Global and Philippine Market Update

July 18 to July 24, 2023

Global Markets

Global Stocks retreated as the start of earning season disappoints.

• US economic growth likely picked up in the second quarter, driven by strong consumer spending and inventory building, with gross domestic product (GDP) expected to increase by an annualized rate of 2%. The labor market has continued to show signs of cooling with the unemployment rate rising to 4.1%. The economy is on track for a “Goldilocks” scenario of decent growth, lower inflation and softer labor which has led to expectations of three rate cuts by the Federal Reserve (Fed) this year, starting in September.

• The second quarter corporate earnings season started slow, with Tesla and Alphabet showing weakness. Tesla reported weaker-than-expected results as auto revenue dropped 7% year-over-year. Alphabet’s revenue and earnings met analyst estimates, but the company missed YouTube advertising revenue targets. European companies also showed weakness, with Deutsche Bank snapping a 15-quarter profit streak and luxury group LVMH missing second-quarter revenue expectations.

• By most measures, the US economy is doing well, but roughly 3 in 5 Americans believe the country is in recession. Inflation remains a major concern for most households, with many struggling to cope with high prices, depleting their savings, and relying on credit cards to meet immediate needs. Homeowners and owners of financial assets have done well but this leaves out a large portion of the population. There is a growing disconnect between the strength of the economy and people’s feeling about it, a phenomenon known as a “vibecession.”

Philippine Stocks

Philippine Stocks maintained their upward trend as sentiment remained positive.

• The government is aggressively pursuing infrastructure development to achieve the goal of becoming an upper-middle-income economy by 2025. Priorities include enhancing power and internet services and building essential infrastructure for artificial intelligence systems. The government will also boost scholarships and research grants to foster startups and mass produce research and development outputs. While no new taxes are anticipated, these initiatives will require increased borrowing and improved tax collection efficiency to secure funding.

• The President has ordered the Philippine Amusement and Gaming Corporation (PAGCOR) to close all Philippine Offshore Gaming Operators (POGO) facilities by the end of the year. This has raised concerns about a severe impact on the property sector. However, major property companies have already reduced their POGO exposure during the pandemic, so the long-term effects are expected to be minimal. Still, millions of square meters of office space will be vacated, and will likely affect the condominium market and putting downward pressure on real estate rents. The National Economic and Development Authority (NEDA) Secretary believes the benefits outweigh the costs, given the low contribution of POGOs to economic growth.

Philippine Bonds

Philippine Bond yields were steady as investors anticipate future rate cuts.

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining life of 19 years and 10 months at an average rate of 6.43%. This rate was above secondary market levels as investors sought a premium, despite expected monetary easing. With rate cuts nearly certain, this may be one of the last opportunities to lock in elevated yields.

• Finance Secretary Ralph G. Recto expects a cut in policy rates this year due to easing inflation. The central bank has kept interest rates steady at 6.5%  in its last six meetings but has signaled a possible 25 basis point cut on August 15. If implemented, this would put the Bangko Sentral ng Pilipinas’ (BSP) ahead of the Fed in adjusting rates. 

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.reuters.com/markets/us/us-economic-growth-seen-picking-up-second-quarter-inflation-subsiding-2024-07-25/ (2) https://www.cnbc.com/2024/07/23/is-the-us-in-a-recession-about-3-in-5-americans-think-so-report-finds.html (3) https://www.cnbc.com/2024/07/24/european-markets-stocks-news-data-and-earnings.html (4) https://www.bworldonline.com/one-news/2024/07/24/609868/property-stocks-slide-amid-pogo-ban/ (5) https://www.bworldonline.com/top-stories/2024/07/24/609866/fiscal-plan-for-marcos-3rd-year-missed-in-sona/ (6) https://www.bworldonline.com/banking-finance/2024/07/24/609848/govt-makes-full-award-of-reissued-20-year-bonds-2/ (7) https://www.bworldonline.com/top-stories/2024/07/24/609869/recto-says-phl-on-track-for-rate-cut/

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.