Global Stocks rallied as strong retail sales amid high inflation boosted sentiment.
- The US Federal Reserve (Fed) will likely increase interest rates by 0.75% in its meeting next week. Investors were expecting a 1% hike but comments from some Fed officials indicated a preference for a 0.75% increase. New data showed that US consumers’ long term inflation expectations declined to 2.8% in early July compared to 3.1% the previous month. Easing inflation expectations may slowdown the Fed’s rate increase.
- US home sales fell 5.4% in June, its fifth straight monthly decline. Higher prices and mortgage rates continue to batter the housing sector. 30-year fixed loan rates are hitting 6% which is double the rate from a year ago. However, the slowdown in the housing sector may prove to be a positive in the long run as the past two years saw a rapid expansion that pushed prices to new highs.
- US retail sales increased by 1% in June, higher than expected. The report showed spending was up across a broad range of categories which include restaurants and furniture. The initial batch of corporate earnings reports have also been positive. It seems that companies are not doing as badly as initially feared.
Philippine Stocks edged higher in line with global markets.
- The commercial real estate sector is making a strong comeback with the vacancy rate projected to reach pre-pandemic levels by the end of 2022. The lowering of restrictions allowed more stores to open with the Q2 2022 vacancy rate coming at 4.6%, still above the 3.6% rate seen in Q4 2019. More Filipinos are returning to the office, going to the malls, and eating in restaurants. The pent-up demand from the last two years is seen to boost the growth during the second half of the year.
- The Philippine Statistics Authority (PSA) data showed that the labor force participation rate improved to 64% in May, higher than the 63.4% the previous month. Employment has significantly improved and would provide a strong support for future growth. Private consumption also continues to grow and has already surpassed pre-pandemic levels.
Philippine Bond Yields rose by an average of 0.16% across the curve. Yields continue to trend higher as central banks hike benchmark rates.
- The Bureau of Treasury (BTr) fully awarded a reissued ten-year treasury bond at an average rate of 6.87%. The auction was 3.5 times oversubscribed with PHP 123.3 billion tenders. There was a strong appetite for longer tenor bonds as investors try to lock in the high yield.
- The Bangko Sentral ng Pilipinas (BSP) expects inflation to remain elevated in the next few months. Average inflation sits at 4.4% the past six months which is still below the BSP’s 5% forecast. The BSP still sees risks to inflation and growth but assures the public that they stand ready to employ all the necessary tools to help the economy continue its recovery.
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/2022-07-15/fed-on-track-for-75-basis-points-officials-wary-of-bigger-hike (2) https://blinks.bloomberg.com/news/stories/RF2FHL073NCW (3)https://www.reuters.com/markets/europe/global-markets-wrapup-1-2022-07-20/ (4) https://www.usnews.com/news/economy/articles/2022-07-20/home-sales-drop-for-fifth-consecutive-month-as-rising-mortgage-rates-offset-growing-inventory (5) https://www.bworldonline.com/top-stories/2022/07/20/462352/retail-sector-nears-pre-pandemic-vacancy-rate/ (6)https://www.bworldonline.com/top-stories/2022/07/19/462036/economy-to-sustain-recovery-bsp/
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