Global and Philippine Market Update

Sept. 28 to Oct. 4, 2023

Global Markets

Global Stocks edged lower amid uncertainties over the direction of interest rates.

• The core Personal Consumption Expenditure Price index, (PCE), which excludes volatile food and energy components, recorded a year-on-year increase of 3.9%. This marked the first time it has fallen below 4% in nearly two years. The PCE index is a crucial indicator used by the Federal Reserve (Fed) to evaluate the impact of its policies, as it considers changes in consumer behavior, including the substitution of lower-priced items for more expensive ones. Although Fed officials have hinted at another interest rate hike, most market participants still anticipate a pause in rate hikes for the remainder of the year.

• The job market closely resembles the one that existed before the pandemic, featuring low unemployment and abundant job opportunities. In August, the quits rate, which measures worker’s willingness or ability to leave a job, stood at 2.3%, mirroring the level seen in February 2020. Likewise, the hiring rate is also in line with pre-pandemic rates. However, worker confidence has declined, partially attributed to elevated interest rates and inflation. According to Glassdoor data, employee confidence has reached its lowest point since 2016.

• China’s annual “Golden Week” holiday has ignited hopes that the economy may be recovering momentum. The Purchasing Managers’ Index (PMI) in China has risen to 50.2, up from 49.7 in August, marking the first expansion since March. A reading above 50 signifies growth. These figures bolstered the belief that the economy is gaining momentum again after a slowdown in gross domestic product (GDP) growth during the second quarter, following the post-pandemic surge. Encouragingly, travel numbers provided reasons for optimism; 896 million domestic trips are expected to be made via rail, air, road, and waterways, reflecting a 15% increase from 2019. 

Philippine Stocks

Philippine Stocks pulled back as investors took profit following the previous week’s rally.

• Investor confidence seems to be faltering, influenced by warnings from both the Federal Reserve (Fed) and the Bangko Sentral ng Pilipinas (BSP) that interest rates may remain higher for longer than initially anticipated. In the coming weeks, the market is expected to trade within a range of 6,100 to 6,300 and will require a positive catalyst to regain its upward momentum.

• The International Monetary Fund (IMF) has revised down its growth forecast to 5.3% from the previous projection of 6.2%. This adjustment comes in the wake of a slowdown in second-quarter growth. The deceleration in economic growth was primarily attributed to persistent high inflation, which the IMF anticipates will average close to 6% before gradually easing to 3.5% in 2024.

• The World Bank has revised its growth outlook for East Asia and Pacific region, and in this update, the Philippines is expected to be the fastest-growing economy in 2023, surpassing Vietnam. The Philippines is forecasted to achieve a growth rate of 5.6%, while Vietnam’s growth projection has been adjusted downward to 4.7%. An important contributing factor to the Philippines’ growth has been the faster growth in export earnings from services compared to receipt for goods, providing a significant boost. Additionally, the adoption of software and data analytics by Philippine firms has increased the productivity of these companies by an average of 1.5% over the period from 2010 to 2019.

Philippine Bonds

Philippine Bond yields continued to move higher over concerns that inflation may remain elevated. 

• The BSP’s Term Deposit Facility (TDF) received bids totaling Php 443.4 billion on Wednesday, surpassing the Php 380-billion offering. The average rate for one-week deposits saw a slight decrease, moving from 6.4449% last week to 6.4382%. This marks the fifth consecutive week of easing rates, primarily driven by high demand and the presence of excess liquidity in the market. Investors are favoring short term placements, likely due to the recent increase in bond yields.

• Inflation surged to 6.1% in September, a notable increase from the 5.3% rate observed in August. This marks the second consecutive month of rising inflation, primarily driven by higher costs in food, non-alcoholic beverages, and increased fuel prices. Analysts are now questioning the role and effectiveness of the central bank in combatting inflation, especially as the spike in prices appears to be rooted in supply-side issues.  

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/2023/09/29/pce-inflation-august-2023-good-news-for-inflation-hawks.html (2) https://www.cnbc.com/2023/10/03/the-job-market-is-strong-economists-say-but-workers-dont-think-so-.html (3) https://edition.cnn.com/2023/10/02/economy/china-pmi-travel-boom-golden-week-intl-hnk/index.html (4) https://www.bworldonline.com/stock-market/2023/09/24/547399/philippine-stocks-may-decline-due-to-profit-taking/ (5) https://business.inquirer.net/424655/high-inflation-clouds-philippine-growth-outlook-in-2023-imf-says (6) https://business.inquirer.net/424471/ph-tipped-to-grow-fastest-in-east-asia-pacific-in-%ca%bc23 (7) https://www.rappler.com/business/inflation-rate-philippines-september-2023/ (8) https://www.bworldonline.com/banking-finance/2023/10/05/549723/term-deposit-yields-decline-on-strong-demand/

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.