Global and Philippine Market Update

Oct. 24 to Oct. 30, 2024

Global Markets

Global Stocks continued their upward trajectory, buoyed by consumer optimism about the economy.

• Consumers grew more optimistic about the U.S. economy ahead of the presidential election, despite job openings hitting multi-year lows. The Conference Board’s consumer confidence index for October rose over 11% to 138, its largest increase since March 2021, while the expectations index jumped nearly 8% to 89.1, well above the recession-indicating sub-80 level. Dana Peterson, the board’s chief economist, noted that consumers’ views on job availability improved. However, the Bureau of Labor Statistics reported job openings fell to 7.44 million in September, the lowest since January 2021, missing the forecast of 8.0 million. Despite this, hires increased by 123,000, while separations remained steady and quits decreased by 107,000.

• Extreme tariffs proposed by U.S. presidential candidate Donald Trump could disrupt disinflation and lead to higher interest rates, according to Tim Adams, head of the Institute of International Finance. Trump’s plan includes a 20% tariff on all goods and a 60% rate on Chinese imports, as well as a 100% tariff on cars from Mexico. Analysts warn these measures could increase inflation, despite some near-term absorption. U.S. inflation was 2.4% in September, down from 9% in June 2022. The Federal Reserve began cutting interest rates in September. The potential return of Trump’s presidency comes amid global trade fragmentation, with the EU recently voting for higher tariffs on Chinese electric vehicles. Adams noted that both Trump and his opponent Kamala Harris are running as “change candidates,” with Harris likely to be more engaged internationally.

Philippine Stocks

Philippine Stocks  dipped as traders locked in profits ahead of the US elections.

• Despite higher earnings from some listed companies, the Philippine Stock Exchange Index (PSEi) fell to 7,280.24 on Wednesday as traders took profits ahead of the long weekend. This decline occurred even as Metrobank, BDO Unibank, and Bank of the Philippine Islands reported strong earnings for the first nine months of the year. The property sector saw significant declines, with the office vacancy rate in Metro Manila projected to reach 20.5% by year-end due to new office space and the departure of Philippine offshore gaming operators (POGOs), according to Colliers Philippines. 
• HSBC forecasts GDP growth to accelerate to 6.7% by 2026, the fastest in Southeast Asia. Credit growth is expected to reach 9-10%, and inflation to stabilize around 3%. During the pandemic, savings dropped, but they are now rebounding, projected to rise from 22% to 25% of GDP by 2026. Businesses are also rebuilding cash reserves and preparing to invest as interest rates decline. Foreign direct investment inflows may double in the coming years. Despite a 9.6% GDP contraction in 2020, the economy grew by 5.7% in 2021, 7.6% in 2022, and 5.5% in 2023. With inflation back within the 2-4% target range, the Bangko Sentral ng Pilipinas has started cutting interest rates, expected to drop from 6% to 5% by the end of next year.

Philippine Bonds

Philippine Bond yields edged higher amid concerns over inflation. 

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year treasury bond with a remaining term of nine years and two months at an average rate of 5.87%, slightly higher than the 5.85% rate for similar bonds in the secondary market. This rate increase reflects investor concerns over a potential Donald Trump victory, given his protectionist trade policies, including higher tariffs and import bans on certain goods like electronics, which could drive global inflation.

• The International Monetary Fund (IMF) has indicated that risks to Philippine inflation remain tilted to the upside, despite some easing. Factors such as food supply shocks, geopolitical tensions, and commodity price volatility contribute to this outlook. Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. noted that higher electricity rates and minimum wages are expected to push inflation higher from 2024 to 2026. Recent wage hikes in various regions and a projected office vacancy rate increase in Metro Manila also play a role. The IMF forecasts inflation at 3.3% this year and 3% in 2025, while the BSP expects 3.1% this year, rising to 3.2% next year and 3.4% in 2026. Decisive monetary tightening and non-monetary measures have helped reduce food inflation, with headline inflation easing to 1.9% in September. The BSP has cut policy rates by 50 basis points since August, with another potential 25-basis-point cut expected in December.

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/2024/10/29/consumer-confidence-surges-as-election-nears-job-openings-move-lower.html (2) https://www.cnbc.com/2024/10/23/trump-tariffs-likely-to-lead-to-higher-us-interest-rates-iif-chief.html (3) https://business.inquirer.net/486882/hsbc-finds-ph-in-sweet-spot (4) https://business.inquirer.net/487408/profit-taking-drags-psei-below-7300  (5) https://www.bworldonline.com/corporate/2024/10/30/631537/metro-manila-office-vacancy-rate-to-rise-to-20-5-by-yearend-colliers/ (6) https://www.bworldonline.com/top-stories/2024/10/29/631167/imf-inflation-risks-still-tilted-to-upside/ (7) https://tribune.net.ph/2024/10/29/btr-raises-p15b-from-reissued-bonds

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.