Oil prices spike amid conflict in the Middle East

Global and Philippine Market Update
Oct. 5 to Oct. 11, 2023

Global Markets

Global Stocks rallied as energy shares got a lift from higher oil prices.

• Global markets, already unsettled by elevated interest rates, have now been confronted with fresh geopolitical uncertainty following a surprise attack by Hamas on Israel. In the immediate aftermath, oil prices surged, further intensifying concerns about inflation. The impact of this event will largely depend on whether it remains a short-term crisis or escalates into something more significant. While an increase in volatility is expected, financial markets should not be overly negative if the situation remains contained within the region.

• The US job market remains robust, with a decline in inflation, but the strength in job numbers raises concerns about whether the downward trend will continue. However, wage growth was slightly below expectations at 4.2% year on year, compared to the forecast of 4.3%. The labor market is a key focus for the Federal Reserve (Fed) and will be significant factor in its next policy meeting. If there is evidence that the tight labor market is no longer easing, Fed officials may be forced to hike rates. 

• The International Monetary Fund (IMF) revised its forecast for US growth to 2.1%, which is 0.3 percentage points higher than its July update. The upgrade is attributed to stronger business investment, resilient consumption growth and an expansionary fiscal policy. The IMF also maintained its global growth forecast of 3% for the year. This suggests that while there may be challenges, it’s not indicative of a global recession. However, it’s important to note that this growth rate is still behind the pre-pandemic level of around 3.6%. 

Philippine Stocks  

Philippine Stocks edged lower over inflation concerns.

• Local stocks dipped after September’s inflation print ended higher, indicating the possibility of renewed monetary tightening. Additionally, geopolitical concerns abroad, particularly the situation in Israel, pose additional risk to inflation due to their potential impact on oil prices. The looming possibility of more inflationary pressures has prompted investors to adopt a cautious approach and observe the potential repercussions this might have on the overall economy.

• The non-performing loans (NPLs) held by Philippine banks decreased year-on-year as of end August, resulting in an NPL ratio of 3.42%, a four-month low. This the improvement can be attributed to improved income streams and the continued growth of loans. The better loan numbers indicate ongoing economic growth. However, persistently high borrowing cost may eventually exert pressure on this ratio.

Philippine Bonds  

Philippine Bond yields spiked in line with the rise in global bond yields. 

• The Bureau of Treasury (BTr) fully awarded a reissued ten-year treasury bond with a remaining term of five years and three months at an average rate 6.512%. The yield was 29 basis points higher compared to the previous auction on August 30. Spiking global yields and higher local inflation led investors to ask for higher rate.

• The Bangko Sentral ng Pilipinas (BSP) is considering a 25-basis point increase in its policy rate during its November meeting. This move is driven by sustained strength in economic growth, even with higher borrowing costs, which indicates that there is room for further monetary tightening. BSP Governor Eli M. Remolona Jr. expressed uncertainty regarding inflation returning to the target range of 2-4% within this year.   

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/2023/10/10/imf-raises-us-growth-forecast-leaves-global-outlook-unchanged.html (2) https://www.bloomberg.com/news/articles/2023-10-08/global-markets-face-new-geopolitical-risk-view-oil-as-guidepost (3) https://finance.yahoo.com/news/jobs-report-stunner-us-economy-creates-336000-jobs-in-september-nearly-twice-the-number-expected-123822203.html (4) https://www.bworldonline.com/top-stories/2023/10/11/550879/phl-lenders-bad-loan-ratio-falls-to-4-month-low/ (5) https://www.bworldonline.com/stock-market/2023/10/09/550591/psei-drops-on-tightening-geopolitical-concerns/ (6) https://www.bworldonline.com/top-stories/2023/10/12/551121/bsp-open-to-25-bp-hike-in-november/ (7) https://www.pna.gov.ph/articles/1211498

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.