Global equities fall as investors anticipate further rate hikes

Global Markets

Global Stocks retreated as the US Federal Reserve (Fed) remained committed to higher rates.

• The producer price index (PPI), a measure of prices that US businesses pay for goods and services, rose to 8.5%, year on year in September. This is lower than the 8.7% in August but is still higher than expected. The persistently high inflation rate is putting pressure on the Fed to keep a tight monetary policy. 

• Inflation is expected to drop to 5.4% next year, according to the latest New York Fed Survey of Consumer Expectations. This has steadily gone down since the 6.8% peak in June. However, respondents also anticipate a drop in household spending as consumers are constrained by the massive jump in prices this year.

• September saw the US unemployment rate at 3.5%. This shows the resiliency of the economy despite pressure from inflation, the war in Ukraine and rate hikes. While the low unemployment rate may provide the Fed more room to hike rates, it can also mean a “soft-landing,” no severe downturn, for the economy.

Philippine Stocks

Philippine Stocks followed global markets lower as sentiment turned negative. 

• The likely rate hikes in the US pulled the local market lower. There is growing concern that another massive rate hike in November may finally push the US economy into a recession. The already negative sentiment permeating in the market was not helped by the increase in local pump prices due to a cut in oil production by major producers.

• The Bangko Sentral ng Pilipinas (BSP) stated that the depreciating peso adds to inflationary pressures which strengthen the case for the BSP to “act decisively” to mitigate its impact. The BSP generally lets market forces dictate the exchange rate but may still provide signals to producers and consumers to keep a healthy foreign exchange market. The Bankers Association of the Philippines (BAP) mentioned that it will work with the BSP to fight activities that may distort market prices.

Philippine Bonds

Philippine Bond Yields climbed by an average of 0.13% across the curve. The high likelihood of further rate hikes kept yields elevated. 

• The Bureau of Treasury (BTr) partially awarded a fresh 7-year treasury bond at a coupon rate of 7%. This is 0.22% higher than a similar bond in the secondary market. The partial award was likely due to the BTr trying to cap rates ahead of the 10-year auction next week. This allows the BTr room to maneuver and keep yields at reasonable level.

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/2022/10/11/consumer-inflation-and-spending-expectations-show-sharp-decline-.html (2) https://www.cnbc.com/2022/10/12/producer-price-index-september-2022.html (3) https://www.cnbc.com/2022/10/07/jobs-report-september-2022.html (4) https://www.bworldonline.com/top-stories/2022/10/13/480334/amid-peso-depreciation-medalla-vows-to-act-decisively/ (5) https://www.bworldonline.com/stock-market/2022/10/10/479628/phl-stocks-track-wall-st-s-drop-on-recession-fears/ (6) https://www.bworldonline.com/banking-finance/2022/10/12/479940/govt-makes-partial-award-of-fresh-7-year-treasury-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.