Global and Philippine Market Update

March 14 to March 20, 2024

Global Markets

Global Stocks dipped amid uncertainty surrounding the timing of rate cuts.  

• Federal Reserve (Fed) officials maintained their stance on cutting the key interest rate three times in 2024, despite ongoing signs of elevated inflation. Fed Chairman Jerome Powell emphasized that the recent uptick in inflation during January and February hasn’t altered the Fed’s overall view of the economy. They still anticipate a cooling of inflation, albeit at a slower pace. The policymakers forecast continued growth of 2.1% and inflation level higher than their 2% target well into next year.

• Japan’s central bank has decided to end its experiment with negative interest rates. Despite core inflation surpassing its 2% target for over a year, the Bank of Japan (BOJ) has opted to maintain its ultra-loose monetary policy. However, the BOJ emphasized that it does not intend to pursue aggressive rate hikes. Currently, the spread between US treasuries and Japanese government bonds stands at 300 basis points and is not anticipated to narrow in the near future. 

Philippine Stocks

Philippine Stocks struggled to breach the 7,000 level.

• World Economic Forum President Borge Brende expressed optimism about the Philippines’ economic potential, suggesting that it could grow into a USD 2 trillion economy within the next decade. The country’s gross domestic product (GDP) stands at USD 380 billion in 2023. Brende also highlighted the increasing interest from foreign investors, although the current level is “relatively lower” than neighboring countries. He emphasized the importance of addressing challenges such as red tape, bureaucratic hurdles, and the need to upskill and reskill workers. Additionally, he underscored the significance of further infrastructure investment and fostering an environment conducive to entrepreneurs and startups.

• The European Union (EU) and the Philippines have announced the resumption of Free Trade Agreement (FTA) negotiations in Brussels, Belgium. The development comes after a seven-year hiatus in FTA talks, which were halted due to the EU’s concerns over human rights violations under the Duterte administration. Notably, the EU ranks as the Philippines’ fourth largest trading partner, with trade in goods amounting to 18.4 billion euros in 2022. The renewed interest in negotiations underscores the Philippines’ appeal as a key business destination for European firms.

Philippine Bonds

Philippine Bond yields stay flat as inflation spike. 

• Bangko Sentral ng Pilipinas (BSP) forecasts inflation to accelerate to 3.9% in March, primarily due to base effects, compared to 3.4% in February. Despite this increase, inflation has remained within the target range of 2 to 4% for four consecutive months. Looking ahead, the BSP anticipates inflation to exceed their target band in the second quarter as favorable base effect diminishes, before returning to their target range in the third quarter. The central bank expects average inflation to hit 3.6% for the year.

• Bank of America (BofA) Global Research predicts that the BSP could reduce rates by over 25 basis points over the next two years. While central banks in the region have concluded their tightening cycles, they maintain a hawkish tone due to inflation risks. The BSP is forecasted to cut rates by a total of 100 basis points this year, with an initial 25 basis points cut expected during the second quarter, aligned with projections for policy cuts by the Fed. 

FWD Guidance: Uncertainty leads to downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.

Sources: (1) https://business.inquirer.net/451280/federal-reserve-still-foresees-3-interest-rate-cuts-in-2024 (2) https://www.cnbc.com/2024/03/19/boj-bank-of-japan-historic-pivot-interest-rate-hike.html (3) https://www.bworldonline.com/top-stories/2024/03/20/583012/wef-very-bullish-on-phl-economy/ (4) https://www.bworldonline.com/top-stories/2024/03/20/583011/phl-may-face-challenges-in-fta-talks-with-eu-analysts-say/ (5) https://www.bworldonline.com/top-stories/2024/03/20/583010/bsp-expected-to-embark-on-deep-cutting-cycle-over-next-2-years/ (6) https://business.inquirer.net/451209/3-9-march-inflation-seen

Disclaimer: The purpose of this article is to inform and should not be taken as an advice or offer to purchase securities. Seek professional advice before making a decision based on this presentation. Information given does not represent the views of FWD and its agents and employees.