Global and Philippine Market Update

May 11 to May 17, 2023

Global Markets

Global Stocks ended slightly lower as inflation eases and the economy weakens. 

• Retail sales fell short of expectations, as reported by the Commerce Department. The data revealed a 0.4% increase, below the 0.8% projected by Dow Jones for the month. On an annual basis, sales only saw a modest 1.6% increase, falling below the 4.9% inflation rate. The gains observed are likely attributed to higher prices rather than a significant improvement in consumer spending. Although the report indicates a struggling consumer, it is noteworthy that this is the first positive report since January.

• Labor shortages have become a significant problem for major economies, contributing to increased inflationary pressures. However, there is hope that this issue will start to improve this year. Central banks have taken measures over the past year to tighten monetary policies to control inflation and moderate economic growth. A weaker economy is expected to reduce the intensity of hiring and alleviate the labor shortage. 

• The White House and House Republicans held an hour-long meeting to address the debt ceiling issue. While some progress was made, the two parties still have a long way to go in reaching an agreement. However, everyone agreed that defaulting on debt is not an option. One sticking point in the discussions is the disagreement over increasing the work requirement for federal assistance. Republicans support this idea, but some Democrats consider it a non-negotiable demand.

Philippine Stocks

Philippine Stocks were relatively unchanged amid low trading volume.

• The Philippine market is in search of some positive catalysts that could encourage another attempt to surpass the 6,700-index level. The recent lower US inflation figures and strong local GDP growth rates may serve as potential drivers to improve investor sentiment. Although economic data has been mostly positive, investors remain unconvinced about the market rally’s sustainability due to low trading volume. The Philippine Stock Exchange index (PSEi) needs to build momentum to break out from its downward trend.

• The Bangko Sentral ng Pilipinas (BSP) is considering reducing banks’ reserve requirement ratio as an alternative to loosening monetary policy. According to BSP Governor Felipe Medalla, it may be difficult to cut the policy rate as the disparity between the US and the Philippines is already quite narrow. Lowering the policy rate ahead of the US could potentially lead to further depreciation of the peso. However, a reduction in the reserve requirement is expected to take place within this year which should inject additional liquidity into the economy and stimulate growth.

• The BSP decided to keep interest rates unchanged at 6.25% given easing inflation and moderating economic growth. The decision follows a series of rate hikes totaling 4.25% over the past year, which brought interest rates to its highest level in 16 years. Inflation reached its peak at 8.7% in January but has since eased to 6.6% in April, marking its lowest level in eight months. The BSP projects further inflationary relief with expectations of hitting the target range of 2-4% by the end of the year.

Philippine Bonds

Philippine Bond Yields declined as inflation continues to trend lower.

• The Bureau of Treasury (BTr) fully awarded a reissued 13-year treasury bond that was originally issued last April 20 at an average rate of 5.854%. This was lower than the 6.25% coupon rate during its original auction in April. Yields continue to trend lower amid the lower inflation forecast.

• The BSP decided to keep interest rates unchanged at 6.25% given easing inflation and moderating economic growth. The decision follows a series of rate hikes totaling 4.25% over the past year, which brought interest rates to its highest level in 16 years. Inflation reached its peak at 8.7% in January but has since eased to 6.6% in April, marking its lowest level in eight months. The BSP projects further inflationary relief with expectations of hitting the target range of 2-4% by the end of the year.

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/2023/05/16/retail-sales-april-2023.html (2) https://www.cnbc.com/2023/05/11/covid-caused-huge-shortages-in-the-jobs-market-it-may-be-easing.html (3) https://www.cnbc.com/2023/05/16/debt-ceiling-white-house-meeting.html (4) https://www.bworldonline.com/top-stories/2023/05/17/523179/instead-of-rate-cuts-bsp-may-reduce-banks-rrr/ (5) https://blinks.bloomberg.com/news/stories/RUSDC6T0G1KW (6) https://www.bworldonline.com/top-stories/2023/05/16/522947/bsp-may-pause-rate-increases-medalla/ (7) https://business.inquirer.net/401261/govt-raises-p25b-from-t-bonds-sale

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.