Global and Philippine Market Update

Jan. 4 to Jan. 11, 2023

Global Markets  

Global Stocks rallied as investors bet on easing pressure for more Federal Reserve (Fed) rate hikes.

• Minutes released from the Fed’s December meeting show officials committed to fighting inflation, and expect rates to remain in place. Fed Chairman Jerome Powell indicated that progress has been made in fighting inflation. Investors are pricing in a 0.5% to 0.75% rate hike before the Fed pauses to evaluate its impact on the economy. The first 0.25% hike is expected to occur this February.

• The current market environment sees investors react positively on news of a weaker economy. The sooner the Fed achieves its goal of slowing the economy to cool inflation, the sooner it moves away from monetary tightening. The surprisingly poor services sector report from the Institute for Supply Management supports the idea of a weakening economy. The report showed the gauge of activity hitting 49.6%; a measure below 50% is considered a contraction. This is first registered contraction since the spring of 2020. 

• The MSCI Asia Pacific Index, the region’s leading index, entered bull market territory this week (a bull market is defined as a rise of 20% or more). The index is roughly 21% higher from its 52-week low due to optimism from China’s reopening and the weakening of the US dollar. This bodes well for global stocks as weakness in one region may be offset by strength in another. 

Philippine Stocks  

Philippine Stocks were rangebound after starting the year strong.

• The Philippine Stock Exchange Index (PSEi) was relatively unchanged. Investors stayed on the sidelines ahead of the release of US inflation data. Market is likely to remain rangebound with support seen at 6,400 and resistance at 6,800. Investors are waiting for a positive catalyst that may finally push the index back to the 7,500 level.

• The Philippines is expected to see its debt decline as economic growth continues according to Moody’s Investors Services. Economic managers forecast the debt-to-GDP ratio to drop between 60-62% this year from the 63.7% ratio posted at the end of the third quarter. The ratio is projected to trend lower due to Philippine growth with government economic managers expecting the economy to expand by 6-7%.

Philippine Bonds  

Philippine Bond Yields trended lower to start the year with high demand for longer dated bonds. 

• The Bureau of Treasury (BTr) fully awarded a reissued 25-year bond with a remaining life of 12 years and eight months at an average rate of 7.182%. This was lower than the previous auction last October which saw an average yield of 7.887%. The BTr raised P35 billion from the offering which was oversubscribed by more than five times as bids reached P 185.196 billion.

• Philippine inflation hit 8.1% in December, in line with expectations. The Bangko Sentral ng Pilipinas (BSP) believes that December is the peak with inflation trending lower in 2023. This is the same sentiment shown by National Statistician Dennis Mapa but added that there is still a risk of a spike in January.

• BSP Governor Felipe M. Medalla indicated a 0.25% or 0.50% hike in February. There is easing pressure from the need to match the Fed’s policy path due to a weakening US dollar. The peso has rebounded in the new year to trade around P55 against the US dollar from a high of P59 in October. Mr. Medalla believes that the BSP is “way ahead” of other central banks in the region.

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.straitstimes.com/business/companies-markets/us-stocks-rally-as-market-bets-on-moderating-fed-policy (2) https://www.cnbc.com/2023/01/10/msci-asia-pacific-enters-bull-market.html (3) https://www.cnbc.com/2023/01/04/fed-minutes-december-2022-.html (4) https://www.bworldonline.com/top-stories/2023/01/10/497386/philippines-to-see-decline-in-debt-burden-in-2023/ (5) https://www.bworldonline.com/stock-market/2023/01/08/497077/phl-shares-may-move-sideways-ahead-of-us-cpi/  6) https://www.bworldonline.com/banking-finance/2023/01/11/497581/btr-makes-full-award-of-reissued-bonds-on-robust-investor-demand/ (7) https://www.bloomberg.com/news/articles/2023-01-05/quicker-philippine-inflation-opens-door-to-sustained-rate-action (8) https://www.bworldonline.com/top-stories/2023/01/11/497607/medalla-sees-25-50-bps-hike-in-feb-meeting/

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.