Investors remain cautious as prices barely moved in November.

The Experts

Fed outlook weighs on equity markets

Global stocks dipped as investor sentiment remained cautious.

FWD Investment Team

 

Global and Philippine Market Update

Dec. 19 to Dec. 24, 2024

 

 

 

Global Markets

Global Stocks dipped as investor sentiment remained cautious. 

  • Global equity markets declined due to speculation that the Federal Reserve (Fed) will slow its easing in 2025, leading to higher Treasury yields. Geopolitical concerns, such as potential hefty tariffs from the U.S. under President-elect Donald Trump, are adding to investor caution about the global economic outlook. Additionally, weakening U.S. consumer confidence and rising commodity prices, with gold on track for its biggest yearly gain since 2010 and increasing oil prices, are dampening market sentiment.
  • Investors remain cautious as prices barely moved in November, remaining above the Fed’s target, with the personal consumption expenditures (PCE) price index rising 0.1% from October and 2.4% annually. Core PCE, excluding food and energy, also increased by 0.1% monthly and 2.8% annually, both slightly below forecasts. Goods prices showed little change, while service prices rose 0.2%, and housing inflation cooled to a 0.2% increase. Personal income and expenditures both rose, but fell short of expectations, with the personal saving rate edging down to 4.4%.

 

 

Philippine Stocks

Philippine Stocks moved higher on bargain hunting.

  • A measure to extend the maximum term for land leases by foreigners to 99 years is expected to attract more investments to the Philippines. Analysts believe longer leases will provide stability, encouraging investments in industrial parks, economic zones, and tourism projects. The House and Senate have approved separate bills allowing these extended leases, with specific conditions for tourism-related investments. However, clear guidelines and safeguards are needed to prevent speculative investments and potential disputes over land use. The measure is a priority for the administration aiming for approval before June 2025.

  • Bank of America (BofA) forecasts that Philippine economic growth could fall below 6% in 2025, with a projected GDP growth of 5.9%. This is slightly below the government's revised target of 6-8%. The economy grew by 5.2% in the third quarter, its weakest in five quarters, and averaged 5.8% over nine months. BofA expects a gentle recovery in private consumption and investments, but muted government spending and a widening trade deficit. Inflation is expected to average 3% next year, within the central bank's target, but the peso may weaken further against the dollar.

 

 

Philippine Bonds

Philippine Bond yields stayed elevated due to expectations of smaller cuts in 2025.

  • Analysts suggest that upside risks to inflation could slow the Bangko Sentral ng Pilipinas' (BSP) rate-cutting cycle, potentially limiting cuts to 50-75 basis points in 2025 instead of the anticipated 100 basis points. The BSP has already reduced rates by 75 basis points this year, bringing the benchmark rate to 5.75%. Governor Eli M. Remolona, Jr. indicated that further cuts will be gradual to guard against inflation. The BSP's inflation forecasts for 2025 and 2026 have been slightly raised, reflecting ongoing concerns. Additionally, geopolitical tensions and fewer-than-expected rate cuts by the U.S. Federal Reserve could also influence the BSP's decisions.

  • The International Monetary Fund (IMF) suggests that the Philippines' monetary policy needs to adapt to more frequent and severe supply shocks, driven by factors like climate change and geoeconomic fragmentation. The IMF highlights the country's high reliance on fuel and food imports and its exposure to adverse climate events as key issues. The BSP) should carefully manage these shocks to prevent inflation expectations from becoming unanchored. The IMF also recommends that the BSP use foreign exchange intervention (FXI) temporarily to mitigate abrupt exchange rate movements and ensure coordination across its monetary policy tools. Additionally, the IMF notes the importance of developing the Philippines' fixed income and money markets to improve monetary policy transmission.

 

 

 

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/2024/12/20/pce-inflation-november-2024-.html (2) https://www.reuters.com/markets/global-markets-wrapup-1-2024-12-24/  (3) https://www.bworldonline.com/top-stories/2024/12/26/643454/phl-growth-may-fall-below-6-in-25/ (4) https://www.bworldonline.com/top-stories/2024/12/26/643453/bill-on-99-year-land-lease-for-foreigners-seen-to-boost-phl-investments/  (5) https://www.bworldonline.com/top-stories/2024/12/23/643064/inflation-risks-could-slow-bsp-easing-cycle-next-year-say-analysts/ (6) https://www.bworldonline.com/top-stories/2024/12/24/643314/imf-monetary-policy-must-be-calibrated-to-account-for-severe-shocks/

 

 

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.

 

 

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