Market pulls back on uncertain outlook, but consumption continues amid shift in spending habits

Global and Philippine Market Update
Feb. 23 to March 1, 2023

Global Stocks  

Global Stocks fall as investors reassess their outlook for the year

• The Conference Board’s latest consumer confidence survey showed that American consumers felt worse about the US economy in February. It also showed a drop in consumer expectations regarding jobs, incomes, and business conditions over the next six months. Consumers believe that the worse is yet to come with an uncertain future. Initial signs point to a pullback in spending with less consumers planning to purchase homes, autos, and major appliances.

• Target released its holiday-quarter sales which topped analysts’ expectations for the first time in a year. However, it revealed shrinking profit and margins and gave a conservative full-year outlook as consumers bought fewer discretionary items. Food and beverage were its strongest category, rising by low double digits year on year. Essentials and beauty also increased by single digit but discretionary focused categories, including home and apparel, declined. Target’s report clearly shows the ongoing shift in consumer spending.

• The United Kingdom and European Union brokered a new agreement on new trade rules for Northern Ireland. The “Windsor Framework” addresses the issues created by the Northern Ireland Protocol, which kept Northern Ireland aligned with the European Union to prevent a hard border between the province and the Republic of Ireland. The deal will create green and red lanes for goods flowing into Northern Ireland. Goods that may end up entering the Republic of Ireland will be places in red lanes which require more checks. This deal improves relations and allows for smoother trading.

Philippine Stocks 

Philippine Stocks followed global markets lower on negative sentiment.

• The Development Budget Coordination Committee (DBCC) maintained its 6-7% target this year. National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan believes its too early to make the change. However, the country may end up hitting the lower end of the range. Finance Chief Benjamin E. Diokno agrees with maintaining the target and is on track to achieve the goals of the county’s Medium-Term Fiscal Framework.
• Bank of the Philippine Islands (BPI), Metrobank (MBT) and BDO Unibank (BDO) soared to record profits in 2022, beating its pre-pandemic records. The three banks saw their net income increase to Php39.6 billion for BPI, Php32.8 billion for MBT and Php57.1 billion for BDO. Bank earnings were boosted by net interest income as rates increased sharply last year.

Philippine Bonds

Philippine Bond Yields moved higher as rate hikes continue.    

• The Bureau of Treasury (BTr) fully awarded a reissued 7-year treasury bond at an average yield of 6.172%. This was 0.14% above the secondary market levels at the time of auction. The offer was within market expectations as investors look for yields higher the Bangko Sentral ng Pilipinas’ (BSP) key rate of 6%. Longer tenor bonds remain an attractive option for investors, given the high yield environment.

• BSP stated that headline inflation may settle between 8.5% and 9.3% in February. Cooking gas, pork, fish and eggs will likely be the main drivers of the increase. The upper end of the forecast would be the fastest pace recorded since the 9.7% mark in October 2008. BSP Governor Medalla cannot rule out further rate increases to manage inflation. He believes that there is room for a few more rate hikes without affecting growth.

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/2023/02/28/target-tgt-earnings-q4-2022.html (2) https://edition.cnn.com/2023/02/28/economy/consumer-confidence-february (3) https://edition.cnn.com/2023/02/28/economy/northern-ireland-new-brexit-deal https://blinks.bloomberg.com/news/stories/RQFDETT0AFB6 (4) https://www.bworldonline.com/top-stories/2023/03/01/507573/govt-sticks-to-6-7-growth-goal-this-year/ (5) https://business.inquirer.net/387944/metrobank-beats-prepandemic-earnings-with-48-jump-in-2022-profit (6) https://www.rappler.com/business/bpi-earnings-report-2022/ (7) https://business.inquirer.net/388664/banner-year-bdo-2022-profit-at-record-high-p57b (8) https://www.bworldonline.com/top-stories/2023/03/01/507575/inflation-may-breach-9-in-feb-bsp/ (9) https://www.bworldonline.com/banking-finance/2023/03/01/507511/govt-makes-full-award-of-treasury-bond-offering/

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.