Global and Philippine Market Update

April 12 to April 19, 2023

Global Markets

Global Stocks rise as US grocery prices ease and the Chinese economy bonces back.

• Atlanta Federal Reserve (Fed) President Raphael Bostic has indicated that he expects one more rate hike before pausing to see the impact of policy tightening on the US economy. This will take the Fed funds rate to a target range of 5%-5.25%. He believes the Fed will hold rates steady for some time and wait for the impact of tighter monetary policy to work its way through the economy. He disagrees with markets, which predict a rate cut by the end of 2023 as the economy slows.

• Housing was the significant driver of the 5% US inflation rate in March. The shelter index, which increased by 8.2% over the past year, accounts for 60% of the total increase in consumer prices after stripping out volatile energy and food categories. However, consumers received some good news as the food at home index, which measures grocery prices, dropped by 0.3% in March, its first monthly decline since September 2020.

• China’s gross domestic product (GDP) grew by 4.5% in the first quarter of 2023, driven by a boost in household spending and rising factory activity. Retail sales jumped by 10.6% in March compared to the same period last year, while output from the country’s factories rose by 3.9%. The data provided investors with signs of the strength of China’s recovery after the government lifted coronavirus measures.

Philippine Stocks   

Philippine Stocks edged slightly lower amid a lack of fresh leads.

• The Philippine Stock Exchange index (PSEi) dropped by 0.36% as the market continues to be weighed down by the same concerns regarding high inflation, rising interest rates and global recession fears. In the short term, prices will likely be affected more by sentiment from abroad rather than fundamentals.

• The International Monetary Fund (IMF) stated that the Philippine economy is expected to sustain its growth momentum this year, supported by robust consumer demand and China’s reopening. The IMF raised its 2023 GDP forecast to 6%, from the 5% forecast given in January. The Chinese reopening should lead to higher exports and more tourism activities in the Philippines. However, inflation remains a top concern and is expected to average 6.3% for the year. 

Philippine Bonds   

Philippine Bond Yields shifted higher as the impact of central bank rate hikes continues to be felt.

• The Bureau of Treasury (BTr) partially awarded a reissued 13-year treasury bond with an average rate of 6.24%. This was 0.04% lower than the BVAL Reference Rate at the time of auction. National Treasurer Rosalia de Leon stated that the partial award was meant to align rates with secondary levels. The government appears to believe that the decreasing inflation rate could potentially result in lower yields in the future.

• The Philippine government can take additional debt servicing without significantly affecting its fiscal space. Although the country’s debt-to-GDP ratio remains slightly above the 60% threshold set by multilateral lenders for developing economies, it is still lower than some of its neighboring countries in Southeast Asia. The county has managed to avoid a ratings downgrade, but the risk remains due to the high ratio. The government plans to boost GDP growth in order to reduce the ratio to less than 60% by 2025 and 51.5% 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.bloomberg.com/news/articles/2023-04-18/fed-s-bostic-favors-one-more-hike-then-a-pause-for-some-time (2) https://www.cnbc.com/2023/04/12/heres-the-inflation-breakdown-for-march-2023-in-one-chart.html (3) https://www.bbc.com/news/business-65307471 (4) https://www.bworldonline.com/stock-market/2023/04/16/516905/psei-may-move-sideways-amid-lack-of-leads/ (5) https://www.bworldonline.com/top-stories/2023/04/17/516949/imf-bullish-on-philippine-economy/ (6) https://www.philstar.com/business/2023/04/19/2259880/government-raises-p195-billion-partial-award-t-bonds (7) https://www.bworldonline.com/top-stories/2023/04/10/515623/bsp-pause-likely-if-april-inflation-eases/

 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.