Global and Philippine Market Update

August 29 to September 4, 2024

Global Markets

Global Stocks moved lower amid fears of a broader economic slowdown. 

• US factories continued to experience a slowdown in August, according to the Institute for Supply Management’s monthly survey of purchasing managers. Only 47.2% reported expansion for the month, indicating a contraction as any reading below 50% indicates. Demand remains subdued, with companies hesitant to invest in capital and inventory due to election uncertainty and unclear monetary policy. This weak reading further supports the case for a 25-basis point cut in the Federal Reserve’s September meeting.

• The Personal Consumption Expenditure (PCE) index rose by 2.5% year-on-year, matching Dow Jones consensus estimates. Core PCE, which excludes volatile food and energy prices, increased by 2.6%, slightly below the 2.7% estimate. Federal Reserve (Fed) officials are focusing on the core reading as it better reflects long-term trends. Investors are now fully expecting a rate cut in September, with the main question being whether it will be a 25-basis point or 50-basis point cut. The Fed is anticipated to shift its focus from solely inflation to also supporting labor markets.

• Eurozone inflation dropped to a three-year low of 2.2% in August, according to flash figures from Eurostat. This has heightened expectations for the European Central Bank (ECB) to cut rates again in its September meeting. Investors have fully priced in a 25-basis point cut following the first cut in June, with another cut likely before the year ends. However, some risks remain. The lower headline inflation was primarily due to reduced energy costs, but service inflation remains elevated at 4.2%. 

Philippine Stocks

Philippine Stocks continued to test the 7,000-index level.

• The Philippine Stock Exchange Index (PSEi) could reach 7,600 points by the end of the year, according to Philstocks Research. They foresee limited downside risks, with the market expected to rally further. Easing inflation, which has minimal risk of reigniting, is expected to boost company profits through lower production costs.

• The outlook for foreign direct investment (FDI) and foreign portfolio investment (FPI) in the Philippines looks promising, with current trends suggesting the country could exceed the Bangko Sentral ng Pilipinas’ (BSP) targets, according to Security Bank Corp. Chief Economist Robert Dan J. Roces. FDIs, considered long-term investments, are forecasted to hit USD 9.5 billion this year, while FPIs, which are more volatile, are expected to reach USD 3.1 billion in net inflows. FDI already saw a 15.8% year-on-year increase from January to May, while short-term foreign investments yielded a net inflow of USD 1.46 billion from January to July, surging from USD 157.3 million during the same period last year.

Philippine Bonds

Philippine Bond yields were steady in anticipation of further central bank policy decisions.  

• Headline inflation likely eased in August, returning within the central bank’s 2-4% target, according to a BusinessWorld poll. Higher electricity and agricultural commodity prices, driven by unfavorable weather, are offset by lower oil and rice prices, and the peso’s appreciation. Lower tariff rates on rice should continue to exert downward pressure and keep prices stable amid the typhoon season.

• The Department of Agriculture will not recommend raising tariffs on imported rice. The goal is to bring local prices down to Php 42-45 per kilo. Currently, imported well-milled rice sells for Php 45-55 per kilo in Metro Manila, while local well-milled rice is priced at Php 48-50 per kilo. Rice prices remain elevated due to existing stocks of higher-taxed imported rice, which are expected to last until mid to late October. Additionally, global rice prices remain high due to India’s export ban, so it may take time for prices to reach the department’s target level. 

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/2024/08/30/pce-inflation-july-2024.html (2) https://www.cnbc.com/2024/08/30/euro-zone-inflation-august-2024.html  (3) https://www.cnbc.com/2024/09/03/weak-manufacturing-measures-raise-specter-of-us-economic-slowdown.html (4) https://www.bworldonline.com/top-stories/2024/09/05/618374/psei-may-stack-up-well-amid-easing-prices-and-rate-cuts/#google_vignette (5) https://www.bworldonline.com/top-stories/2024/09/04/617915/analysts-see-improving-foreign-investment-outlook-for-phl/ (6) https://www.bworldonline.com/top-stories/2024/09/02/617346/inflation-likely-eased-to-3-7-in-aug/ (7) https://www.bworldonline.com/top-stories/2024/08/30/616979/da-wont-recommend-hike-on-rice-tariffs-yet/

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.