Reversing previous day’s gains, global stocks fell sharply on Thursday over concerns that the high interest rates that the US Federal Reserve (Fed) is using to combat inflation will significantly slow the economy.
- The Fed announced a highly expected 0.50% interest rate hike, the largest increase in more than 20 years. The Fed also plans to reduce its bond holdings starting June 1. Chairman Powell expressed confidence that even with the two aggressive actions, inflation can be tamed without sending the economy into a recession.
- US gross domestic product (GDP) unexpectedly declined by 1.4% in the first quarter. This was driven by a deceleration in private inventory investment which helped boost GDP during the second half of last year. However, consumer spending still rose by 2.7% which is a good sign that economy is not falling into a recession.
- The European Union (EU) proposed a ban on Russian oil by the end of the year. It will be a gradual reduction to allow member states to secure alternative supply routes and minimize the impact on global markets. However, the proposal requires unanimous approval by all members, which will not be easy. Some member countries are highly dependent on Russian oil for their energy needs.
Philippine Stocks ended slightly higher as investors stay on the sidelines ahead of the elections.
- Uncertainty is prevalent in the market as the elections, rate hikes and inflation dampen investor sentiment. Trading volume remains low as investors wait for a positive catalyst that may push the market higher.
- The job market is on track to reach pre-pandemic levels by the second half of the year. The unemployment rate improved to 7.8% in 2021 from 10% in 2020. The government is optimistic that it can achieve a 5% unemployment rate as most of the country is now under Alert Level 1 which allows greater mobility.
Philippine Bond Yields continue to climb as the latest bond auction fetches a higher rate.
- The Bureau of Treasury (BTr) fully awarded a re-issued 3-year bond with a remaining life of two year and eleven months at an average yield of 4.598%. This was 0.46% higher than the quoted three-year bond in the secondary market.
- The Philippines posted an inflation rate of 4.9% in April, the highest since January 2019. Transport inflation rose by 13% as diesel and gasoline prices increased by 83.7% and 43% respectively. Economist from the Bangko Sentral ng Pilipinas (BSP) stated that aside from electricity and fuel costs, the increase in food prices were among the main drivers of inflation.
FWD Guidance: Geopolitical tensions lead to volatility and downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.
Sources: (1) https://blinks.bloomberg.com/news/stories/RBDO7W073NCW (2) https://www.cnbc.com/2022/04/28/us-q1-gdp-growth.html (3) https://apnews.com/article/russia-ukraine-business-global-trade-moscow-europe-c6c7a1960b88c363ce5f3eaf0ea07dcd (4) https://www.bworldonline.com/top-stories/2022/05/05/446510/pre-pandemic-job-market-seen-by-2nd-half/ (5)https://www.bworldonline.com/stock-market/2022/04/25/444103/phl-stocks-may-move-sideways-as-elections-near/ (6) https://www.bworldonline.com/banking-finance/2022/05/05/446311/govt-fully-awards-bonds-4/ (7) https://www.rappler.com/business/inflation-rate-philippines-april-2022/ (8) https://www.usatoday.com/story/money/markets/2022/05/05/stocks-fed-raised-interest-rates/9658485002/
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