Global Stocks rise as resilient corporate earnings boosted sentiment amid high inflation.
- September inflation was up 8.2%, below the 9% peak in June but still around 40-year highs. Food was one the primary drivers increasing 11.2%, year on year. The persistently high rate increased the likelihood of a fourth rate hike in November and likely fifth hike in December. However, consumer spending remains solid despite the inflationary pressures.
- Corporate earnings have posted surprisingly strong results. This is partly due to lower forecasts but still a good sign that bellwether firms remain stable. Volatility remains high, as any good or bad news swings the market to either direction. The uncertainty regarding the Federal Reserve’s policy rates keeps stocks unsteady.
- Supply chain constraints have begun to ease. Slower demand has lessened the port congestions and container shortages experience during the past two years. The latest Drewry composite World Container Index, a key benchmark for container prices, is down 64% year on year. The risk of an economic downturn led large retailers to stop orders and reduce inventories.
Philippine Stocks moved higher with the Philippine Stock Exchange Index (PSEi) breaching the 6,000 level.
- Positive sentiment from the western markets helped sustain the rally in local stocks. Bargain hunting and foreign buying helped lift the market higher. Aggressive global central banks and recession fears dragged equity markets lower, but the latest economic data suggest that the global economy may be doing better than expected.
- Socioeconomic Planning Secretary Arsenio M. Balisacan stated that the government must “do something” about the volatile exchange rate. The Bangko Sentral ng Pilipinas (BSP) already stated that they were active in the market to prevent any excessive movement. However, Mr. Baliscan believes the economy would not be hurt by the weak peso. It is more important to fix the supply chain and production constraints to increase exports and take advantage of the high exchange rate.
Philippine Bond Yields climbed by an average of 0.14% across the curve in line with the rise in US treasuries.
- The Bureau of Treasury (BTr) fully awarded a fresh 10-year treasury bond at a coupon rate of 7.5%. This is 0.30% higher than a similar bond in the secondary market. Traders believe that the rates were within expected levels given the BSP’s recent statements. The benchmark rate is expected to hit 5% which will likely put the 10-year between 7.5% to 8%.
- BSP Governor Felipe M. Medalla stated that the central bank may consider another big rate hike in November. They are looking at a 0.50% to 0.75% increase to try to ease currency pressure from a strong dollar and cool inflation. The benchmark rate is currently at 4.25%, up by 2.25% since May.
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/2022/10/13/consumer-price-index-september-2022-.html (2) https://www.cnbc.com/2022/10/17/after-two-years-of-shipping-snarls-things-are-starting-to-turn-around.html (3) https://www.nytimes.com/2022/10/18/business/stocks-jump-corporate-earnings.html (4) https://www.bworldonline.com/stock-market/2022/10/19/481737/bargain-hunting-continues-to-lift-local-stocks/ (5) https://www.bworldonline.com/top-stories/2022/10/20/481815/govt-wants-predictability-in-forex-rate/ (6) https://www.bworldonline.com/banking-finance/2022/10/19/481493/btr-fully-awards-new-10-year-t-bonds-on-strong-demand/
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.