Global Markets

Global Stocks moved lower as the Fed signal only two cuts in 2025. 

• The Federal Reserve (Fed) has reduced its key interest rate by 0.25 percentage points to a target range of 4.25%-4.5%, marking the third consecutive cut. This move, anticipated by markets, aims to balance inflation and economic growth. The Fed has signaled only two more cuts in 2025, with further reductions planned for 2026 and 2027, and a long-term neutral rate of 3%. Fed Chairman Jerome Powell emphasized a cautious approach, noting that the policy stance is now less restrictive. However, the announcement led to a decline in stocks and a rise in US treasury yields due to the fewer-than-expected cuts in the coming years.
  
  
• The Central Economic Work Conference, held in Beijing from December 11 to 13, 2024, reviewed China's economic performance and set priorities for the next year. Facing challenges like rising trade protectionism, deglobalization, supply shocks, shrinking demand, and weakened expectations, the conference emphasized proactive fiscal measures, moderately looser monetary policy, and industrial policies to address competition. It highlighted the need for confidence and preparation to meet economic targets, focusing on high-quality development, expanding opening-up, and promoting a green economy. China aims to maintain its GDP growth target at around 5% for 2025.

Philippine Stocks

Philippine Stocks retreated as investors shifted from emerging markets.

• The Philippine economy is expected to continue accelerating but will fall short of government targets for this year and 2025, according to Fitch Ratings. Fitch forecasts GDP growth of 5.7% in 2024 and 5.9% in 2025, below the government's targets of 6-6.5% and 6-8%, respectively. Growth is expected to pick up to 6.2% by 2026 due to monetary easing, infrastructure spending, and trade and investment reforms. Political tensions between President Ferdinand R. Marcos, Jr. and Vice-President Sara Z. Duterte-Carpio, as well as potential risks from the incoming Trump administration's policies, could impact growth prospects.
  
  
• The National Economic and Development Authority (NEDA) Board approved an executive order to implement tariff commitments under the Philippines-South Korea Free Trade Agreement (FTA). This FTA, ratified by both countries, will grant duty-free entry to 11,164 Philippine products worth $3.18 billion, covering 87.4% of South Korean imports from the Philippines. South Korea is the Philippines' third-largest import source, accounting for $989.72 million or 8.3% of Philippine imports in October 2024. The agreement aims to enhance Manila's trade competitiveness and secure more preferential concessions compared to existing agreements. Total trade between the two countries reached $12 billion last year.

Philippine Bonds

Philippine Bond yields trended higher on lower rate cut expectations.

• Finance Secretary Ralph G. Recto stated that the Bangko Sentral ng Pilipinas (BSP) could cut benchmark interest rates by 75 basis points (bps) in 2025, depending on factors like inflation and the US Federal Reserve's actions. Philippine headline inflation stood at 2.5% in November, with an 11-month average of 3.2%, within the BSP’s 2-4% target band. Recto, also a Monetary Board member, indicated a strong possibility of a third consecutive 25-bp cut at the final policy meeting of the year, potentially bringing the benchmark rate to 5.75%. If the BSP delivers another 75 bps of cuts next year, the key rate would be 5% in 2025.
  
  
• The BSP is inclined towards easing its policy stance, but the pace of rate cuts needs careful consideration. BSP Governor Eli M. Remolona, Jr. mentioned that future rate cuts would be implemented in "baby steps" and may not occur at every meeting. The BSP's decisions will primarily consider domestic inflation, which averaged 3.2% over 11 months, within the 2-4% target range. The peso's recent performance has been similar to other regional currencies, with less impact on inflation targeting. The BSP retains the option to intervene in the market if necessary to prevent abrupt changes in the exchange rate.

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/2024/12/18/fed-rate-decision-december-2024-.html (2) https://www.manilatimes.net/2024/12/18/opinion/understanding-chinas-development-logic-from-the-central-economic-work-conference/2023674 (3) https://www.bworldonline.com/top-stories/2024/12/19/642464/fitch-flags-growth-risks-from-marcos-duterte-rift/ (4) https://www.bworldonline.com/top-stories/2024/12/18/642200/neda-board-oks-p63-billion-projects/ (5) https://www.bworldonline.com/top-stories/2024/12/19/642465/bsp-may-slash-rates-by-75-bps-in-2025-recto/ (6) https://www.bworldonline.com/top-stories/2024/12/17/641937/pace-of-easing-must-be-considered-very-carefully-bsp/

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.