Global and Philippine Market Update

Sept. 12 to Sept. 18, 2024

Global Markets

Global Stocks moved higher as the Fed cut rates by half a percent.

• The U.S. Federal Reserve initiated a series of interest rate cuts with a significant half-percentage-point reduction, lowering the benchmark rate to 4.75%-5.00%. Fed Chair Jerome Powell emphasized this move as a commitment to maintaining low unemployment now that inflation has eased. Despite the consensus-driven approach Powell usually favors, there was a notable dissent from Fed Governor Michelle Bowman, who preferred a smaller cut. Powell described the rate cut as a “recalibration” to address the sharp decline in inflation and to preempt any potential weakening in the job market.

• The Fed’s actions have worldwide implications, affecting foreign exchange markets and emerging markets that borrow in U.S. dollars. Other central banks, like the European Central Bank, have also cut rates to combat inflation. China’s central bank has managed the yuan’s value to support trade goals and established its own monetary system. Despite efforts to internationalize the yuan, it still lags the dollar and euro in global payments.

• Asian markets, led by Tokyo’s Nikkei, rose as the yen hit a two-week high following a significant interest rate cut by the US Fed, which lowered borrowing costs by 50 bps. Henceforth, aimed at supporting the economy amid weak jobs data, sparked mixed reactions due to inflation concerns. Despite an initial rally, Wall Street ended lower. Investors are now focused on the Bank of Japan’s upcoming policy meeting, while gold prices surged to new highs.

Philippine Stocks

Philippine Stocks returned above 7,000 amid positive sentiment.

• The PSEi reached its highest close in over 29 months, up 11.25% year-to-date. Gains were driven by positive July cash remittances data, significant investment pledges approved by the Board of Investments, and optimism about the rate cuts from the Federal Reserve and BSP.

• Easing inflation, which fell to 3.3% in August, is expected to boost household spending and support GDP growth, according to GlobalSource Partners. Despite strong economic growth of 6.3% in Q2, labor indicators remain weak, with unemployment rising to 4.7% in July.

Philippine Bonds

Philippine Bond yields declined as central banks adopted more accommodative monetary policies.

• The Bangko Sentral ng Pilipinas (BSP) has no plans to issue long-term securities, focusing instead on managing liquidity through short-term instruments like BSP bills and overnight reverse repurchase facilities. As of end-September, the BSP absorbed P1.77 trillion in excess money supply, with P804 billion through BSP bills.

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year treasury bond with remaining term of nine years and four months at an average rate of 5.967%. The rate was lower than the 6.06% offered last September 16. This is due to expectations of larger US Fed rate cut.

• As of August, the Philippines’ rice inventory increased by 14.4% year-on-year to 1.87 million metric tons, driven by the National Food Authority’s (NFA) higher palay buying price. Despite a 14.2% month-on-month decline due to the end of the harvest season, the stock level remains better than in previous years. The NFA’s buffer stocks surged by 195.9%, while commercial sector inventories rose by 23.3%. However, household stocks fell by 13.3%. Corn stocks also declined by 17.4% year-on-year. 

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) What the Fed Rate Cut Means for Mortgages, Loans and More (cnbc.com) (2) How Federal Reserve interest rate cuts affect the global economy (cnbc.com) (3) https://business.inquirer.net/480902/tokyo-surges-on-weak-yen-as-asian-traders-cheer-big-us-rate-cut (4https://www.bworldonline.com/stock-market/2024/09/17/622152/phl-stocks-surge-on-strong-data-before-fed-meet/ (5) https://www.bworldonline.com/stock-market/2024/09/17/622152/phl-stocks-surge-on-strong-data-before-fed-meet/ (6) https://www.bworldonline.com/top-stories/2024/09/19/622481/bsp-to-cut-rrr-substantially-this-year/ (7) https://www.pna.gov.ph/articles/1233535 (8) https://business.inquirer.net/480445/ph-rice-stocks-boosted-by-enlarged-nfa-buffer

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.