Global Stocks slid over interest rate concerns.
- The Federal Reserve (Fed) hiked rates by 0.75%, its fourth consecutive jumbo hike. This moves its target borrowing range between 3.75% and 4%, its highest level since January 2008. The initial Fed statement hinted at a possible slowdown in further rate hikes. However, Fed Chairman Jerome Powell squashed this hope by indicating that peak interest rates may end up higher than previously expected.
- The US economy posted a gross domestic product (GDP) growth rate of 2.6%, year on year, in the third quarter. This is the first positive growth rate for 2022, easing some recession fears. The gains came from higher consumer spending and government spending. The report shows an ongoing shift from spending on goods to services.
- Bank of America CEO Brian Moynihan believes that US consumer spending is experiencing a “mitigation of growth.” Growth has not turned negative as consumers still have strong credit and wage growth. Unemployment continues to be low, and corporations are in decent shape even if growth and earnings are slowing down. However, there are still risks especially from unforeseen events with “low probability and high impact.”
Philippine Stocks maintained their recent upward trend.
- October saw the Philippine Stock Exchange index (PSEi) gain 7.2% after declining 12.6% in September. Investors took positions on beaten down stocks as the economy is still expected to grow within the government’s 6.5% to 7.5% target. Historically, the fourth quarter is the best performing quarter for Philippine equities.
- The first nine months of the year saw the fiscal deficit narrow to Php 1 trillion, 11.09% lower than last year’s gap. The government plans to reduce the deficit to 7.6% of gross domestic product (GDP) this year and to eventually hit a 3% deficit by 2028. This was taken positively by investors as it reduces risks to the economy.
Philippine Bond Yields slightly increased as the government tries to cap the jump in rates.
- The Bureau of Treasury (BTr) rejected the bids for a 3-year treasury bond at auction. The rate would have hit 8% if awarded. National Treasurer Rosalia de Leon stated that the market was pricing in excessive buffers to cover for the expected rate hikes by central banks.
- Bank of the Philippine Islands (BPI) lead economist Emilio S. Beri Jr. believes more aggressive tightening is needed to slowdown the depreciation of the peso and ease domestic prices. The Bangko Sentral ng Pilipinas (BSP) needs to be flexible in hiking rates by not just hiking to match the Fed but surpassing it if needed. Persistent high inflation is a major detriment to future growth.
- A BusinessWorld poll of analysts predicts inflation to quicken beyond 7% in October. Food prices will likely be the main driver with the recent typhoons causing supply shortages. Agricultural damage from Super Typhoon Karding reached Php 3.12 billion while Tropical Depression Maymay and Typhoon Neneng hit Php 594.02 million.
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/2022/11/02/treasury-yields-fall-as-traders-await-fed-rate-decision-policy-hints.html (2) https://www.cnbc.com/2022/10/27/us-gdp-accelerated-at-2point6percent-pace-in-q3-better-than-expected-as-growth-turns-positive.html (3) https://www.cnbc.com/2022/10/28/us-consumer-spending-seeing-a-mitigation-in-growth-not-a-slowdown-says-bank-of-america-ceo.html (4) https://www.bworldonline.com/stock-market/2022/10/27/483417/stocks-surge-on-strong-peso-narrower-deficit/ (5) https://www.bworldonline.com/stock-market/2022/10/31/483944/psei-rises-in-oct-as-month-end-rally-lifts-market/ (6) https://www.bworldonline.com/top-stories/2022/11/02/484312/aggressive-rate-hikes-may-be-needed/ (7) https://www.bworldonline.com/top-stories/2022/10/31/483809/oct-inflation-likely-hit-7-2-poll/ (8) https://malaya.com.ph/news_business/btr-rejects-tbills-tbonds/
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.