Global Stocks retreat as the Fed remains aggressive to combat inflation.
- The Federal Reserve (Fed) made history by hiking rates 0.75% for the third straight time. This moves the Fed lending rate to a target range of 3% to 3.25%, its highest level since the 2008 financial crisis. Fed Chairman Jerome Powell’s comments suggest that he does not see rate hikes to wind down anytime soon. This led analysts towards a dimmer economic outlook for the near future.
- The US dollar strengthened to a new two-decade high as Russia declared a partial mobilization of troops. Russia plans to call 300,000 reservists in an escalation of the war in Ukraine. President Vladimir Putin threatened to use “all the means at our disposal” to defend Russia and referenced potential use of nuclear weapons.
- JP Morgan global market strategist Marko Kolanovic has a cautiously optimistic view of the coming year. He believes the downside risks would be limited at this point due to better-than-expected earnings growth, low market positioning by retail and institutional investors and declining inflation expectations.
Philippine Stocks followed global markets lower as negative sentiments spread.
- The Philippine Peso weakened to a record low of P58 against the US dollar on Wednesday, Sept. 21. The weakness was caused by broad US dollar strength as the US Fed hiked rates. Investors continue to move away from emerging markets and towards US dollar investments. Philippine imports continue to outstrip exports for the year leading to a decline in foreign exchange reserves. This caused the further weakening of the peso which also adds to inflationary pressures.
- Moody’s analytics stated that the Philippines gross domestic product (GDP) is still expected to grow by 6.8% amid stubborn inflation and the continued depreciation of the peso. This was lower than initially forecasted due to rising interest rates which lead to greater funding cost and lower household spending. Private consumption contributes three-fourths of GDP.
Philippine Bond Yields continue to follow US treasuries higher.
- The Bureau of Treasury (BTr) fully awarded a re-issued 7-year treasury bond on auction. The bond was awarded at an average rate of 6.59%. This was 0.13% higher than the rate for a similar bond in the secondary market. However, this was lower than the 6.74% coupon it fetched when it was offered last June. The auction attracted aggressive bids as investors tried to lock in the relatively high yields.
- The Bangko Sentral ng Pilipinas (BSP) is expected to raise rates by 0.50% to contain inflation and ease the volatile foreign exchange rate. The BSP is following other central banks in hiking rates as prices are expected to remain elevated in the coming months.
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.cnn.com/2022/09/21/economy/fed-rate-hike-september/index.html (2) https://blinks.bloomberg.com/news/stories/RIKU9E073NCW (3)https://www.cnn.com/2022/09/21/investing/global-markets-dollar-russia-mobilization/index.html (4) https://www.tipranks.com/news/article/j-p-morgan-says-stock-market-downside-risk-is-limited-heres-are-3-stocks-to-consider (5) https://www.bworldonline.com/top-stories/2022/09/22/475991/mounting-prices-weaker-peso-to-hit-consumption/ (6) https://www.bworldonline.com/top-stories/2022/09/22/476075/peso-sinks-to-new-low-of-p58-on-hawkish-fed-bets/ (7) https://www.bworldonline.com/banking-finance/2022/09/21/475777/govt-fully-awards-t-bonds-at-lower-rates-as-market-awaits-outcome-of-key-meetings/ (8) https://business.inquirer.net/363843/metrobank-sees-50-bps-bsp-rate-hike-today
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.