Anticipation of rate hikes causes volatility, but inflation expected to continue trending lower

Global and Philippine Market Update
Feb. 16 to Feb. 22, 2023

Global Markets

Global Stocks retreat as central banks signal higher rates for longer

• Minutes from the Federal Reserve (Fed) recent meeting showed that officials acknowledge that inflation has been easing. However, they require more evidence before they become confident that the downward path is sustainable. Expect high volatility to continue until there is more certainty regarding the path of inflation and the Fed.

• Walmart and Home Depot set a cautious outlook for the year as consumers shift spending towards food and services. There are generally lower margins for food which may impact Walmart’s bottom line. The pandemic-fueled growth for home improvement may finally be over leading Home Depot to forecast flat growth for the year. The retailers are also navigating a tight labor market, increasing their cost and further squeezing margins.

• Europe’s biggest economies returned to growth, increasing the chances of avoiding a recession. Private output in France and Germany expanded in February after the previous month’s pullback. The UK also saw its purchasing manager’s index (PMI) expand for the first time in six months. The euro zone experienced its fastest pace of activity since May 2022. There is growing confidence in the economy as recession fears fade and inflation eases.

Philippine Stocks  

Philippine Stocks fall following the retreat in global markets.

• The lack of a positive catalyst pulled the Philippine Stock Index (PSEi) lower. The 6,700 support was breached, and the coming week would provide clarity if it can recover or consolidate at this level. Negative sentiment persists as investors brace for further rate hikes in the coming months.

• The Philippines is expected to attract high interest as an investment destination, according to Fitch Solutions. This was the same sentiment echoed by Tim Wong of DBS Bank Group research, which noted that the country enjoys critical mass in terms of the population’s wealth. Gross domestic capital (GDP) per capita has gotten to a level where consumption can significantly grow. The country has positive demographics due to its large and young population which should boost economic growth in the coming years.

• The Philippine tourism industry stands to benefit from China’s recovery as Chinese nationals are now allowed to freely travel after three years of mobility restrictions. The Department of Tourism (DoT) recorded 2.65 million international visitors last year with only 39,627 visitors coming from China. The DoT is targeting 4.8 million visitors this year and a reopened China should help in achieving its goal.

Philippine Bonds  

Philippine Bond Yields moved higher as rate hikes continue.    

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year treasury bond at a yield of 6.258%. This was 0.355% higher than the 5.913% rate quoted when it was offered last Jan 24. Total tenders reached Php 92.3 billion, 2.6 times more than the Php 35 billion offer. The yield was attractive for investors as it allows them to lock in a high rate at a longer tenor.

• National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisican believes that inflation may begin to plateau in March as food supply improves due to the start of harvest season and lack of typhoons the previous months. ING Bank N.V. Manila Senior Economist Nicholas T. Mapa sees headline inflation peaking in February, barring any further supply shocks. However, it may be a slow grind downward for inflation as second round effects have started to spread to the consumer price index basket. Out of 198 items in the January basket, the price of 189 items increased by 4%.

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/2023/02/21/stock-market-today-live-updates.html (2) https://blinks.bloomberg.com/news/stories/RQGZXA0799MO (3) https://blinks.bloomberg.com/news/stories/RQFDETT0AFB6 (4) https://business.inquirer.net/387830/ph-shares-dive-on-heels-of-wall-street-sell-off (5) https://www.bworldonline.com/economy/2023/02/22/506362/china-recovery-to-boost-philippine-tourism/ (6) https://www.bworldonline.com/stock-market/2023/02/07/503500/shares-fall-on-faster-than-expected-jan-inflation/ (7) https://www.bworldonline.com/banking-finance/2023/02/22/506133/govt-fully-awards-t-bond-offer-amid-strong-investor-demand/ (8) https://www.bworldonline.com/top-stories/2023/02/22/506165/balisacan-hopes-inflation-may-start-to-ease-in-march/

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.