Global stocks retreat as investors wait for further guidance from the US Federal Reserve

Global Markets 

Global Stocks retreat as investors wait for further guidance from the US Federal Reserve (Fed).

• Stocks slumped, snapping four consecutive weeks of gains. There is growing concern that the Fed may remain aggressive and continue with large hikes in rates with some officials advocating for a 1% increase. Stocks are expected to be volatile ahead of Fed chair Jerome Powell’s speech at the annual Jackson Hole symposium at the end of the week.

• New US home sales fell for the sixth time in July as demand plummets. The housing market could not withstand the high prices and the elevated borrowing cost after the US Fed hiked rates. However, housing supply has been growing, which may eventually put downward pressure on prices.

• US import prices fell more than expected, which is good news for consumers. The University of Michigan consumer sentiment survey was higher than expected, although still just above record low levels in June. The New York Federal Reserve also released a survey showing that consumers expect inflation to stay high but lower than the previous months. This shift in sentiment bodes well for consumer spending.

Philippine Stocks

Philippine Stocks moved lower on profit taking after the previous week’s jump in prices.

• Global headwinds caused negative sentiment in the local market. Concerns over rate hikes, fears of a global recession and possible cuts in oil production led investors to reduce their equity exposure and pocket their gains from last week.

• MUFG Bank revised its Philippine economic growth to 6.7% for 2022, up from 6.5% previously. The better than expected 7.8% growth rate during the first half of the year led to the upward revision. Inflation is still the biggest threat to growth and will likely be the main drag on private consumption until 2023. The bank’s forecast is in line with the government’s target of 6.5% to 7.5% growth rate. MUFG bank is just the latest among several financial institutions to forecast a growth rate of more than 6.5% for the Philippines.

Philippine Bonds

Philippine Bond Yields ended with mixed results, but still averaged higher. Yields continue to be heavily impacted by local and global central bank policies.

• The Bureau of Treasury (BTr) issued the first retail treasury bond (RTB) of the new administration. The bond has a maturity of 5.5 years and a coupon rate of 5.75%, higher than the 5.64% for a six-year bond in the secondary market. There was strong interest in the bond as it gives a lot of value. The bond has a relatively high coupon, given its tenor.

• Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), stated that he expects Bangko Sentral ng Pilipinas (BSP) to not hike rates by more than 0.25% in its next policy meetings. Fitch Solutions also sees the key BSP rate to end the year at 4.25%, from the current 3.75%. This would mean an additional two 0.25% hikes in the remaining meetings this year.

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.bloomberg.com/news/articles/2022-08-23/us-new-home-sales-plummet-to-slowest-pace-since-early-2016 (2) https://edition.cnn.com/2022/08/22/investing/dow-stock-market-today/index.html (3) https://www.cnbc.com/2022/08/12/this-was-a-good-week-for-inflation-numbers-but-whether-it-can-last-is-the-big-question.html (4) https://www.bworldonline.com/stock-market/2022/08/23/470129/stocks-decline-on-profit-taking-recession-fears/ (5) https://www.bworldonline.com/economy/2022/08/22/469910/mufg-raises-2022-outlook-on-philippine-growth-to-6-7/ (6) https://business.inquirer.net/358692/retail-bonds-awarded-at-a-coupon-rate-of-5-75-percent-a-year (7) https://www.manilatimes.net/2022/08/24/business/top-business/bsp-seen-making-lower-key-rate-hikes/1855741

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.