Global markets get a lift on the back of a strong US economy

Global and Philippine Market Update
Oct. 26 to Nov. 1, 2023

Global Markets

Global Stocks ended higher as the US economy stayed resilient amid a slowdown in inflation.

• The Federal Reserve (Fed), in a unanimous decision, opted to maintain the Federal funds rate within a target range of 5.25% to 5.5%. This marked the second consecutive meeting where rate hikes were put on hold. The decision was accompanied by an upgraded assessment of the overall economy. Fed Chair Jerome Powell emphasized that achieving the 2% inflation target remains a challenge, and there are currently no plans for rate cuts. The decision to keep rates steady was influenced by the recent slowdown in inflation from its rapid 2022 pace and the unexpectedly strong labor market. One of the objectives of the rate hikes is to restore balance to the labor market’s supply and demand mismatch, with September showing 1.5 available jobs for every available worker.
• Labor costs took an unexpected dip in the third quarter, offering some relief in the fight against inflation. There was a 0.8% decrease in labor costs, resulting in a 1.9% decline over a 12-month period. Federal Reserve (Fed) Chairman Jerome Powell noted that wages have significantly reduced over the past 18 months, approaching a level more in line with the Fed’s 2% inflation over time.      

Philippine Stocks

Philippine Stocks declined in October as geopolitical and economic risks dampened sentiment.

• The Philippine Stock Exchange Index (PSEi) closed below 6,000 at 5,973.78 on the final day of October. This marks a 9.02% decline for the year, making it the worst finish of the year. The decline can be attributed to a mix of economic and geopolitical factors, including surging bond yields, the Israel-Hamas conflict, and a tightening monetary policy. Rising inflation and inflation expectations have also played a role in the downturn, and the lack of trading volume further exacerbated the downward movement.
• According to Maybank Investment Banking Group, the Philippine economy is unlikely to achieve the government’s growth target of 6-7%. They anticipate the gross domestic product (GDP) to expand by 5.2% this year, falling significantly short of the government’s goal. However, this growth rate still surpasses the Asean-6 GDP average of 4%. Looking ahead to 2024, Maybank projects a growth rate of 6.5%, which would maintain the Philippines as the fastest growing economy in the Southeast Asian region.   

Philippine Bonds

Philippine Bond yields remained elevated as the central bank hiked rates.

• The Bureau of Treasury (BTr) rejected all bids for reissued ten-year treasury bond with a remaining term of five years and two months. If the treasury had accepted all tenders, the average rate for the issue would have increased to 7.196% from the 6.512% average quoted when it was last offered on October 10. Investors were asking for a significant premium due to policy rates likely remaining higher for longer.

• The Bangko Sentral ng Pilipinas (BSP) increased rates by 25 basis points in an off-cycle move, setting the target range to 6.5%. BSP Governor Eli M. Remolona emphasized the necessity for immediate monetary measures to mitigate the risk of supply-side pressures causing secondary effects and unsettling inflation expectations. In his personal assessment, Remolona believes that the BSP missed the opportunity to raise rates in September. Additionally, the BSP adjusted its 2024 inflation forecast to 4.7%, exceeding the previous estimate of 4.3%, well beyond the BSP’s target range of 2% to 4%.   

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/2023/11/01/fed-meeting-november-2023-.html (2) https://www.cnbc.com/2023/11/02/labor-costs-show-surprise-decline-in-the-third-quarter.html (3) https://www.bworldonline.com/stock-market/2023/11/01/554940/october-psei-drops-on-rate-woes-middle-east-war/ (4) https://www.bworldonline.com/top-stories/2023/11/03/555127/maybank-projects-5-2-gdp-growth-for-phl-this-year/ (5) https://www.bworldonline.com/banking-finance/2023/11/01/554727/yields-on-t-bills-bonds-go-up/ (6) https://www.bloomberg.com/news/articles/2023-10-26/philippines-announces-quarter-point-rate-hike-in-off-cycle-move

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.