Global and Philippine Market Update

July 25 to July 31, 2024

Global Markets

Global Stocks ended higher amid good growth.

• US economic activity was stronger than expected during the second quarter. Real gross domestic product (GDP) increased by 2.8%, surpassing the 2.1% growth forecasted by the economists surveyed by Dow Jones. Growth was driven by consumer spending, private inventory investment, and non-residential fixed investment. However, the personal savings rate decreased to 3.5% from 3.8% in the first quarter, while credit card delinquencies increased to an all-time high, according to data dating back to 2012.

• Federal Reserve Chair Jerome Powell said that the central bank could cut interest rates at its September meeting if economic data continues its current path. Recent data shows inflation falling back towards the Fed’s target of 2% while unemployment has risen above 4%. Powell believes the current state of the labor market is not likely to be a significant source of inflationary pressure.

• Factory activity in China shrank for a third straight month in July, hindering Beijing efforts to achieve its  5% annual target. The contraction in the manufacturing sector is a setback for this goal. President Xi Jinping promised to boost consumer confidence and ease pressure on the property sector, but current policies have not significantly changed in the second half of the year.

Philippine Stocks

Philippine Stocks pulled back amid profit taking.

• Household consumption is set to accelerate this year amid easing inflation, according to BMI, a unit of Fitch Solutions. Spending has already recovered to pre-COVID levels in 2022 and is projected to grow by 6.2% this year and 5.9% in 2025. However, risks include prolonged inflation, lower remittances, and a weakened economy. If nominal income growth lags behind inflation, purchasing power will decline, potentially dragging down spending.

• Information technology and business process management companies, along with traditional offices, are expected to fill the gap as Philippine Offshore Gaming Operators (POGOs) vacate offices. Among the top five developers in Metro Manila, POGO exposure is under 5% of their portfolios. The Bay Area and Makati could see vacancies rise to 50% and 43% respectively, with overall Metro Manila vacancy potentially reaching 22% by year-end, according to Colliers’ estimate.

Philippine Bonds

Philippine Bond yields continued to trend lower in anticipation of central bank rate cuts. 

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining life of three years and one month at an average rate of 6.009%. This rate was below secondary market levels amid expectations of a possible Bangko Sentral ng Pilipinas’ (BSP) rate cut in August.

• Headline inflation may have accelerated in July, potentially ending seven consecutive months within the BSP’s target of 2% to 4%. The central bank forecasts inflation between 4% and 4.8%, driven by higher electricity rates, agricultural commodity prices, and oil prices. However, these increases are partly offset by lower rice prices, which eased to 22.5% in June from 23% in May.

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/2024/07/25/us-gdp-q2-2024.html (2) https://www.cnbc.com/2024/07/31/powell-says-september-rate-cut-on-the-table-if-inflation-data-continues-to-cool.html (3) https://business.inquirer.net/472340/china-factory-activity-shrinks-for-third-straight-month (4) https://www.bworldonline.com/top-stories/2024/08/01/611488/bmi-says-philippine-consumer-spending-to-accelerate-this-year/ (5) https://www.bworldonline.com/top-stories/2024/08/01/611489/bpo-traditional-firms-likely-to-lift-office-market-after-pogo-exit/ (6) https://www.bworldonline.com/top-stories/2024/08/01/611492/bsp-sees-july-inflation-at-4-4-8/ (7) https://www.pna.gov.ph/articles/1230081

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.