The strong dollar is putting pressure on other currencies leading to higher import costs which feeds into inflation.
Global equities edge lower but beginning to find some support
Stocks move lower as higher rates are generally taken as a negative by equity markets.
FWD Investment Team
Global and Philippine Market Update
Sept. 1 to Sept. 7, 2022
Global Stocks continue to feel the effects of a tight monetary policy.
Investors are betting that the Federal Reserve (Fed) will increase rates by 0.75% in its next meeting. This has led stocks to move lower as higher rates are generally taken as a negative by equity markets. Fed Chairman Jerome Powell acknowledged that a restrictive policy is necessary to restore price stability. He also cautioned against any premature policy loosening.
European leaders are planning to ration energy to halt the rise in prices. Incoming UK Prime Minister Liz Truss is drafting a plan to freeze utility bills rather than allow market forces to dictate price. A similar approach is being discussed in other European countries. Rationing energy demand will be a big challenge for European policy makers and may worsen the energy problem if implemented poorly.
The US dollar is appreciating to multi-decade highs. The strong dollar is putting pressure on other currencies leading to higher import costs which feeds into inflation. However, the possibility of a slower US economy as the rate hikes take effect may ease the pace of Fed tightening and by extension weakening the US dollar. This would be a positive for other markets as it would ease inflationary pressure.
Philippine Stocks retreated in line with global markets as risks from abroad affected investor sentiment.
The Philippine Peso depreciated, trading above the 57-level. This has a negative impact on the economy as the country is highly reliant on imports. A weaker currency leads to more inflationary pressure. The recent drop in oil prices is a prime example of how the depreciating peso offsets some of the gains from lower global oil demand as gas prices remain elevated.
Congress introduced the passive income package of the Comprehensive Tax Reform Program (CTRP), which is a continuation of the tax reforms of the previous administration. It proposed to simplify the method of taxing passive income by placing most rates at 15%. This will gain the government an additional Php30 billion in revenues by 2023.
Philippine Bond Yields ended higher across the curve following the increase in US treasury yields.
The Bureau of Treasury (BTr) rejected the latest 4-year treasury bond auction. The bond would have fetched an average yield of 5.59%, if awarded. This is significantly above the 5.15% rate fetched during the August 2 auction for a similar bond. Demand for bonds remains robust but market participants are asking for a premium that the government is unwilling to provide.
August inflation slowed down to 6.3%. This is the first time in six months that inflation has dropped. The rate is within the Bangko Sentral ng Pilipinas (BSP) target of 5.9% to 6.7% for the month. The slight decrease in prices can be attributed to slower increase in transport costs, food and non-alcoholic beverages.
FWD Guidance: Uncertainty leads to downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.
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.