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 incoming administration will also appoint Arsenio Balisacan to the National Economic and Development Authority (NEDA), a post he held during the Aquino administration, and former UP president Alfredo Pascual to the Department of Trade and Industry (DTI). The economic team is shaping up to be run by competent bureaucrats, which should ease investor concerns.
Philippine Bond Yields moved higher by an average of 0.015%. This was a lower increase from the large spikes seen the previous weeks.
- The Bureau of Treasury (BTr) partially awarded the latest 3-year bond auction at an average yield of 4.994%. The BTr awarded Php 9.3 billion out of the Php 35 billion offered. This rejection is the first sign shown by the BTr that it is willing to cap the rise in yields.
- The Bangko Sentral ng Pilipinas (BSP) upwardly revised its average inflation forecast higher for 2022 to 4.6% from 4.3%, beyond their 2-4% target. The 2023 target was also revised to 3.9% from 3.6% previously. The BSP is expected to hike rates in the coming monetary board meeting as it aims to ease inflationary pressures.
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/2022/05/30/no-global-recession-yet-but-brace-for-stagflation-economists-say.html (2) https://www.cnbc.com/2022/05/30/beijing-shanghai-start-to-reopen-as-covid-cases-drop.html (3) https://www.investopedia.com/terms/i/ism-mfg.asp#:~:text=What%20Is%20the%20ISM%20Manufacturing,state%20of%20the%20U.S.%20economy. (4)https://blinks.bloomberg.com/news/stories/RCT29OT1UM0W (5) https://business.inquirer.net/349016/uk-think-tank-gives-competent-bbm-economic-team-a-chance (6)https://www.pna.gov.ph/articles/1175598 (7) https://www.bworldonline.com/banking-finance/2022/05/31/451664/btr-rejects-all-bids-for-one-year-t-bills-as-rates-rise-on-hike-bets/
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