Market Observer

Global and local stocks slipped on worries about inflation

Successful COVID-19 vaccine rollouts could lead to a strong economic recovery

FWD Investment Team

The BSP views the uptrend in inflation as only temporary and therefore policy rates were kept unchanged.

Global stocks edged higher in the week of February 15 as investors believe COVID-19 vaccinations and US stimulus can deliver a strong recovery after a year of lockdown. It slipped, however, on February 17 due to worries about rising yields as a result of higher inflation risks. 

Philippine stocks slipped due to concerns over the Taal Volcano eruption that could affect

surrounding economies again. In addition, PSEi also declined due to the increase in US Treasury yields, sudden depreciation of PHP and foreign outflows. However, the development on Taal Volcano and a successful vaccine rollout will likely drive the market in the near term. PSEi may hover until we see it break 7,000 levels. PSEi returned -2.43% year-to-date.

Philippine bond yields rose as inflation picks up to reach a two-year high in January. Inflation, as a gauge of growth, has risen as the economy re-opens. The bond yields are steepening with longer-end, the 10-, 20-, and 25- year rising by 9 bps, 10 bps, and 19 bps, respectively.

The Bangko Sentral ng Pilipinas (BSP) views the uptrend in inflation as only temporary and therefore policy rates were kept unchanged. As we see prices of food rise, the successful implementation of price caps and relaxation of import restrictions to address supply constraints is crucial to anchor inflation expectations. 

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