Global and Philippine Market Update
Global Stocks retreat as inflation hits record high levels.
- US inflation hit 8.6% in May, the highest increase since December 1981. Higher food, gas and energy prices contributed to the rise, with fuel oil up 106.7% over the past year. Surging prices led real wages, which account for inflation, to drop. Real average hourly earnings were down by 3% for the past year. The unexpected rise in inflation added to fears that the US economy is nearing a recession.
- The US Federal Reserve (Fed) announced a 0.75% rate hike, its biggest increase in nearly 30 years. The rate is now between 1.5% and 1.75% with forecast showing that it may reach 3.4% by the end of the year. Global central banks have similarly hiked rates leading to a massive change in the global economy. The days of low interest borrowing, and easy money is officially over.
- Strategists from some top investment houses believe that equities may still fall due to the risk of lower corporate earnings. Aggressive tightening by the Fed and potential weaker consumer demand may further damage corporate income which leads to lower share prices. On the other hand, JP Morgan Chase & Co.’s Marko Kolanovic still believes that a near-term recession will be avoided and sees US stocks gradually recovering in 2022. He remains bullish on the energy sector and high-beta technology stocks that have been severely battered this year.
Philippine Stocks moved lower in line with other global markets. Negative sentiment persists as inflation stubbornly remains high.
- The unexpected rise in US inflation further eroded investor confidence in the local market. There is a high level of uncertainty, which leads investors to stay in cash. Global central banks are expected to be more aggressive in tightening monetary policy, leading to further “risk-off” sentiments.
- Foreign direct investment (FDI) net inflows rose by 2% to $2.43 billion for the first quarter compared to the same period last year. Investments in debt instruments made up for the lower inflows from equities. FDI in debt instruments rose by 33.5% to $1.9 billion while investments in equity and investment fund shares declined by 44.2% to $540 million.
- Incoming Socioeconomic Planning Secretary Arsenio M. Balisacan believes the economy will expand by 6% this year even amid the high inflation rate. This is lower than the 7 to 8% growth rate initially targeted by the government but is not unexpected given the current economic environment. His primary goal will be to ramp up economic recovery while living with higher prices. He plans to address supply chain bottlenecks and continue the infrastructure program to drive growth.
Philippine Bond Yields increased by an average of 0.14%. The upward trend continues as inflation remains elevated.
- The Bureau of Treasury (BTr) partially awarded a reissued 7-year bond with a remaining life of 6 years and 11 months at an average rate of 6.74%. This was 0.24% higher than the 6.5% coupon fetched when it was offered last May 17. The BTr awarded Php 19.6 billion out of the Php 35 billion offered. The partial award was a way for the auction committee to prevent yields from going higher and align with prevailing market rates.
- Incoming Bangko ng Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla stated that they are “almost” sure of a rate hike at their June 23 meeting and a “90% chance” of another increase at the August 18 meeting. A 0.25% hike in each meeting will bring the benchmark rate to 2.75% from the current 2.25%.
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/2022/06/10/consumer-price-index-may-2022.html (2https://blinks.bloomberg.com/news/stories/RDFKNKT0AFB4 (3) https://www.bbc.com/news/business-61804877 (4) https://www.bworldonline.com/editors-picks/2022/06/13/454670/phl-stocks-slide-as-faster-us-cpi-fuels-rate-worries/ (5) https://www.bworldonline.com/top-stories/2022/06/14/454749/fdi-net-inflows-drop-to-10-month-low/ (6) https://www.bworldonline.com/banking-finance/2022/06/15/454961/reissued-7-year-bonds-partially-awarded-on-rate-hike-concerns/ (7) https://www.bworldonline.com/top-stories/2022/06/15/455045/phl-seen-to-expand-6-this-year/ (8) https://www.cnbc.com/2022/06/07/150-oil-wont-cripple-economy-market-jp-morgans-marko-kolanovic.html
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.