Investors staying cautious as rates remain elevated

Global and Philippine Market Update
April 3 to April 10, 2024

Global Markets

Global Stocks declined as rate cut expectations were delayed.

• According to recent US government data released on Wednesday, April 10, the pace of inflation for US consumers picked up again last month. The annual consumer price index (CPI) rose by 3.5% in March, up by 0.3% from February. This trend decreases the likelihood of the Federal Reserve (Fed) implementing an early interest rate cut. Additionally, the data suggest that the first rate cut by the Fed might occur shortly before the November presidential election, potentially placing the independent US central bank in the midst of a contentious battle between incumbent President Joe Biden and his anticipated rival, former President Donald Trump.

• In March, China's inflation rate showed signs of stabilization, with consumer prices rising by a modest 0.1%, year on year, below expectations which may indicate that China faces the risk of deflation due to weak domestic demand. Despite challenges such as a debt-laden property sector and high youth unemployment, efforts to support growth continue, with a focus on boosting domestic demand and stabilizing the industrial sector.

• The World Trade Organization (WTO) forecasts a gradual recovery in global trade this year, followed by further growth in 2025 as inflation and monetary policy stabilize. It anticipates a 2.6% increase in global trade volume in 2024, followed by a 3.3% rise in 2025. However, the WTO cautions that geopolitical tensions pose a significant risk to this outlook, with signs of trade fragmentation becoming more apparent. This fragmentation is particularly evident in trade growth between the US and China, which was 30% slower compared to other countries.

Philippine Stocks

Philippine Stocks dipped amidst the absence of new catalysts.

• The Philippines’ unemployment rate dropped to 3.5% in February, down from 4.5% in the previous month, signaling an improvement in the job market. Similarly, underemployment decreased to 6.08 million from 6.39 million in January. The National Economic Development Authority (NEDA) is focusing on enhancing collaboration between industry, academia, and the public sector to tackle skill mismatches in the labor market.

• The Philippine economy is projected to expand by 6% this year, as per the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), marking an improvement from its earlier forecast of 5.7%. Should this projection materialize, it would align with the government's adjusted growth target range of 6-7% for 2024. According to ESCAP's assessments, the Philippines and Vietnam (6%) are anticipated to be the second-fastest-growing economies in Southeast Asia this year, following Cambodia (6.2%).

• The Philippines' Development Budget Coordination Committee (DBCC) foresees a stronger peso in 2024, expecting it to average between 55 and 57 against the US dollar, a more favorable outlook compared to the previous range of 55 to 58. This optimism is driven by lower import projections, which could reduce demand for the dollar and bolster the peso.

Philippine Bonds

Philippine Bond yields continued to move higher as central banks maintain a tight monetary policy.

• The Bureau of Treasury (BTr) partially awarded a reissued treasury bond with a remaining term of nine years and nine months at an average rate of 6.439%. The rate was significantly higher than the 6.227 quoted for the paper when it was offered last March 12. This reflected the sentiment of investors that rates will likely remain higher for longer.

• The Bangko Sentral ng Pilipinas (BSP) maintained its benchmark interest rate at 6.5% for the fourth consecutive meeting, signaling a potential delay in rate cuts due to inflationary pressures. BSP Governor Eli Remolona Jr. noted that while inflation remains within target, the trajectory has shifted higher. He highlighted elevated transport fares, food prices, and increasing electricity and oil prices as contributing factors, alongside the possibility of wage hikes, aggravating upside risks to inflation.

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/454127/us-consumer-inflation-accelerated-in-march-dampening-rate-cut-hopes (2) https://business.inquirer.net/454182/china-consumer-prices-rose-at-slower-rate-in-march (3) https://www.cnbc.com/2024/04/10/wto-forecasts-rebound-in-global-trade-but-keeps-geopolitical-risks-in-focus.html (4) https://business.inquirer.net/454156/unemployment-rate-down-to-3-5-job-quality-better-in-february (5) https://www.bworldonline.com/economy/2024/04/04/586095/escap-upgrades-philippine-gdp-growth-forecast-to-6/ (6) https://business.inquirer.net/454076/dbcc-predicts-stronger-peso-in-24 (7) https://www.bworldonline.com/top-stories/2024/04/09/586853/bsp-signals-possible-rate-cut-delay/ (8) https://www.bworldonline.com/banking-finance/2024/04/09/586624/treasury-bills-bonds-fetch-higher-rates/

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.