Global and Philippine Market Update

Jan. 19 to Jan. 25, 2023

Global Markets

Global Stocks gained amid a slowdown in the global economy.

• Federal Reserve (Fed) Governor Christopher Waller favors a 0.25% increase in the next policy meeting which is in line with market expectations. He believes that his stance is supported by the current data but expects further tightening to continue as inflation remains far from the Fed’s 2% target. He sees the fight to bring inflation down to be a hard slog which would require higher rates for longer. He does not forecast any cut in rates until 2024.

• The tight labor market looks to be reversing as the US economy slows down. US employers announced 13% more job cuts in 2022 with the technology sector leading the way. Tech companies announced a 649% increase in job cuts, totaling almost 100,000 jobs, the highest since the dot-com crash more than 20 years ago. Companies seem to have misread the post-Covid economy and are now reassessing their priorities. The job losses have disproportionately affected support units like human resources and recruiting but high-value engineers and programmers were generally spared.

• JP Morgan Chase & Co. finds the risk of a recession to have fallen sharply from 2022 highs. According to the firm’s trading model, seven of the nine asset classes show a less than 50% chance of a recession. This was a big reversal from the almost guaranteed probability of a recession last October. JP Morgan strategist Nikolaos Panigirtzoglou stated that most asset classes have steadily priced out recession risk due to China’s reopening, lower gas prices and easing inflation. 

Philippine Stocks  

Philippine Stocks ended slightly lower as investors await the full year 2022 gross domestic product data (GDP). 

• The Philippine Stock Exchange index (PSEi) was rangebound, trading between the 7,000 and 7,100 level. Investors took profit as a new catalyst has yet to be found. The market already rallied significantly to start the year on optimism for the continuation of growth. The Philippines looks to grow by 7% in 2023.

• The Philippine Travel Agencies Association (PTAA) expects visitors to approach pre-pandemic levels in 2023. The Philippines removed most of its pandemic-related border restrictions in February 2022 leading to 2.65 million arrivals last year. The Department of Tourism (DoT) targets to grow the number of arrivals to 4.8 million visitors this year. The removal of COVID-19 travel restrictions in China should provide a boost to visitors to the Philippines.

• The government plans to launch 3,600 infrastructure projects, worth a total of USD 372 billion, through 2028. National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan believes these projects will transform the country in the next six years. The country is more open to business with opportunities in energy, water, logistics, transportation, agribusiness, manufacturing, tourism, health, education, and digital connectivity. The structural reforms by the previous administration should entice more foreigners to invest in the Philippines as it allows more sectors to be 100% foreign owned.

Philippine Bonds  

Philippine Bond Yields continued to trend lower as inflation expectations ease.  

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year bond with a remaining life of nine years and seven months at an average rate of 5.913%. This was lower than the 6.703 % rate quoted on its first issuance last September 13, 2022. Investors have been aggressively locking in the high yields as inflation begins to ease. 

• The Bangko Sentral ng Pilipinas (BSP) forecast inflation to drop below 4% by the third quarter and below 2% by early 2024. BSP Governor Felipe M. Medalla stated that supply shocks in 2022 were one of the main causes of the high inflation rate but expects this to last between 16 and 18 months before normalizing. Inflation will also be affected by the high base effect which should lead to lower inflation rates in the coming quarters.

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/2023/01/20/fed-governor-waller-backs-quarter-point-interest-rate-hike-at-next-meeting.html (2) https://www.bloomberg.com/news/articles/2023-01-18/what-2022-tech-layoffs-say-about-silicon-valley-the-economy (3) https://www.bloomberg.com/news/articles/2023-01-21/jpmorgan-model-shows-recession-odds-fall-sharply-across-markets (4) https://www.bworldonline.com/stock-market/2023/01/22/500000/psei-to-stay-at-7000-level-ahead-of-gdp-report/ (5) https://www.bworldonline.com/economy/2023/01/24/500707/visitor-arrivals-expected-to-approach-pre-pandemic-levels-in-2023/ 6) https://www.bworldonline.com/top-stories/2023/01/24/500413/govt-eyes-3600-infra-projects-worth-372-billion/ (7) https://www.bworldonline.com/banking-finance/2023/01/25/500658/govt-fully-awards-t-bonds-amid-strong-demand/(8) https://www.bworldonline.com/top-stories/2023/01/24/500416/bsp-sees-inflation-below-2-by-2024/ (8) https://www.reuters.com/markets/asia/philippines-q4-gdp-grows-72-faster-than-forecast-2023-01-26/

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.