Equities maintain upward trend as inflation eases

Global Markets

Global Stocks pulled back as consumer spending slowed down.

• Consumer spending looks to be slowing down with Bank of America and Wells Fargo reporting weaker credit card volume. Retail payments have surged 11% this year but recent reports have obscured the slowdown as November spending only rose by 5%. This a clear sign that the Federal Reserve’s (Fed) rate hikes are beginning to impact consumer behavior. 

• CEOs of major companies are preparing for a weaker economy with the risk of a recession increasing. Jamie Dimon of JP Morgan Chase sees elevated spending not lasting much longer and rising interest posing a big risk to the economy. Mary Barra of General Motors is planning for “a fairly conservative 2023” to avoid being blindsided by unforeseen circumstances. Doug McMillon of Walmart is also eyeing more conservative spending in certain categories like electronics and toys.

• The Chinese government announced significant changes to its Covid protocols. It will no longer require negative virus test results for local travel. Work and local production will not be stopped unless an area is designated as high risk. The National Health Commission also formalized other recent changes, such as allowing more people to quarantine at home. 

Philippine Stocks

Philippine Stocks retreated on profit taking after surging the past weeks. 

• The Philippine Stock Exchange index (PSEi) pulled back as negative headwinds from the US and other global markets weighed on sentiment. There are growing concerns about the US Fed’s rate hike path and the possibility of a recession.

• Unemployment dropped to 4.5% in October, a rate last seen in October 2019. This puts the unemployment rate back to pre-pandemic levels. October underemployment also eased to 14.2% from 16.1% a year ago. Average hours worked also improved to 40.2 hours from 39.6 hours in September. The rate of improvement is a good sign of the economy opening further.

• Manufacturing output grew by 5.1% in October, the fifth straight month of expansion. This clearly reflects the reopening of the economy. In the first 10 months to October, factory output averaged a growth of 17.4%. Manufacturing of machinery and equipment (less electrical) led the increase at 81.8% rise in October followed by manufacturing of beverages at 61.7%.

Philippine Bonds

Philippine Bond Yields moved lower as investors expected inflation to have peaked.

• The Bureau of Treasury (BTr) fully awarded a reissued 25-year bond with a remaining life of 11 years and 11 months at an average rate of 7.189%, in line with secondary market levels. This was lower than the previous auction last November, which saw an average yield of 8.168%. National Treasurer Rosalia de Leon stated that the lower rate was due to expectations that average inflation has peaked.

• Headline inflation jumped to 8% for November, its highest level since November 2008. Food and non-alcoholic beverages were the main drivers of the increase with a 10% rise. The Bangko Sentral ng Pilipinas (BSP) sees inflation slowing down in the coming months due to lower oil prices. However, the risk to the upside remains due to potential impacts of higher fertilizer costs, trade restrictions and adverse weather conditions.

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/2022/12/07/china-eases-covid-restrictions-on-travel-and-production.html (2) https://www.cnbc.com/2022/12/07/wells-fargo-bofa-ceos-say-consumer-demand-is-cooling-recession-looms.html (3) https://www.cnbc.com/2022/12/06/recession-walmart-jpmorgan-gm-ceos-talk-about-possible-slowdown.html (4) https://www.bworldonline.com/top-stories/2022/12/08/491753/jobless-rate-back-to-pre-pandemic-level/ (5) https://www.bworldonline.com/top-stories/2022/12/08/491756/factory-output-rises-for-5th-month-in-a-row/ (6) https://www.bworldonline.com/stock-market/2022/12/07/491734/psei-drops-on-profit-taking-wall-streets-decline/ (7) https://www.rappler.com/business/inflation-rate-philippines-november-2022/ (8) https://www.philstar.com/business/2022/12/07/2229011/full-award-t-bonds-rates-drop

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.