Mixed economic signals send global stocks lower.
- US stocks finished one of the worst halves in decades. Investors remain concerned about high inflation and the growing risk of recession. The lack of any clear outlook is causing heightened volatility in the market. Investors are conflicted about preferring good data to lessen the risk of recession or bad data to prevent further rate hikes by the US Federal Reserve (Fed).
- The US job market remains strong which goes against the usual sign of a possible recession. Voluntary resignations and job openings remain very high. Workers continue to benefit from the current environment with very few layoffs. According to the US Labor department, the layoff rate, which measures dismissals during the month as a percentage of total employment, was at 0.9% for May. The lowest rate before the pandemic was at 1.1%.
- US and China held talks to discuss the challenges facing the world economy. Reports surfaced that President Biden may announce rollbacks on some US tariffs on Chinese consumer goods. The US government sees this as one way to counter increasing inflation.
Philippine stocks rallied after hitting a 2-year low in June.
- Finance Secretary Benjamin E. Diokno stated the government aims for a gross domestic product (GDP) growth rate of 6.5% to 7.5% for this year. This is slightly lower than the initial 7-8% target of the previous administration. However, this is still the highest growth rate among ASEAN+3 countries.
- A new medium term fiscal framework for 2023-2028 was approved by the new cabinet. The government aims to bring down the poverty rate to 9%, reduce the debt-to-GDP ratio to 60%, and is committing to spend 5-6% of GDP towards infrastructure annually from 2023 to 2028.
- The decline in oil prices improved sentiment and provided a lift to the local market. Brent crude prices dropped to its lowest level in over a month, trading below 110 a barrel. Lower oil prices are seen to help ease the stubbornly high inflation rate.
Yields for Philippine bonds with a maturity of five years and below rose by 0.10%. Bonds with shorter maturities have been rising as the Bangko Sentral ng Pilipinas (BSP) plans to hike rates further.
- Inflation for June hit 6.1%, year on year, the highest level in nearly four years. The high rate was driven by food which increased by 6.4% and transportation which was up by 17.1%. The price of gasoline and diesel surged 53.9% and 95.2% respectively.
- The Bureau of Treasury (BTr) awarded a reissued bond with a remaining life of three years and seven months at an average rate of 5.91%. This is 0.17% higher than the rate in the secondary market. Investors were asking for a premium due to the high inflation rate.
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://blinks.bloomberg.com/news/stories/REM94T0799MO (2) https://www.bloomberg.com/news/articles/2022-07-05/s-p-500-tumbles-as-renewed-recession-fears-rattle-wall-street (3) https://www.cnbc.com/2022/07/06/hot-job-market-and-great-resignation-persist-despite-recession-threat.html (4) https://www.cnnphilippines.com/business/2022/7/6/US-China-economic-challenges-tariffs.html (5) https://www.bworldonline.com/top-stories/2022/07/07/459726/govt-tempers-2022-growth-target/ (6) https://www.bworldonline.com/stock-market/2022/07/06/459616/local-stocks-rise-as-oil-prices-us-yields-decline/ (7) https://www.bworldonline.com/top-stories/2022/07/06/459528/inflation-nears-4-year-high-in-june/ (8) https://businessmirror.com.ph/2022/07/05/btr-sells-%E2%82%A735b-in-t-bondsamid-push-for-high-rates/
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