Global and Philippine Market Update

Sept. 5 to Sept. 11, 2024

Global Markets

Global Stocks continued to move lower as investors  anticipate new economic data and upcoming central bank decision. 

• For months, economists have struggled with the disconnect between the strong economic performance and the negative public sentiment about financial standing. However, evidence now suggests that this period of negative sentiment, termed “vibecession,” is ending, according to Michael Pearce, deputy chief U.S. economist at Oxford Economics. As inflation cools and the Federal Reserve prepares to lower interest rates, Americans’ outlook on the future is improving, aligning more closely with the actual economic conditions.

• The August consumer price index (CPI) dropped to its lowest level in three and a half years, according to the Labor Department report. This brought the 12-month inflation rate to 2.5%, slightly below the forecast of 2.6%. However, the core CPI, which excludes food and energy prices, maintained a 12-month core inflation rate of 3.2%. This uptick in core CPI suggests the Federal Reserve (Fed) may be cautious about aggressive rate cuts in their upcoming meeting.

• Fed Governor Christopher Waller has expressed support for an interest rate cut at the upcoming central bank policy meeting. He is open to a substantial reduction if necessary, citing progress on inflation and moderation in the labor market. Waller did not specify the extent or frequency of the potential cuts but emphasized the need for flexibility. He suggested that the Fed might need to be aggressive to support the labor market as inflation approaches the central bank’s 2% goal. If the labor market deteriorates faster than expected, Waller advocates for larger cuts to increase the likelihood of achieving a soft landing.

Philippine Stocks

Philippine Stocks remained close to the 7,000 level.

• The Philippine Stock Exchange Index (PSEi) continues to test the 7,000 level but has been unable to breach it. Although the PSEi traded above 7,000 intraday, it failed to sustain this level, succumbing to selling pressure. A potential rate cut by the Fed might be the catalyst to finally provide the index with the momentum to push higher.

• The Philippine economy is projected to grow above 6% this year and next, driven by government spending, private consumption, and strong external demand, according to the ASEAN+3 Macroeconomic Research Office (AMRO). However, risks remain, particularly from higher food prices, which pose a threat to consumption. Nonetheless, a slowdown in headline inflation is anticipated in the second half of 2024 due to lower international prices of fuel and food, as well as tariff cuts on imported rice.

• A survey by PwC Philippines and the Management Association of the Philippines (MAP) revealed that 85% of CEOs in the Philippines are confident their companies will see revenue growth in the next 12 months, up from 79% last year. Additionally, 86% are optimistic about industry prospects for the next year, the highest level of optimism since the pandemic. Key growth drivers include infrastructure development, domestic consumption, and foreign direct investments.

Philippine Bonds

Philippine Bond yields were rangebound as investors awaited future central bank policy decisions.  

• Private sector economists have trimmed their inflation expectations for this year and the next two years, with most anticipating inflation to fall within the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target range until 2026. The BSP’s August Monetary Policy Report showed that analysts’ forecasts are moving closer to the midpoint of this range. Easing inflation led the BSP to cut rates in August, and the BSP’s survey of external forecasters (BSEF) indicated that most analysts expect another 25-basis point (bps) rate cut in the fourth quarter. Further rate cuts of 50-250 bps are anticipated in 2025, with additional cuts of up to 100 bps by the end of 2026.

• Rice inflation in the Philippines may further cool in the coming months if India relaxes its export ban, analysts said. Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion noted that a stronger peso would also make imports cheaper, easing inflation. Market participants anticipate that India, the world’s top rice exporter, could soon ease export restrictions, which had previously caused global rice prices to spike. In August, rice inflation slowed to 14.7% from 20.9% the previous month, marking its lowest level since October last year. Rice costs remain the top contributor to August inflation, accounting for 32.7% of the increase. 

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/2024/09/06/fed-governor-waller-backs-interest-rate-cut-at-september-meeting.html (2) https://www.cnbc.com/2024/09/09/the-vibecession-is-ending-economists-say.html (3) https://www.cnbc.com/2024/09/11/cpi-inflation-report-august-2024-.html (4) https://business.inquirer.net/479457/us-worries-keep-psei-from-7000 (5) https://www.bworldonline.com/top-stories/2024/09/11/620581/govt-spending-domestic-demand-to-drive-economy/ (6) https://www.bworldonline.com/top-stories/2024/09/10/620232/ceo-optimism-remains-high-survey/  (7) https://www.bworldonline.com/top-stories/2024/09/09/619743/analysts-trim-inflation-expectations/ (8) https://www.bworldonline.com/top-stories/2024/09/09/619667/rice-inflation-seen-to-cool-once-india-lifts-export-ban/

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.