Equity markets rangebound due to geopolitical risks and inflation concerns

Global and Philippine Market Update
Dec. 5 to Dec.11, 2024

Global Markets

Global Stocks remained steady as investors looked toward more monetary easing. 

• Consumer prices rose faster in November, with the CPI showing a 12-month inflation rate of 2.7%. Core CPI, excluding food and energy, remained steady at 3.3% annually. The Federal Reserve is expected to cut rates by 0.25% at their upcoming meeting, with traders seeing it as almost guaranteed. Shelter costs, a significant component of inflation, rose 0.3% in November. Used vehicle prices increased by 2%, while new vehicle prices rose by 0.6%. Food costs went up by 0.4% monthly and 2.4% annually, with cereals and bakery products seeing a historic monthly decline of 1.1%. Average hourly earnings for workers were flat for the month when adjusted for inflation but increased by 1.3% over the past year.

• If President-elect Donald Trump aims to reduce inflation, he will need significant help from housing costs, an area where federal policymakers have limited influence. The November consumer price index (CPI) report showed mixed signals for shelter costs, which make up one-third of the inflation index. While the annual rise in shelter costs was 4.7%, the smallest increase since February 2022, it remains high and significantly impacts overall inflation. The average national rent in October was $2,009 per month, slightly down from September but still 3.3% higher than a year ago. Over the past four years, rents have increased by about 30% nationally, posing a challenge for Trump's efforts to curb inflation.

Philippine Stocks

Philippine Stocks struggled to push higher amid a lack of positive catalysts.

• The Asian Development Bank (ADB) has maintained its Philippine economic growth forecasts at 6% for 2024 and 6.2% for 2025, driven by easing inflation and lower interest rates. Household consumption, investment, and a buoyant services sector are expected to support growth. The Philippines is projected to be the second-fastest growing economy in Southeast Asia this year, behind Vietnam. However, geopolitical tensions, trade fragmentation, and severe weather events pose risks to growth.

• The Philippines ranked second-most attractive emerging market for renewable energy (RE) investment in the 2024 Climatescope report by BloombergNEF, climbing two spots from the previous year. The country received a score of 2.65 out of 5, driven by strong fundamentals, opportunities, and experience in the RE sector. The government's target of 35% renewable energy in power generation by 2030 and policies like auctions, net-metering, and tax incentives have boosted its attractiveness. Despite most investments being domestic, the allowance of full foreign ownership in RE projects since November 2022 has increased investor interest. The Department of Energy highlighted the need to accelerate RE development to meet the growing power demand and support the country's expanding economy.

Philippine Bonds

Philippine Bond yields elevated but poised to move lower as monetary easing continues.

• Metrobank Research anticipates that Philippine headline inflation will remain within the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target range for this year, despite a slight increase in November and the impact of recent typhoons. The BSP has been in an easing cycle, cutting rates by 25 basis points in both August and October, bringing the benchmark rate to 6%. Metrobank Research maintains its forecast that the BSP will cut rates by another 25 basis points in December, bringing the year-end Reverse Repurchase (RRP) rate to 5.75%. They also expect the RRP rate to settle at 5% by 2025 and 4.25% by 2026. This continued easing is seen as necessary to maintain economic momentum and support the country's growth amid ongoing inflationary pressures and external challenges.

• A recent survey by Ipsos revealed that 80% of Filipinos expect inflation to rise over the next year, despite declines in many other countries. This sentiment reflects a broader global trend where the legacy of high inflation has ingrained expectations of price increases into the public consciousness. In the Philippines, only 6% of respondents believe that inflation has already normalized, while a significant portion expects it to take longer or never return to normal levels. The survey also highlighted that many Filipinos are struggling financially, with only 37% saying they are "doing alright." A significant number of respondents reported that they are "just about getting by" or finding it difficult to manage financially.

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/2024/12/11/cpi-inflation-november-2024-annual-inflation-rate-accelerates-to-2point7percent-in-november-as-expected.html (2) https://www.cnbc.com/2024/12/11/if-trump-wants-to-kill-inflation-the-first-thing-he-needs-to-do-is-get-more-homes-built.html (3) https://www.bworldonline.com/top-stories/2024/12/12/641072/adb-keeps-phl-growth-forecasts-for-2024-2025/ (4) https://www.bworldonline.com/top-stories/2024/12/10/640295/phl-ranks-second-most-attractive-emerging-market-for-re-investment/ (5) https://www.bworldonline.com/top-stories/2024/12/11/640695/most-filipinos-expect-inflation-to-continue-to-rise-survey/ (6) https://www.bworldonline.com/top-stories/2024/12/10/640296/inflation-likely-to-settle-within-target-this-year/

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.