Global and Philippine Market Update

August 22 to August 28, 2024

Global Markets

Global Stocks rose ahead of anticipated Fed monetary easing.

• The U.S. economy created 818,000 fewer jobs than initially reported for the 12-month period ending in March 2024, according to the Labor Department’s preliminary annual benchmark revisions. The Bureau of Labor Statistics (BLS) revised the job growth figure to over 2 million, down nearly 30% from the originally reported 2.9 million. This revision suggests the labor market may not be as robust as previously thought, providing the Federal Reserve (Fed) additional support to consider lowering interest rates.

• Fed Chair Jerome Powell, in his keynote speech at Jackson Hole, stated that the time for policy adjustment has come. He highlighted that the direction for rate cuts is clear, but their timing and pace will depend on incoming data, the evolving economic outlook, and the balance of risks. Powell noted significant declines in inflation, a labor market that is no longer overheated, and normalized supply constraints. While markets anticipate rate cuts starting in September, Powell did not specify a timeline. However, minutes from the July meeting indicated that most officials support a September cut.     

Philippine Stocks

Philippine Stocks tested the 7,000-index level.

• Economic growth in the Philippines and Southeast Asia is expected to continue expanding until 2025, according to Moody’s Analytics. Growth will be driven by trade, investment, consumption, stimulatory fiscal policy, and easing monetary policy by early next year. The Philippine economy grew by 6.3% in the second quarter, up from 5.8% in the first quarter and 4.3% a year ago. To meet the government’s 2024 growth target of 6-7%, GDP needs to grow by at least 6% in the second half of this year. An aggressive push for infrastructure development is necessary to support this growth.

• Economic growth in the Philippines for 2024 is expected to be bolstered by public infrastructure investment and improved employment rates, according to Hamza Ali Malik from the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The unemployment rate dropped to 3.1% in June, the lowest in two decades, with significant hiring in the construction sector. Infrastructure spending increased by 20.6% to Php 611.8 billion in the first half of the year. The government aims to allocate 5-6% of GDP annually to infrastructure until 2028.

Philippine Bonds

Philippine Bond yields expected to move lower as central banks plan more cuts.  

• Analysts suggest that the US Federal Reserve’s signals of policy easing could encourage the Bangko Sentral ng Pilipinas’ (BSP) to continue its rate cut cycle. Michael L. Ricafort from Rizal Commercial Banking Corp. predicts local policy rates could drop to 4-5% from next year through 2026, aligning with the Fed’s projected rate cuts. However, Leonardo A. Lanzona, an economics professor at Ateneo de Manila University, pointed out that inflation risks in the Philippines could hinder the BSP’s policy rate cuts. He stressed that without a strong productivity plan, especially in agriculture, inflation will remain a threat and could weaken the currency.

• The Philippine government expects lower borrowing costs due to further rate cuts by the BSP and improved credit ratings. Moody’s Ratings affirmed the Philippines’ investment grade rating of “Baa2” with a “stable” outlook. Achieving an “A” rating is considered possible if the government continues its consolidation plan. John Paolo R. Rivera from the Philippine Institute for Development Studies noted that improved credit ratings will attract investments and support growth, positioning the Philippines as an attractive investment destination. The government aims to achieve an “A” rating by 2028.

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/2024/08/23/fed-chair-powell-indicates-interest-rate-cuts-ahead-the-time-has-come-for-policy-to-adjust.html (2) https://www.cnbc.com/2024/08/21/nonfarm-payroll-growth-revised-down-by-818000-labor-department-says.html (3) https://www.bworldonline.com/top-stories/2024/08/27/616137/infrastructure-push-employment-to-drive-growth-escap/ (4) https://www.bworldonline.com/top-stories/2024/08/26/616009/phl-economy-will-not-lag-far-behind-vietnam-moodys-analytics/(5) https://www.bworldonline.com/top-stories/2024/08/26/616010/fed-cuts-to-bolster-bsp-easing-cycle/(6) https://www.bworldonline.com/top-stories/2024/08/29/616686/govt-anticipates-more-affordable-borrowings/

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.