Global and Philippine Market Update

Jan. 26 to Feb. 1, 2023

Global Markets

Global Stocks moved higher on better-than-expected economic data.

• Federal Reserve (Fed) raised interest rates by 0.25%, which takes its target range between 4.5% and 4.75%, its highest rate since October 2017. The Fed acknowledged that inflation has eased but remains elevated. Inflation data from the past quarter has been encouraging but more evidence is needed to ensure the sustainability of the downward trend. Fed Chairman Jerome Powell stated that the disinflationary process has started but it’s still premature to declare victory against inflation.

• The euro zone grew by 0.1% in the fourth quarter. This was surprising as economists predicted a 0.1% contraction for this period. The region is under significant pressure from the war in Ukraine, high food and energy prices, plus residual issues with supply chains. The euro zone likely avoided a technical recession due to the growth and shows that the region’s growth slowdown but did not fall outright. 

• The International Monetary Fund (IMF) revised its global growth projection upward for this year. The global economy is forecasted to grow 2.9%, a 0.2% increase from its forecast last October. The third quarter of 2022 showed the resiliency of economic growth due to a strong labor market and better-than-expected adaption to the energy crisis in Europe. Additionally, the reopening of the Chinese economy and a weaker US dollar is also expected to contribute to higher global growth. Higher inflation remains a risk but IMF calculations projects 84% of nations to face lower inflation this year. 

Philippine Stocks  

Philippine Stocks slipped as investors stayed cautious in anticipation of the possible impact from global central bank decisions. 

• The S&P Global Philippine Manufacturing Purchasing Managers’ Index (PMI) rose for a third straight month to 53.5 in January (a reading above 50 means an expansion). Maryam Baluch, an economist for S&P Global Market Intelligence, noted that operating conditions in the manufacturing sector improved as demand increased for manufactured goods. The Philippines had the second highest PMI among ASEAN nations, just behind the 54.5 reading by Thailand. ING Bank N.V. Manila Senior Economist Nicholas T. Mapa stated that better supply chain conditions and higher demand helped provide a boost to factory output.

• The IMF kept its growth projection for the Philippines at 5% despite slashing the forecast for the ASEAN-5 grouping amid a possible slowdown in global economic growth. The IMF forecast is lower than the government’s target of 6-7% but was released before the release of fourth quarter 2022 GDP estimates. It also projects the Philippines to expand by 6% in 2024 as the government accelerates structural reforms, which includes infrastructure and agriculture.

Philippine Bonds  

Philippine Bond Yields continued to trend lower, but demand has begun to ease.  

• The Bureau of Treasury (BTr) fully awarded a reissued 25-year bond with a remaining life of 12 years and 8 months at an average rate of 6.197%. This was lower than the 7.182% rate quoted last January 10, 2023. However, demand was not as strong as previous auction which may lead to higher yields in the future.

• The Bangko Sentral ng Pilipinas (BSP) sees inflation to likely settle between 7.5% and 8.3% in January due to higher power, water, and gas prices. The indicated range may see inflation higher than the 14-year high of 8.1% in December. Meralco stated that overall rate for a typical household increased by P0.6232 to P10.9001 per kilowatt-hour (kWh) in January. Manila Water and Maynilad also increased rates by P8.04 and P3.29 per cubic meter, respectively.

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/2023/02/01/fed-rate-decision-february-2023-quarter-point-hike.html (2) https://www.cnbc.com/2023/01/31/euro-zone-gdp-q4-2023-.html (3) https://www.cnbc.com/2023/01/30/imf-hikes-global-growth-forecast-as-inflation-cools.html (4) https://www.bworldonline.com/top-stories/2023/02/02/502487/factory-activity-highest-in-7-months/Bonds (5) https://www.bworldonline.com/top-stories/2023/02/01/502232/imf-maintains-phl-growth-forecast/ (6) https://www.bworldonline.com/top-stories/2023/02/01/502233/inflation-remained-high-in-jan-bsp/ (7) https://www.bworldonline.com/banking-finance/2023/02/01/502185/treasury-makes-full-award-of-reissued-bonds-at-lower-rate/

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.