Improving sentiment lifts markets higher

Global and Philippine Market Update
July 11 to July 17, 2024

Global Markets

Global Stocks rose amid consistent consumer spending.

• US retail sales remained resilient as a drop in auto sales was offset by strength elsewhere. Economists estimate that consumer spending, which accounts for two-thirds of the economy, grew at an annualized rate of 2% in the second quarter, higher than the initial forecast of 1.5%. However, risk to consumer spending is growing, as most households have depleted their excess savings from the pandemic and are carrying significant credit card debt. Lower-income households, being most sensitive to increases in everyday costs, are reaching their limit and pulling back on spending even more.

• Federal Reserve (Fed) Chairman Jerome Powell stated that the central bank will not wait for inflation to hit 2% before cutting interest rates. Waiting for inflation to reach 2% could mean waiting too long, potentially driving inflation even lower. The Fed is increasingly confident that inflation is under control as more positive data emerges. Powell believes that a “hard landing” scenario for the economy is highly unlikely.

• The Biden administration is considering using the strictest trade restrictions, the Foreign Direct Product Rule (FDPR), if chipmakers keep supplying China with advanced semiconductor technology. This rule lets the US control foreign-made products that use any American technology. In October 2022, the US imposed restriction on advanced chips and manufacturing gear sales to China to curb its military advancement. However, the US chip industry claims it is unfairly burdened by the restrictions as China circumvents these controls with non-US manufacturers.

Philippine Stocks

Philippine Stocks sustained their upward momentum on improving optimism.

• The Asian Development Bank (ADB) maintained its 6% economic growth forecast for the Philippines this year and 6.2% for next year. Moderating inflation and anticipated monetary easing in the second half are expected to support household consumption and investment. Economic expansion is also bolstered by low unemployment, cash remittances, and increased infrastructure spending. The Philippines and Vietnam are projected to be the fastest-growing economies in Southeast Asia in 2024 and 2025, and the second fastest-growing in developing Asia, just behind India.

• The Philippine Stock Exchange Index (PSEi) breached the 6,600 level amid growing expectations of interest rate cuts by both the US and local central bank. Optimism in the US markets, which are hitting new record highs, has spread to local stocks. While both the ADB and IMF maintained their GDP growth forecast for the Philippines at 6% for this year, the ASEAN+3 Macroeconomic Research Office (AMRO) trimmed its forecast to 6.1% from 6.3% in April. Overall, most forecast still project the Philippine to grow by at least 6%, aligned with the government’s target of 6-7% growth.

Philippine Bonds

Philippine Bond yields declined as imminent rate cuts appear likely.

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining life of nine years and five months at an average rate of 6.212%. This rate was lower than similar bonds quoted in the secondary market. There was a strong public demand for the issue as investors lock in the high yields before the US and local policy rates begin rate cuts.

• The Bangko Sentral ng Pilipinas (BSP) may deliver larger-than-expected rate cuts, with the possibility of a 250-basis point reduction by 2025, according to Nomura Global Markets Research. Nomura’s baseline projection anticipates a 25-basis point cut in October and an additional 150 basis point cut by the second quarter of 2025. BSP Governor Eli M. Remolona stated that the central bank is on track for a cut in August, with another cut expected before the year ends. The global backdrop is now more conducive for rate cuts, with US inflation softening and expected to continue its downward path. 

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.reuters.com/markets/us/us-retail-sales-unchanged-june-beating-forecasts-slight-drop-2024-07-16/ (2) https://www.cnbc.com/2024/07/15/powell-indicates-fed-wont-wait-until-inflation-is-down-to-2percent-before-cutting-rates.html (3) https://www.bloomberg.com/news/articles/2024-07-17/us-considers-tougher-trade-rules-against-companies-in-chip-crackdown-on-china (4) https://www.bworldonline.com/top-stories/2024/07/18/608788/adb-keeps-phl-growth-forecasts-unchanged/ (5) https://www.bworldonline.com/stock-market/2024/07/17/608776/psei-rebounds-as-investor-sentiment-improves/(6) https://business.inquirer.net/469066/t-bond-rates-ease-after-dovish-bsp-fed-signals (7) https://www.bworldonline.com/top-stories/2024/07/15/607980/larger-than-expected-rate-cuts-likely-nomura/

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.