year week.

So while these pumps helped buoy most PSEi issues, it wasn’t enough to lift the index past 7,400.

What it did instead was to spawn spillovers to select second and third tier issues which pushed some issues like ALCO to the stratosphere.

Prices don’t operate from a vacuum

 

The PSEi’s % yoy and monthly nominal performance has largely tracked or undulated along with the rate of credit growth of the financial intermediation sector, with a little time lag, since 2014.

That’s with the exception of the last quarter of 2016 when the PSEi plunged even as financial sector credit growth expanded at an accelerating pace: 11.63% October, 13.34% November and 15.63% December

The huge amount of credit being generated by the financial intermediation (finance and insurance) sector had to find an outlet.

And such could be the most likely reason for the 9 day buying splurge at the PSEi. And such could also account for the price spikes that have occurred in many speculative issues.

So the “mark the close” could likely fall under the domain of these participants.

Given the furious clip of general credit growth that continues to put pressure on the peso and the two measures of inflation (CPI climbed again to 2.7% in January while GRPI soared to 4.3% last December the gap continues to widen), the scale of such credit growth will likely hit a wall very soon.

And it would be interesting to see how these numerous varieties of modern day BW-SSO bubble strains would perform under such circumstances.

Here is a guess: Newton’s Law will prevail.