Strong job numbers push markets higher

Global and Philippine Market Update
Feb. 1 to Feb. 7, 2024

Global Markets 

Global Stocks rallied as US economic data continued to show resiliency.

• The US nonfarm payrolls increased by 353,000 for the month, surpassing expectations, while the unemployment rate remained steady at 3.7%. Job growth was widespread, particularly in professional and business services, with significant contributions from healthcare and retail trade. The report underscores the resilience of the US economy but raises uncertainties about the timing of potential Federal Reserve (Fed) interest rate cuts. The strong job data does support the notion of delaying rate cuts further.

• Fed Chair Jerome Powell, in an interview, pledged a cautious approach to interest rate cuts, expressing confidence in the economy. He noted that the anticipated negative impacts from rate hikes did not materialize. Powell emphasized the need for more evidence of inflation sustainably down to 2%, although his confidence in attaining this is growing. Market participants are actively speculating on the number of cuts the Fed will make this year, with current pricing suggesting five cuts, while Fed officials are indicating three. 

• China’s regulators have introduced additional restrictions on short selling, and state investors have expanded stock-buying plans to support the struggling stock market. This move adds to a series of stimulus plans already implemented, but the effectiveness of these measures remains uncertain. There is considerable uncertainty about the government’s long-term approach to supporting financial markets.

Philippine Stocks

Philippine Stocks surged as foreign flows ignited market momentum.

• The Philippine Stock Exchange Index (PSEi) traded above the 6,800 level, marking its highest close in a year, driven by investor interest in blue-chip stocks. Year-to-date net foreign buying has risen to USD 113 million as of February 7, 2024. Easing inflation and robust employment data were major contributors to improving investor sentiment.

• BMI, a unit of Fitch Group, anticipates that a combination of easing inflation and wage growth will positively impact consumption. It expects the gross domestic product (GDP) to grow by 6.2% this year, surpassing the 5.6% growth observed in 2023 but falling short of the government’s target of 6.5 to 7.5%. Risks to consumption persist, notably the high interest rate environment, which may exert more pressure on disposable income and potentially lead to cutbacks in consumer spending.
• The proportion of unemployed Filipinos in the total labor force reached another record low in the last month of 2023. There were 6 million jobless individuals, a decrease from 1.83 million in the previous months, as reported by the Philippine Statistics Authority (PSA). This resulted in a jobless rate of 3.1%, the lowest level since 2005. National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan welcomed this development, interpreting it as a sign of the economy’s sustained momentum and the resiliency of the labor market.

Philippine Bonds

Philippine Bond yields were steady as inflation continued to ease.

• Consumer prices slowed down in January, due to improved food supply, although the threat of El Niño weather phenomenon looms, posing a challenge to the government’s efforts to an annualized rate of 2.8% for January, the lowest level since October 2020. This marks the second consecutive month of inflation within the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4% range. However, the lower rate may be temporary as January 2023 recorded an inflation rate of 8.7%, suggesting that the base effect may diminish in the coming months.

• NEDA Secretary Arsenio Balisacan mentioned that the inter-agency committee on inflation and market outlook will vigilantly monitor the price of staple grains and other crucial goods to inform policy recommendations. Stop gap measures, such as permitting imports, may be implemented as necessary to stabilize prices. The country recently inked a rice deal with Vietnam to ensure a continuous supply of 1.5 million to 2 million metric tons of rice annually.

• The BSP is unlikely to change its policy stance in the near term, as a robust economy provides a leeway to maintain elevated borrowing costs amid lingering upside risks to inflation breaching the 2-4% target. The recent GDP report highlights the economy’s resilience, supporting the idea that there is no immediate need to cut interest rates.

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/2024/02/02/us-economy-added-353000-jobs-in-january-much-better-than-expected.html (2) https://www.cnbc.com/2024/02/04/powell-insists-the-fed-will-move-carefully-on-rate-cuts-with-probably-fewer-than-the-market-expects.html (3) https://business.inquirer.net/444563/asia-stocks-gain-much-riding-on-china-stability-efforts (4) https://business.inquirer.net/444614/blue-chips-break-through-6800 (5) https://business.inquirer.net/444130/ph-gdp-growth-in-%ca%bc24-to-accelerate-to-6-2 (6) https://business.inquirer.net/444543/ph-jobless-rate-eased-to-fresh-record-low-in-dec-2023 (7) https://business.inquirer.net/444413/inflation-softened-in-jan-to-over-3-year-low-of-2-8 (8) https://business.inquirer.net/444357/govt-readies-measures-to-keep-commodity-prices-stable (9) https://www.bworldonline.com/top-stories/2024/02/08/574172/bsp-unlikely-to-cut-rates-soon-as-inflation-risks-linger/

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.