Global equities pull back as new year begins, taking a break from the December rally

Global and Philippine Market Update
Dec. 27, 2023 to Jan 3, 2024

Global Markets

Global Stocks edged lower as Fed minutes reveal uncertainty among officials.

• The December Federal Reserve (Fed) minutes highlighted a significant level of uncertainty regarding the direction of monetary policy. Officials acknowledged progress in addressing inflation and noted that concerns related to supply chain, which surged in 2022, have eased. They also highlighted advancement in achieving balance in the labor markets. Some officials expressed the view that the fund’s rate might need to stay elevated if inflation doesn’t cooperate, while others suggested potential hikes depending on evolving conditions. Despite the cautious tone, analysts anticipate the central bank to pursue aggressive cuts this year.

• The November Job Opening and Labor Turnover Survey (JOLTS) revealed a slight decrease in employment listings to 8.79 million, marking the lowest level since March 2021. The ratio of job openings to available workers declined to 1.4 to 1. Although it remains elevated, it is significantly lower than the 2 to 1 ratio observed in 2022. This suggests that the Fed is successfully orchestrating a “soft landing.”

• November saw China's consumer prices decline at the fastest rate in three years, and producer price deflation continued for the 14th consecutive month. To bolster recovery efforts, China’s leaders are committed to ongoing proactive fiscal policies and a prudent monetary policy. They have introduced a nine-point plan to revive the economy, focusing on high-quality development. The plan entails measures to stimulate domestic demand and address the escalating real estate crisis.

Philippine Stocks

Philippine Stocks gained momentum, testing the 6,500-index level. 

• The Philippine economy is projected to grow by 5.6% this year, driven by easing inflation that boosts consumption, as per MUFG Global Markets Research. Concerns regarding elevated food and energy prices are expected to gradually diminish, with the growth rebound becoming more evident in the second half of this year, barring additional supply shocks. The research firm anticipates a stable external environment and exchange rate, enabling the Philippine central bank to maintain rates before potentially cutting in the latter half of 2024. This move is expected to support investment and private consumption activity.

• The Philippines welcomed 5.45 million international visitors in 2023, surpassing the 4.8 million target, as reported by the Department of Tourism (DoT). International tourism generated Php 482.54 billion for the year, more than double the figure from 2022. Despite this positive growth, it represents about 66% of the pre-pandemic arrivals recorded in 2019. Looking ahead, the DoT aims to attract 7.7 million visitors for the year 2024.

Philippine Bonds

Philippine Bond yields stayed relatively flat with minimal difference between the short and long end of the curve.

• The Bureau of Treasury (BTr) fully awarded a new 3-year treasury bond an average rate of 5.9%. The yield was in line with secondary market levels. Yields edge higher in line with movements in global bonds. However, with inflation easing and central banks preparing to cut rates, the expectation is to see yields decrease throughout the year.

• December’s headline inflation is anticipated to have further eased, settling within the 2-4% target for the first time in nearly two years. This is attributed to lower prices of fruits and vegetables, electricity and fuel. With a 4% print for December, the full-year inflation is projected to reach 6%, aligning with the Bangko Sentral ng Pilipinas (BSP) forecast for 2023. Looking ahead to the new year, inflation is expected to stay within the 2-4% target, contingent on the absence of supply shocks. However, potential risks include the impact of El Niño on food and utilities, higher global oil prices, increases in transport fares and minimum wage adjustments.

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/2024/01/03/fed-minutes-december-2023-.html (2) https://www.cnbc.com/2024/01/03/jolts-november-2023-job-openings-nudged-lower-down-to-1point4-per-available-worker.html (3) https://www.cnbc.com/2023/12/12/china-vows-to-boost-domestic-demand-in-bid-for-2024-recovery.html (4) httpshttps://www.bworldonline.com/top-stories/2024/01/04/566723/mufg-sees-phl-economy-growing-by-5-6-this-year/ (5) https://www.bworldonline.com/economy/2024/01/02/566491/international-visitor-arrivals-hit-5-45m-in-2023/ (6) https://www.bworldonline.com/top-stories/2024/01/02/566225/inflation-likely-cooled-to-4-in-dec/ (7) https://www.bworldonline.com/banking-finance/2024/01/04/566733/govt-fully-awards-fresh-3-year-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.