Equity markets stay in positive territory after another US banking collapse

Global and Philippine Market Update
April 27 to May 3, 2023

Global Markets

Global Stocks were steady amid growing risks.

• The Federal Reserve (Fed) increased rates for the 10th straight time to a target range of 5%-5.25% despite calls from Democratic lawmakers to cut them. Chairman Jerome Powell noted that the decision was not made to pause but the post-meeting statement offered clarity on the future pace of rate hikes. The document tweaked the usual language and essentially shows that the Fed is less likely to increase rates further to address inflation, particularly with recent softening in prices. 

• Regulators seized First Republic Bank and sold its assets to JPMorgan Chase in a deal to resolve the largest US bank failure since 2008 financial crisis. First republic was one of the regional US lenders most affected by the crisis in confidence in the banking sector. The bank disclosed that it lost more than USD 100 billion in the first quarter as depositors fled from smaller banks to banking giants after the collapse of two other midsized banks. JPMorgan will take control most of First Republic’s assets and get their wealthy client base.

• US Treasury Secretary Janey Yellen warns that the US may run out of cash by June 1 if congress fails to raise the debt ceiling. Reaching the debt ceiling means that the government will be unable to borrow money to keep the government running. House Republicans are using the debt ceiling to bargain with the white house for drastic cuts and a reversal of some of President Biden’s agenda in exchange for votes. A default could have severe implications for the global financial markets and damage the US reputation as a reliable partner.

Philippine Stocks

Philippine Stocks get a boost from strong earnings and household consumption.

• The Philippine Stock Exchange index (PSEi) closed higher for the week on the back of strong corporate earnings results and optimism from the possibility of a pause in Fed rate hikes. US data releases have shown cooling inflation and a slowing economy. Equity markets can trend higher as soon as central banks shift away from tight monetary policy.

• Research Firm Fitch Solutions BMI forecasts that household spending will grow by 5.9% annually in the next four years. This is up from the 5.1% forecast in January, due to consumer income growth expected to outpace rising prices. Inflation is still expected to remain elevated this year, but income growth will likely surpass inflation, ensuring real income growth for consumers and a greater propensity for spending.

Philippine Bonds

Philippine Bond Yields continued its trend of increasing rates for shorter maturities but dropping for longer maturities.

• The Bureau of Treasury (BTr) fully awarded a reissued 10-year treasury bond with a remaining life of five years and eight months at an average rate of 5.925%. This was 0.06% lower than the BVAL Reference Rate at the time of auction. The lower rate was due to expectations that inflation will continue its downward trend.

• Analysts predict that inflation dropped to 7% in April, slower than the 7.6% in March. A decline in food prices and electricity rates likely contributed to potential easing of inflation while the higher price of meat may have caused some increase. It is also possible that increases in fuel prices and depreciation of the peso pose upside risks to the inflation print. 

• Bangko Sentral ng Pilipinas (BSP) may continue to increase interest rates at its policy meeting later this month due to persistently high inflation. This would be the 13th consecutive month that inflation surpasses the BSP’s 2-4% target range. The BSP may increase rates by 25 basis points to 6.5% this month but this may be the last increase in the cycle as prices have begun to trend lower.

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/2023/04/25/the-banking-crisis-is-having-a-slow-burn-impact-on-the-economy.html (2) https://www.cnbc.com/2023/04/25/first-republic-falls-more-than-40percent-to-record-low-after-reporting-massive-deposit-drop.html (3) https://www.bworldonline.com/stock-market/2023/04/16/516905/psei-may-move-sideways-amid-lack-of-leads/ (4) https://www.bworldonline.com/top-stories/2023/04/25/518793/dbcc-maintains-gdp-growth-targets/ (5) https://www.bworldonline.com/top-stories/2023/04/27/519414/medalla-says-dangerous-to-cut-rates-faster-than-fed/

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.