Fall in exports may put downward pressure on Phillipine's trade balance

The Philippines is schedule to release April trade data on 25 June. 

A trade deficit of USD 0.68bn is expected, after a USD 0.26bn surplus in March, states Standard Chartered. Export data released in June was also poor. Exports contracted 4.1% y/y in April, the most in two years. This should put downward pressure on the trade balance. A 5.7% drop in imports versus a 6.8% drop in March, on lower commodity import values, forecasts Standard Chertered.

An unchanged BSP policy rate would be largely in line with FX market expectations. The USD-PHP trajectory will be dictated by broad US dollar (USD) moves and external developments affecting risk appetite, says Standard Chertered. Recent domestic economic data has surprised to the downside. And, El Niño concerns have weighed on market sentiment, resulting in persistent portfolio outflows from domestic equity markets. So, the Philippine peso (PHP) has underperformed most Asia ex-Japan currencies so far in June. However, PHP underperformance is not likely to persist. 
GDP growth is likely to pick up in the coming quarters, supported by steady domestic demand and supportive fiscal policy. A short-term Overweight FX weighting on the PHP is kept. 

The current 10Y Philippine government bond (RPGB) real yield is c.230bps, and the six-month-forward real yield is c.150bps. This is due to May CPI inflation falling to an all time low of 1.6% y/y.

"However, we remain Neutral on RPGBs, as we expect supply pressure to offset the disinflationary trend and as BSP may have limited room to cut policy rates as the Fed's H2-2015 rate-hiking cycle approaches", adds Standard Chartered.