Recession fears ease as economy shows resiliency

Global and Philippine Market Update
Feb. 9 to Feb. 15, 2023

Global Markets

Global Stocks ended slightly higher as consumption remains strong.

• US Inflation slowed down to 6.4% in January but was higher than expected. Shelter was the largest contributor to the advance, accounting for about half of the increase. The January report incorporated new weights for the consumer basket which has shelter occupying a larger share of the inflation index. The Federal Reserve continues to be challenged as it tries to balance easing inflation while preventing a recession.

• US retail sales increased by 3% for the month of January with food services and drinking places surging 7.2%. No category saw a decline this month compared to the 1.1% drop last December. Manufacturing production also rose by 1% while industrial production was flat for the month. The month has seen a pickup in economic activity, which decreases recession risks but may lead to inflation to remain sticky. 

• Britain’s FTSE 100 share index passed 8,000 points during Wednesday’s session for the first time ever as the fear of a global recession eases. The index eventually ended the day at 7,997 points. Easing inflation numbers boosted hopes that the Bank of England will not hike rates higher than expected. There is growing optimism that the global economy can withstand high inflation and continue to grow. 

Philippine Stocks  

Philippine Stocks fell as sticky inflation dampened sentiment. 

• ANZ economists see inflation peaking in February or March but may remain elevated till the third quarter. ANZ revised its inflation forecast to 5.1% this year, from 4.3%. Food inflation poses a big upside risk as weather conditions look to improve only from February onwards, but it would take time before any favorable impact on food prices may be felt.

• Cash remittances hit USD 32.54 billion in 2022, a record high. China Bank Corp. Chief Economist Domini S. Velasquez noted that better economic performance in host countries led to more jobs and income for Overseas Filipino Workers (OFW). Remittances are expected to remain robust as any possible global recession will likely be shallow. The improving global outlook will likely see more Filipinos deployed in the Middle East, Asia and some European countries.

Philippine Bonds  

Philippine Bond Yields trended higher in line with the spike in US treasury yields.   

• The Bangko Sentral ng Pilipinas (BSP) adjusted its inflation forecast to 6.1% in 2023, from 4.5% previously. It noted that the risk to the upside is significant. The high January inflation number indicated sustained broadening of price pressures which highlight the need to preempt the emergence of second-round effects.

• BSP hiked its benchmark rate by 0.50% to 6%. BSP Governor Medalla stated that the recent monetary action could help dampen demand without hindering sustained economic growth. The central bank has hikes rates by 4% since May 2022 after keeping record low rates of 2% during the pandemic. The governor added that more hikes are possible with a pause in March unlikely.

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.bloomberg.com/news/articles/2023-02-14/us-inflation-stays-elevated-adding-pressure-for-more-fed-hikes (2) https://www.cnbc.com/2023/02/15/retail-sales-january-2023-.html (3) https://www.theguardian.com/business/2023/feb/15/ftse-100-hits-8000-points-recession-fears-ease (4) https://www.bworldonline.com/top-stories/2023/02/16/505132/remittances-hit-record-high-in-2022/ (5) https://www.bworldonline.com/top-stories/2023/02/15/504872/inflation-may-remain-high-until-q3/ (6) https://news.abs-cbn.com/business/02/16/23/bsp-hikes-benchmark-by-50-bps-key-rate-now-6-percent (7) https://blinks.bloomberg.com/news/stories/RQ5VLXT0G1KW

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.