Global markets steady amid tariff concerns, local markets retreat

Global and Philippine Market Update
Feb. 6 to Feb. 12, 2024

Global Markets

Global Stocks were rangebound as US inflation edged higher.

• Following a troubling inflation report, a Federal Reserve interest rate cut is unlikely until September at the earliest. Futures markets have shifted expectations from a June cut to no moves until the fall, with minimal chances of a follow-up cut before the end of 2025. The January consumer price index showed a 0.5% monthly gain, pushing the annual inflation rate to 3%, which has reduced optimism for Fed easing. Fed Chair Jerome Powell emphasized the need to keep policy restrictive to combat inflation. Additionally, aggressive tariffs pushed by President Donald Trump could further complicate the Fed's efforts to achieve its inflation goals.
  
  
• As Donald Trump plans reciprocal tariffs, several Asian economies with trade surpluses are negotiating to avoid higher duties. Analysts predict increased U.S. import tariffs for most emerging Asian economies, except Singapore and Hong Kong. Vietnam and India are particularly vulnerable due to their high tariffs on U.S. imports. Japan, with its low tariffs, may avoid severe increases thanks to a positive relationship with Trump. China has already faced additional tariffs and responded with modest retaliatory measures, leaving room for further negotiations. These countries are preparing for potential shifts in U.S. trade policy and the impact of reciprocal tariffs.
  
  
• Americans may pay thousands more for cars if Trump’s proposed tariffs pushes through. Analyst Cody Acree from Benchmark Co. estimates that the average car price could rise by about $5,790, pushing the cost above $54,500. The auto sector is particularly vulnerable due to its complex supply chains and significant trade volumes with Mexico and Canada. Trump initially imposed 25% tariffs on these countries but suspended them after tentative agreements. Consumers and investors are now uncertain about the future of these tariffs and their impact on car prices.

Philippine Stocks

Philippine Stocks lacked momentum and new catalysts to push higher.

• The Philippines could lose up to $1.89 billion in exports to the U.S. if President Donald Trump imposes higher tariffs, according to a House of Representatives think tank. The Congressional Policy and Budget Research Department (CPBRD) noted that most affected exports are mechanical and electrical equipment, which currently benefit from minimal U.S. tariffs. The U.S. was the top destination for Philippine goods in 2024, with exports valued at $12.12 billion. While some sectors like apparel and footwear might see positive trade diversion effects, the overall net loss is projected to be $1.6 billion. To mitigate these impacts, the CPBRD suggests diversifying export markets, pursuing preferential access to the U.S. market, and leveraging the Tatak Pinoy law, which aims to improve the country’s position in the global value chain by encouraging companies to produce high-quality products and services, enhancing supply-chain management, adopting green technologies, and promoting Filipino craftsmanship and innovation.
  
  
• Bank lending in the Philippines expanded at its fastest pace in two years in December, with outstanding loans of universal and commercial banks rising by 12.2% year-on-year to P13.1 trillion, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP). This growth was driven by increased lending in sectors such as wholesale and retail trade, electricity, manufacturing, financial activities, and construction. Consumer loans also saw significant growth, particularly in credit card loans and salary-based consumption loans.

Philippine Bonds

Philippine Bond yields dropped amid expectations of further central bank cuts.

• The Philippine government made a full award of reissued 10-year Treasury bonds, raising P30 billion at an average rate of 5.973%. The auction saw strong demand, with total bids reaching P67.611 billion, more than twice the amount on offer. This comes amid expectations that the Bangko Sentral ng Pilipinas (BSP) will continue to ease its policy stance. The BSP has already reduced borrowing costs by 75 basis points since August, and further cuts are expected to support economic growth and manage inflation, which stood at 2.9% in January. The Bureau of the Treasury (BTr) plans to raise P203 billion from the domestic market this month to help fund the government's budget deficit.
  
  
• Capital Economics forecasts that the Philippine economy will likely achieve the low end of the government's 6-8% growth target this year, with an expected GDP growth of 6%. This growth is anticipated to be supported by looser monetary policy, which will help offset weaker exports and tighter fiscal policy. The Bangko Sentral ng Pilipinas (BSP) is expected to implement a total of 100 basis points worth of rate cuts this year, although BSP Governor Eli M. Remolona, Jr. has suggested a more conservative 50 basis points. Inflationary pressures have eased significantly, with headline inflation projected to settle at 3.2% this year and further decrease to 2.9% by 2026. Easing food and transport price inflation is expected to keep overall inflation contained in the coming months.

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/2025/02/12/hopes-for-more-fed-rate-cuts-dim-as-powell-notes-hot-cpi-means-were-not-quite-there-yet.html (2) https://www.cnbc.com/2025/02/11/asian-economies-scramble-to-appease-trump-as-the-us-president-ratchets-up-tariff-threats-.html (3) https://www.cnbc.com/2025/02/12/mexico-canada-tariffs-could-add-6000-to-the-cost-of-a-car-by-one-estimate.html (4) https://www.bworldonline.com/top-stories/2025/02/13/652975/philippines-may-lose-1-9-billion-in-us-exports-if-trump-raises-tariffs/ (5) https://www.bworldonline.com/top-stories/2025/02/13/652976/bank-lending-growth-hits-2-year-high/ (6) https://www.bworldonline.com/top-stories/2025/02/11/652460/phl-may-hit-low-end-of-growth-target-this-year/ (7) https://www.bworldonline.com/banking-finance/2025/02/12/652613/t-bond-yields-drop-as-market-eyes-bsp-cuts/

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.