Equity markets receive a boost as the US Fed pauses hikes

Global and Philippine Market Update
Dec. 7 to Dec. 13, 2023

Global Markets

Global Stocks continued to climb as concerns about a recession diminish.

• US inflation registered at 3.1%, a slight decrease from the previous month’s 3.2%. Core inflation, excluding volatile food and energy, remained steady at 4%, maintaining levels from the previous month. While these figures aligned with expectations, some may have anticipated a greater deceleration. Nevertheless, this still presents a positive sign, alleviating some pressure on the fed for further easing.

• The solid job’s report is another victory for the US economy, with unemployment at 3.7% and the addition of 199,000 jobs, dispelling recession concerns. However, lingering apprehensions persist, driven by the notion that the full impact of the Federal Reserve’s aggressive rate hike may not have materialized yet, leading to fears of a potential downturn in 2024.
• The Federal Reserve (Fed) kept its benchmark rate steady, marking the third consecutive pause since July. Notably, the Fed also hinted at the possibility of 0.75% reduction in its policy rate for 2024. Such cuts would effectively lower borrowing costs across the economy, providing relief to consumers burdened by elevated rates. Analysts are projecting that the initial rate cut might occur during the second quarter of 2024.

Philippine Stocks

Philippine Stocks remained rangebound due to a lack of catalysts.

• The Philippines is unlikely to reach the upper end of the government’s 6.5-8% growth target next year due to global challenges and the El Niño weather event, as indicated by National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan. Major international organizations note a less robust global economy than initially anticipated. Balisacan anticipates that growth will persist, primarily fueled by services, notably tourism, which is yet to fully recover to pre-pandemic levels. A notable strength of the Philippine economy lies in its domestic orientation, reducing dependence on exports to propel economic activity.
• The Department of Tourism aims to draw in 7.7 million international visitors by 2024, though this remains below the pre-pandemic figure of 8.2 million. Despite the shortfall, the agency committed to approaching pre-pandemic levels. Notably, the Philippines achieved a tourism industry recover rate of 65.54% in the first nine months, surpassing the Asia-Pacific average of 62%, according to the United Nations World Tourism Organization. After the conclusion of the holiday season, the department is optimistic about reaching at least 5 million international arrivals this year.    

Philippine Bonds

Philippine Bond yields trend lower as inflationary pressures ease.

• The Bangko Sentral ng Pilipinas (BSP) is anticipated to maintain the key interest rate at 6.5% based on a Reuters poll, driven by easing inflation and a strengthening currency. The peso’s notable performance last month, marking its best in a year, has alleviated pressure for further increases after a 25-basis point hike in October. Rate cuts are not foreseen until the third quarter of 2024, given that inflation risks continue to persist.

• BSP Governor Elli M. Remolona, Jr. emphasized the necessity for the Philippines to enhance its capital markets, as heavy reliance on banks for financial intermediation is deemed unsustainable. He advocated for the expansion of the corporate bond market to include single A and triple B borrowers, given that the current landscape primarily features triple A or double A issuances only. According to and ADB report, corporate bond issuances experienced a substantial 68.5% year-on-year decline.     

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/2023/12/12/cpi-inflation-report-november-2023.html (2) https://www.cnbc.com/2023/12/08/the-runway-is-getting-clearer-but-the-us-economy-still-isnt-assured-of-a-soft-landing.html (3) https://www.cbsnews.com/news/federal-reserve-rate-decision-pause-december-13/ (4) https://www.bworldonline.com/top-stories/2023/12/13/563294/philippines-confident-in-attaining-lower-end-of-gdp-target-for-2023/ (5) https://www.bworldonline.com/economy/2023/12/12/563208/visitor-arrival-target-set-at-7-7-million-for-2024/ (6) https://www.reuters.com/markets/rates-bonds/philippine-central-bank-done-with-rate-hikes-first-cut-seen-q3-2024-same-fed-2023-12-12/ (7) https://www.bworldonline.com/banking-finance/2023/12/11/562553/phl-must-further-deepen-capital-markets/

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.