Corporate earnings keep equity markets on upward trend

Global Markets 

Global Stocks ended higher on the back of a resilient retail sector.

• Excluding gasoline and autos, retail sales continued to grow. The pullback in gasoline prices helped improve sentiment, allowing consumers to spend elsewhere. However, high inflation is still a major concern and will test the resiliency of consumer spending in the coming months.

• The latest batch of corporate earning reports was generally positive. Walmart’s earnings were better than expected due to a strong back-to-school sale, lower gas prices and wealthier customers seeking bargains. Home Depot’s earnings also beat estimates, but the number of customer transactions fell. Amazon also reported the largest Prime Day on record, as members bought more than 300 million items globally.

• The minutes from the Federal Reserve (Fed) meeting last month showed that officials agreed on the need to eventually slow down the pace of rate hikes. Officials emphasized the need to contain the historically high inflation rate but also acknowledged the risk of tightening more than necessary.

Philippine Stocks

Philippine Stocks ended significantly higher this week with the index trading above 6,800. June seems to be the major turning point for the year with local index trending upward since then.

• Approved pledges of foreign investments stood at P46.23 billion in the second quarter. This is more than double the P22.503 billion commitment seen during the same period last year. Capital formation is one of the main drivers of the economy and was a sizeable contributor to the 7.4% second quarter gross domestic product (GDP) growth rate.

• The improving economic environment led to a significant rally the past week. Companies reported good earnings performance amid high inflation during the second quarter, helping improve market sentiment. The market also got a boost from the weaker economic data coming from China. Foreign funds were looking for alternative outlets which provided a lift to Philippine stocks.

Philippine Bonds

Philippine Bond Yields moved lower, particularly bonds with a maturity of more than two years. Investors continue to take advantage of the high interest rates on offer.       

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year bond at an average rate of 5.81%. This was significantly lower than the 7.25% coupon rate set during its initial auction last June. The auction was 3.7x oversubscribed which shows the high demand for the bond. There is still significant value in bonds even as yields trend lower. 

• The Bangko Sentral ng Pilipinas (BSP) hiked rates by 0.50% during its August meeting and economists forecast that an additional 0.25% increase is likely in September. This will bring rates to 4%, back to pre-pandemic levels. The BSP is committed to fighting inflation as higher transport costs and food prices led inflation to hit 6.4% in July, its fastest pace in four years.

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.bloomberg.com/news/articles/2022-08-17/us-retail-sales-little-changed-last-month-amid-fuel-autos-drop (2) https://www.bloomberg.com/news/articles/2022-08-17/fed-saw-smaller-hikes-ahead-to-assess-prior-moves-minutes-show (3) https://www.bworldonline.com/top-stories/2022/08/17/468869/foreign-investment-pledges-double-in-q2/ (4)https://www.bworldonline.com/stock-market/2022/08/16/468689/local-shares-extend-rally-on-improved-profits/ (5) https://malaya.com.ph/news_business/btr-fully-awards-10-year-bonds-3/ (6)https://www.channelnewsasia.com/business/philippines-central-bank-hike-50-bps-thursday-catching-peers-reuters-poll-2882941 (7) https://www.cnnphilippines.com/business/2022/8/18/BSP-monetary-policy-August-18.html

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.