Global and Philippine Market Update

Oct. 31 to Nov. 6, 2024

Global Markets

Global Stocks rose amid hopes for a business-friendly environment following Trump’s victory.

• Investors are optimistic about Trump’s business-friendly policies, which include extending the 2017 tax cuts, proposing new corporate tax cuts, and exempting tipped income and Social Security benefits from federal taxes. However, the extent of these cuts will depend on whether Republicans retain control of the House of Representatives. Trump’s proposed tariffs, particularly a 10% to 20% tariff on all imports and higher tariffs on Chinese goods, could negate the benefits of tax cuts by raising costs for U.S. businesses and consumers, leading to higher inflation and negatively impacting manufacturers. These tariffs are expected to increase the federal deficit by $7.75 trillion over the next decade, raising borrowing costs and unsettling bond investors, which has already led to higher bond yields and mortgage rates. 

• In September, inflation moved closer to the Federal Reserve’s 2% target, with the personal consumption expenditures (PCE) price index rising to 2.1% on a 12-month basis. Core inflation, excluding food and energy, was at 2.7%. The labor market remains strong, with initial unemployment claims falling to 216,000 for the week ending October 26. The Commerce Department also reported that consumer spending increased by 0.5% in September, exceeding the 0.1% forecast.

• While the Federal Reserve has started cutting interest rates due to cooled inflation, it may proceed more cautiously if Trump’s policies put upward pressure on prices. Trump’s influence on the Fed could also affect its independence and future monetary policy decisions, as he has previously urged the Fed to cut rates more aggressively and could appoint new members who align with his views.

Philippine Stocks

Philippine Stocks pulled back as economic growth slows in the third quarter.

• The Philippine economy grew by 5.2% in the third quarter, down from 6.4% in the second quarter and 5.8% in the first quarter, averaging 5.8% for the year so far. To meet its 6& to 7% growth target for 2024, the economy needs to grow by 6.5% in the fourth quarter, according to NEDA Secretary Arsenio Balisacan. The slowdown was due to a contraction in agriculture, impacted by El Niño and storms, and slower growth in industry and services. Bad weather also affected fishing, aquaculture, livestock production, tourism, and public construction. However, private construction saw double-digit growth, and domestic demand remained strong. Household spending rose by 5.1% in Q3, helped by slower inflation. Easing inflation and interest rates may support the economy, with expected increases in holiday spending, stable prices, and a robust labor market. 

• The Philippines’ unemployment rate fell to 3.7%, driven by an increase in female workers joining the labor force ahead of the holiday season. This is down from 4% in August and 4.5% a year ago. However, underemployment rose to 11.9% from 11.2% in August. Despite the lower unemployment rate, underemployment remains a concern, indicating many workers are in part-time or temporary jobs. The services sector employed the most workers, followed by agriculture and industry. The government is focusing on creating high-quality jobs and improving workforce skills through initiatives like the Trabaho Para sa Bayan Plan.

Philippine Bonds

Philippine Bond yields edged higher as inflation picks up. 

• Headline inflation in the Philippines rose to 2.3% in October from 1.9% in September, but it remains within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2% to 4%. Analysts, including HSBC economist Aris D. Dacanay, believe there is no cause for concern as price pressures have been relatively mild despite recent typhoons affecting supply conditions. The average inflation rate for the first 10 months of the year stands at 3.3%. Rice prices, which significantly influence overall inflation, have been declining due to lower tariffs and falling global prices. This trend is expected to continue, helping to keep inflation in check. Rice inflation rose to 9.6% in October from 5.7% in September, but retail prices have been decreasing since the tariff cut on rice imports took effect in July. 

• The BSP is likely to continue its monetary easing cycle, with potential further interest rate cuts in December. Since August, the BSP has reduced borrowing costs by a total of 50 basis points, bringing the benchmark rate to 6%. Analysts expect another 25 basis point cut in December, which would lower the rate to 5.75%. However, risks such as currency volatility could influence the pace of rate cuts. If the peso weakens against the US dollar due to global events, the BSP might pause its easing temporarily.

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.npr.org/2024/11/06/nx-s1-5181327/trump-election-economy-tariffs-deportations  (2) https://www.cnbc.com/2024/10/31/pce-inflation-september-2024-.html  (3) https://news.abs-cbn.com/business/2024/11/7/ph-second-quarter-gdp-raised-to-6-4-percent-835 (4) https://www.bworldonline.com/top-stories/2024/11/07/633298/unemployment-rate-falls-to-3-7-in-september/ (5) https://www.bworldonline.com/top-stories/2024/11/07/633297/inflation-likely-to-remain-within-2-4-target-range-in-coming-months/

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.