Global and Philippine Market Update

July 13 to July 19, 2023

Global Markets

Global Stocks rallied amid a good start to the 2nd quarter earnings season.

• UK inflation showed a notable slowdown in June, surprising markets with a lower-than-expected annual rate of 7.9%, compared to the higher reading of 8.7% in May. The UK has been grappling with sustained high inflation, raising concerns for the government and the Bank of England about potential long-term impacts on the economy. The current cost of living crisis and a tight labor market have been contributing to wage-price increases. However, the recent decline in inflation is anticipated to continue in July, thanks to the reduction in energy price cap set by the UK’s Office of Gas and Electricity Market (Ofgem).

• US stocks got a boost from the banking sector as higher interest rates led to significant earnings growth. Bank of America and Bank of New York Mellon Corp. reaped the benefits of charging clients higher loan rates leading to strong net interest income. JPMorgan Chase, Wells Fargo, and Citigroup also posted higher earnings, signaling the resilience of the economy. Nonetheless, there are still challenges ahead, as Morgan Stanley reported lower profits due to reduced activity in investment banking and limited trading gains. However, the firm remains optimistic, expecting more deals to materialize in the second half of the year. 

• Goldman Sachs has revised its prediction of a US recession occurring in the next 12 months from 25% to 20% due to encouraging economic activity. Jan Hatzius, the chief economist of the investment bank, pointed out that better-than-expected economic data has strengthened confidence that curbing inflation to an acceptable level will not necessitate a recession.  

Philippine Stocks  

Philippine Stocks edged higher as they tried to build some momentum. 

• The Philippine economy was projected to have slowed to 5.6% in the second quarter due to elevated inflation affecting consumer spending, as noted by economist Victor A. Abola from UA&P. However, he anticipates a more robust performance in the second half of the year compared to the second quarter, leading to a full year gross domestic product (GDP) growth forecast of 6.1%. Looking ahead to 2024, the economy may grow by 6.5% supported by increased infrastructure spending amid the government's plan to allocate 5-6% of GDP towards infrastructure spending until 2028.

• The Asian Development Bank (ADB) expects the Philippine economy to achieve the fastest growth rate in Southeast Asia. ADB maintained its 6% growth rate projection, attributing it to robust investment and private consumption. Additionally, it noted positive developments in employment, rising production, and retail sales. Notably, tourism and business process outsourcing have also experienced renewed growth.

• The Board of Investments (BOI) has reported a significant increase in approved investments for the first half of the year, totaling Php 698 billion from 155 projects. This represents a three-fold increase compared to the Php 230 billion approved last year. A substantial portion of investments was from renewable energy with Germany as the leading source of approved investments. The surge in new projects can be attributed to the recent amendments in the Public Service Act, Foreign Investment Act, and Retail Trade Liberalization Act, which allow for 100% ownership in certain sectors.

Philippine Bonds  

Philippine Bond yields fall after rising in the past few weeks.

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining term of six years and two months at an average yield of 6.229%. This was 0.137% higher than 6.162% yield recorded during its previous issuance in March. Local yields continue to be affected the recent spike in US treasuries but is still expected to trend lower by the end of the year.

• The Philippine economy appears to be well equipped to handle additional monetary tightening by the Bangko Sentral ng Pilipinas (BSP), given resilient domestic demand. The newly appointed BSP Governor, Eli M Remolona, has indicated the possibility of tightening measures and emphasized that it would be “premature” to consider rate cuts, especially with inflation still above the 2-4% target range. The BSP is expected to keep interest rates steady until there are clear signals from the US Federal Reserve (Fed) that rate cuts are imminent.  

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/2023/07/19/uk-inflation-rate-slides-to-7point9percent-in-june-below-expectations.html (2) https://www.reuters.com/markets/us/futures-muted-wall-st-awaits-more-big-bank-earnings-2023-07-18/ (3) https://www.reuters.com/markets/us/futures-muted-wall-st-awaits-more-big-bank-earnings-2023-07-18/ (4) https://www.bworldonline.com/top-stories/2023/07/20/535008/adb-sees-phl-posting-fastest-expansion-in-southeast-asia-this-year-2024/ (5) https://www.bworldonline.com/top-stories/2023/07/19/534744/approved-investment-pledges-hit-p698b-as-of-end-june/ (6) https://www.bworldonline.com/top-stories/2023/07/20/535007/q2-gdp-growth-likely-slowed-to-5-6/ (7) https://www.bworldonline.com/top-stories/2023/07/18/534533/economy-can-still-handle-more-rate-hikes-says-analysts/ (8) 

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.