Negative sentiment leads equity markets lower but US consumer confidence increases

Global Markets 

Global Stocks moved lower for another week as investors continue to reduce equity exposure.  

• San Francisco Federal Reserve Bank President Mary Daly stated that “price stability is fundamental.” She mentioned that inflation is about half due to excess demand with the other half due to supply constraints. The Federal Reserve (Fed) hopes that once demand slows, the supply side will also improve. The Fed still intends bring down inflation “as gently as possible” to avoid a recession. 

• The Bank of England (BOE) announced it would step in to purchase long date bonds to return market stability after Prime Minister Liz Truss announced tax cuts that sent shock waves through the financial markets. Her planned tax cuts would cost the government £45 billion and benefit high income earners, drawing a rare rebuke from the International Monetary Fund (IMF), which urged the government to “re-evaluate” its plan. The tax cuts would likely lead to higher inflation and increase inequality. 

• US consumer confidence rose again in September. Lower gas prices gave hope that inflationary pressure will ease further. Lynn Franco, senior director of economic indicators at The Conference Board, stated that the improving confidence bodes well for consumer spending in the final months of 2022. 

Philippine Stocks

Philippine Stocks ended lower as the peso depreciates and global sentiment remains negative .  

• The Philippine peso hit the 59-level for the first time this week. The peso has weakened by 15.64% for the year. Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla stated that the central bank will likely be more active in the foreign exchange market. However, ING Bank N.V. Manila Senior Economist Nicolas Antonio T. Mapa believes that the central bank will have little impact against broad US dollar strength. 

• Local equities moved close to 2-year lows over fears of a global recession. Foreign selling surges as foreign investors move away from risky assets. The heavy selling pressure was brought about by persistent inflation, rate hikes and a weaker currency. 

• The World Bank upgraded the growth forecast of the Philippines to 5.8%, from 5.6% previously, for 2023. Aaditya Mattoo, chief economist for the East Asia Pacific Region of the World Bank, stated that while monetary policy may have been tight, fiscal policy seems more accommodative. The Philippines is expected to surpass pre-pandemic levels this year. 

Philippine Bonds

Philippine Bond Yields continued their upward trend with an average of 0.15% increase across the curve. 

• The Bureau of Treasury (BTr) rejected a re-issued 20-year treasury bond with a remaining life of 16 years and four months, on auction. Bids ranged between 7.25% and 8% with the average rate hitting 7.57% if fully awarded. Investors were asking for a higher premium given the surge in global bond yields. 

• Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. expects the Bangko Sentral ng Pilipinas (BSP) to hike rates again in November. Neri hopes the next hike will be more aggressive as the previous increases were less than what analysts expect. The country needs to keep pace with the aggressive US rate hikes to keep the Philippine Peso from depreciating further. 

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/2022/09/28/feds-daly-do-not-want-to-tip-economy-into-downturn.html (2) https://www.nbcnews.com/news/world/bank-england-uk-pound-crash-tax-cuts-rcna49549 (3) https://www.cnn.com/2022/09/27/economy/consumer-confidence-conference-board-september/index.html (4) https://www.bworldonline.com/top-stories/2022/09/29/477382/peso-touches-p59-vs-dollar-for-1st-time/  (5) https://www.bworldonline.com/stock-market/2022/09/28/477302/psei-down-to-near-2-year-low-on-wall-street-fall/  (6) https://www.bworldonline.com/top-stories/2022/09/28/477067/wb-upgrades-phl-growth-outlook/  (7) https://www.bworldonline.com/banking-finance/2022/09/29/477254/govt-rejects-all-bids-in-t-bond-auction/ (8) https://www.manilatimes.net/2022/09/28/business/top-business/bpi-sees-bsp-rate-hike-in-november/1860116

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.