Lower inflation lifts equity markets

Global and Philippine Market Update
Nov. 9 to Nov. 15, 2023

Global Markets

Global Stocks rose as the likelihood of further rate hikes diminished.

• US inflation remained steady in October compared to the previous month, offering a hopeful indication that persistently high prices are beginning to loosen their hold on the US economy. The year-on-year inflation rate was 3.2%, while core inflation, which excludes food and energy prices, was at 4%, down from 4.1% in September. Following this report, traders largely discounted the possibility of further rate hikes.

• US consumers took a pause in October as retail sales, excluding automobiles and gas, saw a decrease of 0.08%, while core retail, which excludes restaurants, declined by 0.03%, according to the new CNBC/NRF Retail Monitor. This monitor, a collaboration between CNBC and the National Retail Federation, is based on 9 billion annual credit and debit card transactions. The October data aligns with the consensus Wall Street forecast, indicating a cooling of consumer spending.

• Goldman Sachs predicts that the global economy will exceed expectations in 2024, fueled by robust income growth and confidence that the most challenging phase of rate hikes has passed. Their forecast anticipates a 2.6% expansion in the world economy next year, with the US expected to outpace other developed markets and grow by 2.1%. The bank highlights the continued cooling of inflation across G10 and emerging market economies but believes interest rates cuts are unlikely until the second half of 2024.

Philippine Stocks

 Philippine Stocks steady as sentiment turned positive.

• Philippine Stocks edged higher on the back of faster-than-expected gross domestic product (GDP) growth in the third quarter, which positively influenced market sentiment. The local market has been forming a support base with a gradual reduction of selling pressure. Improved sentiment is attributed to contained geopolitical concerns related to the Israel war, with fears of it spreading to other Arab nations easing.

• Foreign investment pledges approved by investment promotion agencies (IPAs) more than doubled in the third quarter compared to the same period a year ago. Commitments surged by 109%, reaching Php 27.3 billion from Php 13.05 billion a year ago. This indicates the government’s successful endeavors to attract more foreign investors. It also reflects the impact of government’s liberalization reforms and trade agreements, allowing for increased foreign participation

Philippine Bonds

Philippine Bond yields fell in line with the drop in US treasury yields.

• The Bureau of Treasury (BTr) fully awarded a re-issued ten-year treasury bond with a remaining term of nine years and nine months at an average rate of 6.781%. The yield was lower compared to the 6.954% seen during its last auction on October 24. Yields fell because of positive factors, such as lower global bond yields, reduced global crude oil prices, and a decrease in inflation.

• The Bangko Sentral ng Pilipinas (BSP) is expected to keep interest rates steady amid a slowdown in inflation during October. This gives the BSP the flexibility to adopt a wait-and-see approach. If the current trend continues, suggesting less price pressures, it seems reasonable to think that the BSP might initiate policy easing by the second half of 2024.

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/2023/11/14/cpi-inflation-report-october-2023.html (2) https://www.cnbc.com/2023/11/13/consumer-spending-fell-in-october-according-to-new-cnbc/nrf-retail-monitor-tracking-card-transactions.html (3) https://www.cnbc.com/2023/11/14/goldman-sachs-says-world-economy-to-perform-better-than-expected-in-2024.html (4) https://www.bworldonline.com/stock-market/2023/11/09/556704/psei-rises-after-better-than-expected-gdp-growth/ (5) https://www.bworldonline.com/top-stories/2023/11/15/557473/foreign-investment-pledges-surge-in-q3/ (6) https://www.bworldonline.com/top-stories/2023/11/13/557019/bsp-to-hold-steady-on-rates-poll/ (7) https://www.pna.gov.ph/articles/1213638

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.