Global and Philippine Market Update

January 10 to January 17, 2024

Global Markets

Global Stocks declined as investors reevaluate the pace of rate cuts.

• The Consumer Price Index (CPI) concluded 2023 with a 3.4% increase, while the Core CPI, excluding volatile food and energy prices, settled at 3.9%. The primary contributor to this rise was shelter costs. Although these figures are not alarming, the pace of decline is slow. Notably, consumer spending remained resilient despite indications of mounting debt and decreasing savings.

• Federal Reserve (Fed) Governor Christopher Waller acknowledged the likelihood of interest rate cuts this year but emphasized the central bank’s ability to take a gradual approach in adjusting monetary policy. Despite indications from Fed officials pointing to three potential cuts this year, the 12-month inflation rate remains above the 2% target. However, measures over shorter periods, like the six-month core personal expenditure price index, show inflation closer to the target at around 1.9%. Waller expressed belief that the Fed is nearing its 2% goal but emphasized the need for more information before declaring victory.

• Houthi attacks in the Red Sea are causing a spike in sea freight costs as container ships, aiming to evade attacks, take lengthy detours around the Cape of Good Hope in South Africa. The resulting delays in maritime trade could lead retailers to opt for air freight to ensure quicker delivery. This suggests an increase role for air cargo in the supply chain, and potential rise in air freight costs. Prolonged attacks could lead to inflationary pressures as suppliers pass on the added costs to consumers.

Philippine Stocks

Philippine Stocks remained stable as investors await new catalyst.

• The Philippine Stocks Exchange index (PSEi) showed a slight increase, but with slowing momentum due to the absence of a robust catalyst. The local market was further impacted by discouraging fourth-quarter economic figures from China. Overall sentiment was also dampened by analyst forecasts indicating that gross domestic product (GDP) might not meet the government’s target until 2025, primarily due to elevated interest rates.

• Vehicle sales surged by 22% in 2023, surpassing the industry target. Consumer demand stayed strong despite increased inflation and rising interest rates. The double-digit growth is attributed to favorable demographics and positive employment data in the country. The industry anticipates continued growth in 2024, with hopes of achieving record-breaking sales. 

Philippine Bonds

Philippine Bond yields are expected to trend lower amid volatility in the US bond market.

• The Bureau of Treasury (BTr) fully awarded a new 7-year treasury bond at a coupon rate of 6.125%. Yields looks to trend lower amid easing inflation and likely rate cuts in the coming months.

• ANZ research suggests that the Bangko Sentral ng Pilipinas (BSP) may reduce rates by 50 basis points in the current year and by 100 basis points in 2025 amid easing inflation. While the December inflation figures are likely reassuring to the BSP, the central bank is expected to wait for more evidence that inflation will remain within the 2-4% target band before contemplating rate cuts. BSP Governor Eli M. Remolona emphasized the necessity to maintain tighter policy settings until inflation expectations are security anchored.     

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://www.cnbc.com/2024/01/16/feds-christopher-waller-advocates-moving-carefully-with-rate-cuts.html (2) https://www.cnbc.com/2024/01/11/cpi-inflation-report-december-2023-consumer-prices-rose-0point3percent-in-december-higher-than-expected-pushing-the-annual-rate-to-3point4percent.html 3) https://www.cnbc. /2024/01/17/red-sea-attacks-air-freight-rates-to-rise-as-shippers-enter-survival-mode.html (4) https://www.bworldonline.com/stock-market/2024/01/14/568697/stocks-may-hold-on-to-gains-as-mart-awaits-leads/ (5) htcomtps://www.bworldonline.com/top-stories/2024/01/18/569627/vehicle-sales-surpass-target-in-2023/ (6) https://www.bworldonline.com/stock-market/2024/01/17/569548/psei-dips-as-china-growth-falls-below-forecast/ (7) https://www.pna.gov.ph/articles/1217020 (8) https://www.bworldonline.com/top-stories/2024/01/18/569626/bsp-may-trim-policy-rates-by-50-bps-this-year/

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.