Equity markets rally as positive sentiment continues, following resolution of debt deal

Global and Philippine Market Update
June 1 to June 7, 2023

Global Markets 

Global Stocks continued to move higher as inflation concerns ease. 

• The US labor market has surprised analysts with its resilience and strength, but the Federal Reserve (Fed) is still likely to pause rate hikes in its upcoming meeting. If a pause occurs, it will break a streak of 10 consecutive rate hikes that have brought rates to their highest level in 15 years, currently ranging between 5% and 5.25%. While there is ongoing debate about the labor market’s impact on inflation, top economists suggest that its influence has been relatively minor. Corporate executives have observed that inflation has moderated, even in a tight labor market, indicating that the labor market’s effect may not be as significant as previously thought.

• Following weak economic date from China, government officials are taking steps to bolster the economy through fiscal stimulus measures, primarily targeting the property sector. Reports from local media indicate a decline in sentiment and transaction volume in the resale homes market. In response to worsening growth prospect, the government is expected to unveil a rescue package aimed at reversing the downward trend and stabilizing new home sales at slightly higher levels than the current situation. 

Philippine Stocks

Philippine Stocks gained as sentiment improves.

• The World Bank revised its forecast for the Philippine economy, projecting a growth rate of 6% this year, up from the previous estimate of 5.4% in January. This upward revision aligns with the outlook of other analysts, indicating a growth rate of at least 6% as the base scenario. Job recovery, improved consumer sentiment and strong remittances will likely drive growth and fuel domestic consumption. Despite weak global conditions, the World Bank’s revision shows the resilience of the Philippine economy and its strong domestic demand. However, the forecast also warns of elevated inflation, with an average of 5.7% expected this year, higher than the 4.2% initial forecast.

• According to Locad, a logistics platform, the Philippines e-commerce sector is projected to hit 15% growth, reaching USD 16 billion in 2023. Although the growth rate is not as rapid as during the pandemic, it remains robust considering the higher base. Even with the reopening of physical stores, the e-commerce industry is expected to sustain its growth and become a significant portion of trade in the country. 

Philippine Bonds

Philippine Bond yields remained rangebound ahead of further central bank policy decisions.

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year treasury bond with a remaining life of four years and nine months at an average rate of 5.805%. This was slightly higher compared to bonds with similar maturity in the secondary market. However, the latest auction yielded a significantly lower rate compared to the 6.568% seen during the previous five-year bond auction in November of last year. Despite occasional spikes, yields forecast remain the same and is expected to continue its downward trend.

• The Philippine Statistics Authority reported inflation decreasing to 6.1% in May, compared to the previous month’s 6.6% rate. This marks the fourth consecutive month of deceleration. The average inflation for the first five months of the year stands at 7.5% with the Bangko Sentral ng Pilipinas (BSP) expecting inflation to eventually average 5.5% for the year. However, risks to inflation outlook remain biased towards the upside due to supply chain constraints and potential impact of El Niño on food prices and utility rates.

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://edition.cnn.com/2023/06/02/economy/fed-jobs-report-pause/index.html (2) https://www.cnbc.com/2023/06/07/chinas-stimulus-property.html (3) https://www.bworldonline.com/top-stories/2023/06/08/527501/world-bank-raises-philippine-growth-outlook/ (4) https://www.bworldonline.com/economy/2023/06/07/527516/e-commerce-growth-in-2023-projected-at-15-to-16-billion-logistics-company-says/ (5) https://www.philstar.com/business/2023/06/07/2271941/government-borrows-p25-billion-t-bonds

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.