Global and Philippine Market Update

Feb. 20 to Feb. 26, 2025

Global Markets

Global Stocks dipped as consumer confidence wanes.

• Tariffs have become a major focus for U.S. companies, with many earnings calls reflecting concerns about the potential economic impact of Trump's policies. His tariff plans include postponed 25% taxes on imports from Mexico and Canada, a 10% levy on China, and aluminum and steel tariffs. Companies are uncertain about the effects of these tariffs, with some not factoring them into their guidance. Immigration is another hot topic, with mentions on earnings calls reaching their highest level since 2017. Trump's promise of mass deportations has raised concerns about the impact on demand, labor market disruptions, and inflation. Additionally, the Department of Government Efficiency (DOGE) has emerged as a new topic in corporate discussions. This advisory group, frequently mentioned in earnings calls, has investors worried about potential cuts to contracts between public companies and federal agencies.
  
  
• Consumer spending weakened in January with declines seen in sporting goods, online outlets, and motor vehicles, while gas stations and food establishments saw slight increases. Stock market futures dipped, and Treasury yields fell, with speculation that the Federal Reserve might cut interest rates by June. Economist Robert Frick noted that factors like bad weather and a previous surge in auto sales contributed to the decline, but overall consumer spending remains solid. Inflation continues to exceed the Fed's 2% target, with the consumer price index showing a 3% annual rate.
  
  
• The National Federation of Independent Business (NFIB) reported a 14-point rise in the uncertainty index to 100, the third highest recorded reading. This uncertainty has made business owners less confident about investing in their businesses. Consumer confidence also plummeted in February, marking the biggest monthly decline in over four years, with inflation and a potential trade war under President Trump contributing to concerns. Hiring challenges persist, with many businesses struggling to find qualified workers, and fewer small businesses are planning capital investments in the coming months.

Philippine Stocks

Philippine Stocks trended higher over optimism of a stock recovery.

• The biggest risk to the Philippine economy in 2025 is the potential global trade war, which could make the central bank more dependent on external factors, according to Security Bank. The bank expects the country's GDP to grow by 6.1%, but this does not account for the impact of a trade war. If trade uncertainties materialize, it will be difficult for the Philippines to achieve this growth. The US's trade policies, including tariffs on imports, could lead to widespread retaliation and affect global inflation and monetary policies. This situation could prompt the Bangko Sentral ng Pilipinas (BSP) to be more externally focused.
  
  
• Analysts are optimistic about the Philippine stock market's recovery this year, citing easing inflation and expected rate cuts by the central bank. First Metro Securities Brokerage Corp. predicts the PSE index (PSEi) will reach 7,600 by year-end, up from 6,528.79 at the end of 2024. The Philippine economy is on a growth path, with midterm elections and favorable base effects boosting consumption. COL Financial Group, Inc. highlights opportunities for growth, especially with potential foreign investments. Analysts also note that the Philippines' consumption-driven economy may mitigate the impact of US tariff threats. However, tightened US immigration policies could impact remittances from overseas Filipino workers. Market reforms, such as reducing the sales transaction tax, are expected to boost activity. Additionally, European funds may return to the local stock market following the Philippines' exit from the Financial Action Task Force’s “gray list.”

Philippine Bonds

Philippine Bond yields continue downward trend due to strong demand.

• The Philippine government fully awarded reissued 20-year Treasury bonds, with a remaining life of 19 years and three months, at an average rate of 6.376%. This rate was 28.1 basis points higher than the 6.095% fetched for the series last November. Total bids reached P39.06 billion, exceeding the amount on offer, indicating strong demand from investors looking to lock in higher yields. The Bureau of the Treasury (BTr) raised P125 billion in February and plans to raise P147 billion from the domestic market in March to help fund the government's budget deficit, which is capped at P1.54 trillion or 5.3% of GDP this year.
  
  
• The BSP announced that it will reduce the reserve requirement ratio (RRR) for banks by 200 basis points, effective the week of March 28. This reduction will lower the RRR for universal and commercial banks to 5%. Additionally, the RRR for digital and thrift banks will be reduced by 150 basis points and 100 basis points, respectively. This decision follows the BSP's unexpected move to keep interest rates steady during a recent policy review. Governor Eli Remolona had indicated that further reductions in reserve requirements were likely, though the timing was uncertain. The BSP last cut the RRR in September by 250 basis points to 7%. The central bank aims to enable banks to channel funds more effectively toward productive loans and investments, reducing frictions that hinder financial intermediation.

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/2025/02/17/tariffs-and-doge-what-companies-say-about-the-impact-of-maga-policies.html (2) https://www.cnbc.com/2025/02/14/retail-sales-slumped-0point9percent-in-january-down-much-more-than-expected-.html (3) https://business.inquirer.net/508640/small-business-owners-in-us-feel-more-uncertain-about-the-future (4) https://www.bworldonline.com/top-stories/2025/02/27/655896/trade-war-poses-risk-to-phl-growth/ (5) https://www.bworldonline.com/top-stories/2025/02/27/655895/phl-stock-market-seen-to-bounce-back-this-year/ (6) https://www.bworldonline.com/top-stories/2025/02/21/654830/philippine-central-bank-cuts-reserve-requirements-further/ (7) https://www.bworldonline.com/banking-finance/2025/02/26/655576/treasury-fully-awards-t-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.