Equity markets steady as recession risks ease

Global and Philippine Market Update
August 3 to August 9, 2023

Global Markets

Global Stocks edged lower as China’s recovery stumbles.

• China’s consumer and producer price indices experienced a decline, marking the first instance of simultaneous contraction for both metrics since November 2020. The unique occurrence reflects a notable downturn in consumer and business demand, which follows an initial surge seen in the first quarter after lifting pandemic-related restrictions. The extended decline in the property market, coupled with sharp reduction in export demand and restrained consumer expenditure, collectively exert downward pressure on the nation’s economic recovery.

• JP Morgan Chase economists have abandoned their recession call, aligning with a growing consensus among Wall Street firms that a contraction is no longer inevitable. The bank’s latest forecast suggests that the data points to the possibility of a “soft landing.” They now believe that a growth rate of around 2.5% is achievable, a significant shift from their initial projection of a 0.5% expansion. However, potential risks remain, particularly if the Federal Reserve (Fed) continues its rate hikes.

Philippine Stocks

Philippine Stocks managed a modest uptick driven by bargain hunting following last week’s decline.

• The Philippine economy slowed for a third consecutive quarter, registering a modest 4.3% growth, a further dip from the preceding quarter’s 6.4% expansion. The nation’s economic managers pointed to several factors contributing to lackluster performance. Elevated prices of agriculture products deterred consumer spending while a contraction in government expenditure exacerbated the slowdown. The moderate expansion found support from tourism spending and commercial investments. However, the positive momentum was tempered by elevated commodity prices, the lingering impact of interest rate hikes, the contraction in government spending and slower global growth.

• Administration officials pledge to expedite spending to restore lost growth momentum. The government economic team emphasized that the absence of election-related expenditure played a role in the contraction. Government spending is expected to ramp up in the coming quarters with government agencies, both local and regional, being encouraged to devise strategies to formulate catch-up plans and even accelerate the execution of planned projects and programs. 

Philippine Bonds

Philippine Bond yields continued to trend higher amid uncertainty over the direction of global rates.

• The Bureau of Treasury (BTr) partially awarded a re-issued treasury bond with a remaining life of six years and two months at an average rate of 6.468%. This was close to the 6.46% yield quoted for similar bonds in the secondary market. This was the third consecutive auction wherein a partial award was made by the treasury as it continues to fight against spiking bond yields.

• According to the Bangko Sentral ng Pilipinas (BSP) inflation will be within target in the fourth quarter which allows monetary authorities “the cause for a prudent pause” in its tightening cycle. BSP Governor Eli M. Remolona told lawmakers that future monetary actions will be data dependent and guided by evolving domestic developments. He gave no indication of whether the BSP would raise or cut rates in its upcoming meeting amid mixed data. 

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/2023/08/04/jpmorgan-backs-off-recession-call-even-with-very-elevated-risks.html (2) https://www.bloomberg.com/news/articles/2023-08-09/china-slides-into-deflation-as-consumer-producer-prices-decline (3) https://www.bworldonline.com/top-stories/2023/08/08/538316/ri-lifts-philippine-outlook-to-positive/ (4) https://business.inquirer.net/415172/marcos-admin-to-speed-up-spending-to-recover-lost-momentum-after-gdp-slowdown (5) https://www.pna.gov.ph/articles/1207382 (6) https://www.bworldonline.com/top-stories/2023/08/10/538878/bsp-sees-prudent-pause-in-tightening-amid-easing-inflation/

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.