Global equities get a lift from easing inflation expectations

Global and Philippine Market Update
January 4 to January 10, 2024

Global Markets

Global Stocks returned to posting gains after a slow start in the new year.

• The US labor market ended 2023 on a strong note, with 216,000 jobs added in December, maintaining an unemployment rate of 3.7%. Inflationary pressures persisted in the labor market, with average hourly earnings rising by 4.1% from the previous year. The Federal Reserve (Fed) is facing challenges in determining the timing of its first policy rate cut, as the US economy continues to outperform expectations despite aggressive monetary policy tightening.

• Fed Governor Michelle Bowman, a proponent of tight monetary policy, has adjusted her stance, suggesting that interest rate hikes are likely over. While she is not yet convinced to start cutting rates, Bowman believes that if inflation decreases further approaches 2%, rate cuts might be appropriate. However, she emphasized caution in her approach and expressed a willingness to raise rates in the future if needed.

• The People’s Bank of China has indicated its readiness to maintain a loose monetary policy by lowering the reserve ratio requirement for banks, reinforcing expectations of further easing. While not an immediate cut, this suggests such action could be considered in the coming months. The central bank has injected liquidity into the economy through loans and open market operations, but sentiment among businesses remains low due to regulatory uncertainties. Consumer confidence is also impacted by a challenging job market and a property downturn. While monetary policy is beneficial, additional fiscal measures may be more effective in boosting the economy.

Philippine Stocks

Philippine Stocks edged higher amid improving sentiment. 

• The Philippine unemployment rate reached a record low of 3.6% in November, the lowest since April 2005. The underemployment rate dropped to 11.7% from 14.4% in November 2022. However, the labor force participation rate decreased to 65.9% from 67.5% in the same period last year. NEDA Secretary Arsenio M. Balisacan highlighted plans to expand the digital economy to counteract the decline in the labor force and attract high-quality jobs though liberalization reforms.

• The World Bank anticipates the Philippines to be one of the fastest-growing economies in Southeast Asia in 2024, with a projected expansion of 5.8%, tied with Cambodia and ahead of Vietnam at 5.5%. However, this falls below the government’s target of 6.5-7.5%. The World Bank expects Philippine inflation to stabilize at 3.6% in 2024 and decrease to 3% in 2025. Despite these projections, risks persist, including geopolitical tensions in the Middle East, global trade constraints, tightening financial conditions and climate-related disasters.

Philippine Bonds

Philippine Bond trended higher in line with climbing US treasury yields.

• The Bureau of Treasury (BTr) fully awarded a new 5-year treasury bond at a rate of 6.125%. The coupon rate was higher than the 6.03% quoted for similar bonds in the secondary market. The higher rate was influenced by strong US employment reports, reducing expectations of imminent policy rate cuts.

• Philippine inflation fell for a third consecutive month to 3.9% in December. This figure is lower than the 4.1% inflation rate observed in November, which is the lowest print for the entire 2023. Consumers felt the price pressures last year as rice inflation increased to a new 14-year high of 19.6% in December. NEDA Secretary Arsenio Balisacan stated that economic managers will consider proposing “tariff adjustments” and reducing “non-tariff barriers” to combat higher rice prices. In the medium term, the government plans to boost agricultural productivity to increase domestic supply and ease inflationary pressures.

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/2024/01/05/jobs-report-december-2023-payrolls-increased-by-216000-in-december.html (2) https://www.cnbc.com/2024/01/08/fed-governor-bowman-adjusts-rate-stance-says-hikes-likely-over-but-not-ready-to-cut.html (3) https://www.bloomberg.com/news/articles/2024-01-08/china-s-central-bank-hints-at-reserve-ratio-cut-for-lenders (4) https://www.bworldonline.com/top-stories/2024/01/10/567926/nov-jobless-rate-falls-to-18-year-low/ (5) https://www.bworldonline.com/top-stories/2024/01/11/568142/wb-sees-phl-as-fastest-growing-economy-in-southeast-asia-this-year/ (6) https://www.bworldonline.com/banking-finance/2024/01/10/567821/govt-fully-awards-p30b-in-fresh-5-year-bonds-amid-high-demand/ (7) https://www.rappler.com/business/inflation-rate-philippines-december-2023/

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.