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Global markets experience high volatility as inflation impacts corporate earnings

Local markets rally due to better-than-expected economic growth. Market Observer May 12 to May 18, 2022: Global and Philippine Market Update

FWD Life Philippines

Global Markets

Global Stocks relinquished gains made at start of the week as the S&P 500 plunged to its worst day in almost two years on Wednesday, May 18.

  • Major US retailers like Walmart, Target, Home Depot and Lowe’s reported quarterly earnings this past week, which offered different perspectives on consumer behavior. Walmart and Target took a hit on their profits due to higher costs and excess inventory. Home Depot and Lowe’s, which specialize in home improvement, indicated that shoppers were more resilient. The mixed commentaries from the major retailers show that the US consumer experience differs based on income level.
  • Walmart consumers were more mindful of their budget with some trading down to cheaper brands. Target saw a jump in toy sales and booked vacations but fewer purchases of appliances. On the other hand, Home Depot and Lowe’s customers, who are usually homeowners, have seen home prices soar. They have reported that demand for home improvement remains strong.
  • US Federal Reserve (Fed) Chairman Jerome Powell stated that the Fed is committed to getting inflation back down to 2%. He mentioned that no one should doubt their resolve in bringing inflation down in a “clear and convincing” way. The Fed is willing to keep increasing interest rates until inflation eases.

 

Philippine Stocks


Philippine Stocks recover on attractive valuations and a strong first quarter gross domestic product (GDP) growth rate.

  • Bargain hunters emerged after the previous week’s retreat. Metro Manila remains under Alert Level 1, which is helping maintain the current growth momentum as consumer and business activities increase.
  • Philippine GDP expanded by 8.3%, which is faster than the 6.8% forecast by analysts. This is well within the government’s target of 7-9% growth rate. The further reopening of the economy leading to increased consumption was the main driver of the high print.
  • Standard Chartered Bank raised its 2022 GDP growth forecast to 8% from 7.5% previously. An economist from the bank estimated that 72% of the economy is above pre-pandemic levels.

 

Philippine Bonds

Philippine Bond Yields climbed an average of 0.24% across the curve. 

  • The Bureau of Treasury (BTr) partially awarded a fresh 7-year bond at an average yield of 6.428%. This is a higher rate than bonds with a similar maturity trading at close to 6% in the secondary market. The increase in rates was in anticipation of continued US Fed and possible Bangko Sentral ng Pilipinas (BSP) rate hikes.
  • BSP Governor Benjamin Diokno stated that the space for maintaining an accommodative monetary policy is shrinking amid rising inflation and the economy is returning to pre-pandemic levels.
  • The BSP took the first step to ease inflation by raising its key interest rate by 0.25% to 2.25%. This was expected by most analysts and the first increase since 2018. The BSP is ready to adjust its key rate in a timely manner so as not to disrupt economic growth.

 

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/2022/05/18/what-walmart-target-home-depot-and-lowes-tell-us-about-the-economy.html (2) https://edition.cnn.com/2022/05/17/economy/fed-chair-powell-inflation-interest-rates/index.html (3) https://www.cnnphilippines.com/business/2022/5/12/Q1-2022-GDP.html (4) https://www.bworldonline.com/stock-market/2022/05/16/448723/psei-climbs-on-bargain-hunting-after-5-day-slide/ (5) https://www.bworldonline.com/top-stories/2022/05/19/449517/space-for-accommodative-policy-narrowing-diokno-says-bsp-set-to-begin-tightening-cycle/ (6)https://www.pna.gov.ph/articles/1174713 (7) https://blinks.bloomberg.com/news/stories/RC4BKNT0AFB6 (8) https://www.bworldonline.com/top-stories/2022/05/18/449180/phl-economy-now-seen-to-grow-by-8-this-year/ (9) https://blinks.bloomberg.com/news/stories/RC4CSRT0G1KW

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.

The information here is compiled from various credible sources and is a summary of a particular period only. Though we strive to provide accurate and complete information, we cannot guarantee that this article will be error-free.