Equities continue to rise as inflation likely hits peak

Global Markets

Global Stocks edge higher as inflation slows.

• US inflation eased to 6.5% in December, its lowest level in more than a year. Goods that were hot during the pandemic, like used cars and appliances, have seen their prices fall. Oil prices have also trended lower after spiking due to the Russian invasion of Ukraine. Demand is expected to fall as the US economy slows in the continuing fight over inflation. 

• Latest retail data suggests low consumer demand in December as retails sales fell 1.1%. Most categories reported a drop in online sales and motor vehicles and parts dealers down more than 1% while furniture and home furnishing decreased by 2.5%. Department stores also reported a decline, posting a drop of 6.6%. This trend will likely continue into the 1st quarter of 2023. The lower inflation numbers and weakness in consumer demand shows that the Federal Reserve’s (Fed) policies are working. 

• Barclays upgraded its 2023 global growth forecast to 2.3%, up by 0.5% from its last forecast in November. The upward revision by economists was due to slowing inflation, China’s reopening and other positive data that came out in recent weeks. Better than expected growth in Germany and the UK adds to further evidence of a more positive economic outlook.

Philippine Stocks

Philippine Stocks jumped to a strong start.

• The Philippine Stock Exchange index (PSEi) breached the 7,000 level. It was a strong start to the year for the local market with the Asean+3 Macroeconomic Research Office upgrading its 2022 Philippine growth forecast to 7.3%. Foreigners increased their exposure in the Philippines as they were net buyers in the amount of USD 80.37 million. Investors seem to be increasing their risk appetite so far this year.

• Finance Secretary Benjamin E. Diokno believes the Philippines will grow by around 6.5% in 2023, even with a slowdown in the global economy. This is one of the highest growth projections in the Asia-Pacific region. He also noted that a growing manufacturing sector, low unemployment and a stable banking system will help the economy endure any external pressures. Fortunately, the Philippines is not as reliant on trade which mitigates the impact of a potential global recession this year.

Philippine Bonds

Philippine Bond Yields with a maturity longer than 2 years shifted lower as investors lock in the high rates. 

• The Bureau of Treasury (BTr) fully awarded a reissued 20-year bond with a remaining life of 19 years and 10 months at an average rate of 6.525%. This was lower than the 8.012% yield in the previous auction last November. Easing inflation and possible cuts to local bank’s reserve requirement ratio led to strong demand for long tenor bonds.

• Fitch Solutions Country Risk & Industry Research believes that the Bangko Sentral ng Pilipinas (BSP) will hike rates by 0.75% in the first half of the year. This will put the policy rate at 6.25%. BSP Governor Felipe M. Medalla signaled a 0.25% to 0.50% increase at the first policy meeting in February. Inflationary pressures remain a significant concern and requires continues action to mitigate its impact on the economy. 

• The BSP is looking to cut rates by 2024, once inflation is under control. Pent-up demand has so far lifted the economy but is expected to fade next year. A loose monetary policy may help boost the economy once demand softens. This will likely lead yields to trend lower by the end of the year.

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.bbc.com/news/business-64030276 (2) https://www.cnbc.com/2023/01/18/wholesale-prices-fell-0point5percent-in-december-much-more-than-expected.html (3) https://www.cnbc.com/2023/01/16/as-china-reopens-and-data-surprises-economists-are-starting-to-get-less-gloomy.html (4) https://www.bworldonline.com/top-stories/2023/01/18/499102/phl-seen-to-expand-6-5-this-year/ (5) https://business.inquirer.net/382899/upgraded-growth-goal-lifts-local-shares 6) https://www.pna.gov.ph/articles/1192946 (7) https://www.bworldonline.com/top-stories/2023/01/17/498784/bsp-rate-may-peak-at-6-25-in-1st-half/ (8) https://www.bworldonline.com/top-stories/2023/01/13/498162/bsp-chief-hopes-to-cut-rates-in-2024/

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.