Headline inflation accelerated for the first time in seven months in August, primarily due to significant price increases in rice, vegetables and fuel.

The Experts

Markets react to surging oil prices

Global stocks edged lower amid renewed concerns over inflation.

FWD Investment Team

Global and Philippine Market Update

Aug. 31 to Sept. 6, 2023


Global Markets

Global Stocks edged lower amid renewed concerns over inflation.

  • Oil prices surged to a new high for the year as Saudi Arabia and Russia announced an extension of output cuts for at least three more months. Saudi Arabia, specifically, will maintain its 1 million barrel per day reduction until the end of December, subject to monthly reviews. This move drove Brent crude, the global benchmark, above the USD 90 mark. The International Monetary Fund (IMF) states that Saudi Arabia requires Brent crude to trade at approximately USD 81 per barrel to balance its budget. The kingdom slipped into budget deficit for the first time in almost a decade. These developments present a fresh challenge for central banks in their efforts to rein in and control inflation.
  • Goldman Sachs has significantly increased its confidence in the US economy’s potential for a soft landing, lowering the probability of a US recession in the next 12 months from 35% in March to 15%, aligning with historical averages. This positive outlook is rooted in strong growth and rising real wages, which are expected to lead to a “reacceleration” of real disposable income, allowing consumers to outpace price increases and maintain their spending habits. Such optimism holds great significance in an economy where consumer spending is the key driver of growth.
  • China has implemented a series of gradual measures to stimulate its economy following a string of disappointing economic data, which raised concerns about the government missing its growth target of approximately 5%. The primary issue lies with the property sector. Since 2021, Beijing has tightened credit conditions for property developers and instructed banks to reduce mortgage lending, seeking to reduce the economy’s heavy reliance on real estate, which accounts for 20% of gross domestic product (GDP). Officials have rolled back restrictions, improved access to funding and lowered rates in an effort to support the property sector and lift the rest of the economy.


Philippine Stocks

Philippine Stocks remained relatively stable as investors reacted to a downward revision in growth forecasts.

  • The equity market continues to be impacted by developments offshore. There are growing concerns about the Chinese economy, as it marks its fifth consecutive month of manufacturing contraction, with the purchasing manager index (PMI) registering at 49.7. A value below 50 indicates a contraction. Additionally, the spike in oil prices has led to concerns about higher consumer prices.
  • The Organisation for Economic Co-operation and Development (OECD) has revised down its gross domestic product (GDP) growth projection for the Philippines this year. Their latest estimate anticipates the Philippine GDP expanding by 5.6% in 2023, falling short of the government’s 6-7% GDP growth target for the year. The Philippines experienced a slower-than-expected growth rate of 4.3% in the second quarter, resulting in a first-half GDP growth average of 5.3%. To bridge this gap and achieve the annual target, a robust second half is needed, requiring significant government spending. Fortunately, the government has initiated stimulus measures designed to boost both public and private sectors through frontloading of government programs and projects.  


Philippine Bonds

Philippine Bond yields trended higher as inflation resumed its climb.

  • The Bureau of Treasury (BTr) partially awarded a new three-year treasury bond at a coupon rate of 6.25%. This was slightly higher than comparable bonds in the secondary market. The rate was higher after the recent spike in oil prices, which adds to price pressures.
  • Headline inflation accelerated for the first time in seven months in August, primarily due to significant price increases in rice, vegetables and fuel, as reported by the Philippine Statistics Authority (PSA). Inflation increased to 5.3% from 4.7% in July. However, core inflation, which excludes food and fuel, decreased to 6.1% from 6.7% the previous month. Rice inflation surged 8.7%, marking the fastest pace since November 2018 when the country faced a rice shortage, recording a 9% inflation rate. A substantial rise in rice prices is key contributor to inflation, given that rice accounts for 8.9% of the total consumer price index (CPI) basket. The inflation trajectory is expected to be heavily influenced by food supply in the coming months.
  • The Bangko Sentral ng Pilipinas (BSP) still expects inflation to decelerate within the range of 2% to 4% by the fourth quarter this year despite the spike in August. The central bank has stated that the data from August “remains consistent” with its assessment that inflation will approach the target range unless unforeseen events occur. The BSP is prepared to make adjustments to its monetary policy if necessary to curb the potential expansion of price pressures, especially considering the upward risks to the inflation outlook.



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://edition.cnn.com/2023/09/05/energy/oil-prices-saudi-russia-output-cuts/index.html (2) https://edition.cnn.com/2023/09/05/business/goldman-sachs-recession-odds/index.html (3) https://finance.yahoo.com/news/chinese-stocks-hong-kong-jump-020324230.html (4) https://www.bworldonline.com/stock-market/2023/08/31/542640/philippine-shares-decline-on-weak-us-china-data/ (5) https://www.bworldonline.com/top-stories/2023/09/04/543183/oecd-trims-phl-growth-forecast-for-this-year/ (6) httpshttps://www.bworldonline.com/top-stories/2023/09/06/543804/inflation-accelerates-in-august-for-1st-time-in-7-months/ (7) https://business.inquirer.net/419476/inflation-still-expected-to-recede-in-coming-months-says-bsp (8) https://www.pna.gov.ph/articles/1209221

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.