Markets rise on expectations of smaller rate hikes

Global and Philippine Market Update
March 23 to March 29, 2023

Global Markets

Global Stocks rose as global banking concerns continued to ease and investors turned their focus back to the path for interest rates.

• US and European equities trended higher as fears of contagion from the turmoil in the banking sector continued to ease. 

• First Citizens BancShares agreed to buy Silicon Valley Bank (SVB) which helped boost banking shares after the chaos caused by SVB’s failure. All former branches of SVB will open under First Citizens brand on April 3. First Citizens bought around USD 72 billion in assets at a discount of USD 16.5 billion. This will make the family-owned bank one of the 25 biggest banks in the US.

• Sentiment for the tech sector got a boost during trading in Asia on Wednesday as Alibaba Group Holdings Ltd.’s plan to split into six units sparked optimism about a recovery in Chinese tech companies hit by regulatory scrutiny in China. The Hang Seng Tech Index rose 2.5%.

• The Federal Reserve (Fed) hiked rates by 0.25%, increasing its target range between 4.75% and 5%, amid the banking crisis. This was a cautious move by the Fed and may signal that the tightening cycle is nearing its end. This was its ninth hike since March 2022 but noted that further hikes are not assured and will be data dependent. Fed Chairman Jerome Powell stated that a pause in hikes were considered but ultimately unanimously approved the decision. He believes the US banking system is sound and resilient.

Philippine Stocks

Philippine Stocks gained as investors stayed on the sidelines ahead of the policy decisions of the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

• The Philippine Stock Exchange index (PSEi) climbed to 6,600-level and seems to be on a gradual recovery as Fed and BSP interest rate cut hopes fuel return of risk-on mood. Inflation is expected to temper this month from peaks early this year

• BSP Governor Felipe M. Medalla said that if March inflation eases further from February’s 8.6%, the Monetary Board may consider a pause at its next policy meeting on May 18. March inflation data will be released on April 5.

• S&P increased the Philippines’ growth forecast, while the momentum of domestic demand has stayed stronger for longer than expected, causing them to raise 2023 forecast to 5.8% from 5.2%.

• The Philippine Economic Zone Authority (PEZA) reported that it approved Php 12.54 billion worth of investments during the first quarter, a 54% increase in approved investments compared to the same period last year. The agency is on track to achieve its 10% growth target this year. PEZA Director General Tereso O. Panga stated that PEZA has seen new investment in emerging technologies and sectors. This includes possible investments in vaccine and life science sector and new electric vehicle battery technology.

Philippine Bonds

Philippine Bond Yields moved higher in anticipation of further rate hikes.

• The Bureau of Treasury (BTr) fully awarded a reissued 20-year treasury bond with a remaining life of 19 years and eight months at an average rate of 6.631%. This was 0.08% higher than secondary market levels for the same bond series at the time of auction. The rate was slightly higher as analysts forecast the Bangko Sentral ng Pilipinas (BSP) to continue hiking rates.

• Inflation remains a major concern which may threaten the Philippines’ growth outlook this year and 2024 according to National Economic Development Authority (NEDA) Secretary Arsenio M. Balisacan. He believes that the economy risks a slowdown if the BSP is forced to tighten monetary policy because of the upward pressure in prices. The government has responded by creating an Inter-agency committee on Inflation and Market Outlook to address the issue.

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/2023/03/22/fed-rate-hike-decision-march-2023.html (2) https://www.bbc.com/news/business-65084248 (3) https://www.bworldonline.com/top-stories/2023/03/30/513792/peza-q1-investments-jump-by-54/ (4) https://www.bworldonline.com/banking-finance/2023/03/29/513504/govt-fully-awards-bond-offering/ (5) https://www.bworldonline.com/top-stories/2023/03/27/512913/bsp-may-pause-tightening-diokno-2/ (6) https://www.wsj.com/articles/global-stocks-markets-dow-update-03-29-2023-bd8d495 (7) https://www.reuters.com/markets/us/futures-climb-banking-crisis-fears-abate-2023-03-29/ (8) https://www.bbc.com/news/business-65041649 (9) https://www.bworldonline.com/stock-market/2023/03/29/513780/psei-extends-climb-on-fed-bsp-rate-cut-hopes/ (10) https://blinks.bloomberg.com/news/stories/RSA8LEDWLU68 (11) https://www.bworldonline.com/top-stories/2023/03/28/513250/central-bank-seen-to-raise-rates-by-25-bps-in-may/ (12) https://www.bworldonline.com/top-stories/2023/03/28/513253/sp-hikes-phl-growth-forecast/

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.