Investors remain cautious amid ongoing conflict in the Middle East

Global and Philippine Market Update
Oct. 19 to Oct. 25, 2023

Global Markets

Global Stocks dipped as investors remained risk-averse.

• Earnings season is underway, with a significant number of companies in the S&P500 reporting their results this week. Verizon increased its annual cash flow forecast, General Electric raised its full-year profit outlook, and Coca-Cola boosted its annual sales expectations. Among the big tech companies, Microsoft reported better-than-expected growth in cloud computing, while Alphabet’s earnings were disappointing, mainly because its cloud computing business fell short of revenue expectations.

• Atlanta Federal Reserve (Fed) President Raphael Bostic has indicated that the does not foresee any interest cate cuts until well into 2024, even as there’s progress in dealing with inflation and a slowing economy. He pointed out that the journey to acceptable inflation levels may be a lengthy one. Bostic anticipates a gradual decrease in inflation over time. While he doesn’t expect a recession soon, he acknowledges that the economic conditions are shifting, and businesses are bracing for a slowdown.

• Historically, conflicts in the Middle East have rarely prompted global investors to reduce their risk exposure. As long as these conflicts remain regional and don’t escalate to involve multiple countries, the initial surge in “safe haven” assets tend to be short-lived. The recent violent events and the potential for a larger conflict do introduce significant financial risk, especially in energy prices. However, other dominant factors like the global economic cycle and US monetary policy typically remain the primary drivers of market performance. 

Philippine Stocks

Philippine Stocks declined as investors withdrew from the market.

• Local investors are likely to maintain a cautious approach, staying on the sidelines while closely monitoring developments in the Middle East. The combination of elevated bond yields and the ongoing conflict has had a dampening effect on risk sentiment. Many investors are opting for less risky assets, prioritizing safety and are willing to forego potential short-term gains to ensure financial security.

• Infrastructure spending in August saw a significant surge of 65.8%, driven by the government’s accelerated project implementation, reports the Department of Budget and Management (DBM). This boost is primarily attributed to disbursement made by the Department of Public Works and Highways (DPWH) for its completed projects nationwide. Additionally, payments for railway projects, like the Malolos-Clark Railways Projects and the South Commuter Railway Project, contributed to the increased spending. The shows the government’s commitment to ramp up spending after underspending earlier this year.

Philippine Bonds

Philippine Bond yields climbed higher due to stubbornly high inflation.

• The Bureau of Treasury (BTr) fully awarded a reissued ten-year treasury bond with a remaining term of nine years and ten months at an average rate 6.954%. The yield was higher compared to the 6.675% seen during its last auction on October 17. The higher rate reflects the spike in global bond yields due to the war in the Middle East.

• According to National Economic Development Authority (NEDA) Secretary Arsenio M. Balisacan, inflation in the Philippines is primarily influenced by supply-side factors, and therefore, may not need a monetary response. He expressed optimism for improved inflation figures in the forthcoming months and anticipates that the third-quarter economic growth will likely surpass the performance from a year ago. Baliscan’s perspective is that raising interest rates might not be as effective to address inflation and could potentially hurt the economy. 

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.reuters.com/markets/investors-middle-east-conflict-rarely-moves-dial-long-mcgeever-2023-10-18/ (2) https://www.reuters.com/markets/us/futures-rise-treasury-yields-retreat-earnings-focus-2023-10-24/ (3) https://www.barrons.com/news/us-stocks-tumble-on-mixed-earnings-high-treasury-yields-bc2d8442 (4) https://www.cnbc.com/2023/10/20/feds-raphael-bostic-doesnt-foresee-rate-cuts-coming-until-late-2024.html (5) https://www.bworldonline.com/top-stories/2023/10/24/553217/infrastructure-spending-surges-66-in-august/ (6) https://www.bworldonline.com/stock-market/2023/10/22/552935/investors-to-remain-cautious-as-war-continues/(7) https://www.bworldonline.com/banking-finance/2023/10/25/553393/govt-fully-awards-reissued-bonds-even-as-yields-continue-to-climb/ (8) https://www.bworldonline.com/top-stories/2023/10/25/553572/philippines-supply-side-inflation-needs-no-monetary-response-neda/

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.