Equity markets climb higher despite rise in inflationary pressure

Global and Philippine Market Update
March 7 to March 13, 2024

Global Markets

Global Stocks edged higher as investors remain optimistic.

• US consumer prices rose slightly more than expected at 3.2% on an annual basis but core inflation slowed to 3.8% annually, driven by increases in fuel and shelter costs. However, interest rate futures suggest a 68% chance of interest rate cut in June 2024. Investors are optimistic that the rise in inflation will not prevent the cuts late in the year.

• 2024 is shaping up to be the year of rate cuts as inflation eases its grip in many economies. While rates are expected to remain relatively high, economists foresee a modest rollback later in the year. The US Federal Reserve (Fed) Chairman Jerome Powell indicated that interest rates would decrease, but declined to specify a timeline, while the European Central Bank (ECB) suggested that it would not cut rates before June.

• UK gross domestic product (GDP) expanded by 0.2% in January after a 0.1% contraction in December, indicating a gradual recovery in activity. James Smith, developed markets economist at ING, views these figures as consistent with a gradual recovery and does not anticipate a repeat of the decline seen in the third and fourth quarters of last year in the first quarter of 2024.

Philippine Stocks

Philippine Stocks moved to test the 7,000 level amid increasing foreign inflows.

• Philippine equities advanced, approaching the 7,000 level, buoyed by positive investor sentiment amid easing inflation, potentially paving the way for monetary policy easing by central banks. Foreign investors continue to inject funds into the Philippines, with net foreign buying reaching USD 261.83 million as of February 13.

• Major US companies are poised to announce investments exceeding USD 1 billion in the Philippines, according to US commerce Secretary Gina Raimondo. These investments span various sectors, including educational initiatives in artificial intelligence, an electric vehicle education center, solar and nuclear projects, and the launch of new airline routes. Additionally, companies have signaled expansion plans in sectors such as logistics, semiconductors, and renewable energy.

Philippine Bonds

Philippine Bond yields stayed elevated as inflation resurfaces as a concern. 

• The government successfully raised Php 584.86 billion from its recent five-year retail Treasury bond (RTB) offering, surpassing the Php 400 billion target. The 6.25% coupon rate exceeded the 6.125% rate quoted for the five-and-a-half-year RTB offered in February last year. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted the lower amount raised compared to the Php 700 billion maturing bonds in March but highlighted its significance in absorbing excess liquidity in the financial system.

• Citibank adjusted its inflation projection for the Philippines in 2024, increasing it from 3.4% to 3.6%, in response to February’s headline print which exceeded expectations. Citi Philippines economist Nalin Chutchotitham stated that underlying price pressures are anticipated to strengthen even more throughout this year. Inflation accelerated to 3.4% in February, up from 2.8% the previous month, ending four consecutive months of decline.

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://business.inquirer.net/449935/stocks-stride-past-us-inflation-to-milestone-highs (2) https://www.cnbc.com/2024/03/13/uk-economic-growth-january-2024.html (3) https://www.cnbc.com/2024/03/13/when-are-the-worlds-central-banks-cutting-rates-in-2024.html (4) https://www.pna.gov.ph/articles/1220739 (5) https://www.bworldonline.com/top-stories/2024/03/12/581047/us-firms-to-invest-over-1b-in-phl/ (6) https://www.pna.gov.ph/articles/1220611 (7) https://www.philstar.com/business/2024/03/10/2339324/citi-hikes-philippines-inflation-forecast

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.