Global and Philippine Market Update

August 8 to August 14, 2023

Global Markets

Global Stocks moved higher as inflation ease.

• The US Producer Price Index (PPI) rose by 2.2% year on year in July, a notable decline from the 2.7% increase recorded in June. As a key leading indicator of inflation closely monitored by the Federal Reserve (Fed), this drop in the PPI has reinforced market expectations for an interest rate cut in September. The primary question now is whether the Fed will opt for a quarter or half percentage point cut. 

• The US Consumer Price Index (CPI) rose by 2.9% year-over-year, marking the lowest rate since March 2021. Fed officials have signaled a willingness to ease monetary policy but have been cautious about committing to a specific timetable or speculating on the pace of potential rate cuts. This latest inflation reading appears to alleviate any remaining concerns that could have deterred the Fed from considering a rate cut in September. 

• The New York Fed’s Survey of Consumer Expectations revealed that consumers are increasingly confident that inflation will become less of a concern. In the three-year outlook portion of the survey, consumers expect inflation to be just 2.3%, a decline of 0.6 percentage points from June and the lowest level recorded since the survey began in June 2013. Economists consider inflation expectations crucial, as they influence consumer and business behavior based on their outlook for future price and labor cost trends. 

Philippine Stocks

Philippine Stocks got a boost from a stronger peso.

• The Philippine peso strengthened to the 56-per-dollar level for the first time in four months as the US dollar weakened against Asian currencies, driven by a wave of risk-on sentiment. This shift has bolstered local confidence, contributing to a rally in equity markets.

• The Philippine economy must achieve an average growth rate of 6-7% over the next four years and meet its fiscal target to have a chance of achieving an “A” credit rating, according to Finance Secretary Ralph G. Recto. Economic managers are aiming for a growth rate exceeding 6% until 2028, with the goal of securing the “A” rating before the current administration ends. Achieving this higher credit rating could reduce borrowing costs and attract increased foreign investment. Additionally, maintaining macroeconomic stability is essential, with the passage of pending revenue measures in Congress playing a critical role in ensuring this stability.

Philippine Bonds

Philippine Bond yields continued their downward trend as rate cuts began. 

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining life of six years and 11 months at an average rate of 6.128%. This rate was lower than the 6.286% observed during a similar auction held in July. Yields are projected to continue to decrease as central banks begin transitioning towards a loose monetary policy.

• The Bangko Sentral ng Pilipinas’ (BSP) reduced its policy rate by 25 basis points, bringing the key rate down to 6.25%. This marks the first rate cut since November 2020. While the move was widely anticipated, there had been indications over the past week that officials might delay the decision. This rate cut signals the start of the easing cycle, with expectations of further reductions to follow. 

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/2024/08/13/producer-price-index-july-2024.html (2) httpshttps://www.cnbc.com/2024/08/12/three-year-inflation-outlook-hits-record-low-in-new-york-fed-consumer-survey.html (3) https://www.cnbc.com/2024/08/14/july-consumer-price-index.html (4) https://www.bworldonline.com/top-stories/2024/08/14/613852/philippines-needs-6-7-growth-to-achieve-a-credit-rating-recto/#google_vignette (5) https://www.bworldonline.com/top-stories/2024/08/14/613853/peso-strengthens-to-p56-level-for-1st-time-since-april/ (6) https://business.inquirer.net/474998/bsp-cuts-policy-rate-a-first-in-almost-4-years (7) https://business.inquirer.net/474631/btr-raises-p30-b-from-t-bonds-auction

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.