Lower than expected US inflation pushes equity markets higher

Global Stocks

Global Stocks soared to their highest level in two months as US inflation eases.

• US inflation rose to 8.5% in July, slower than the 9.1% increase in June. The slower pace of increase was driven by a pullback in energy prices. This was lower than expected as economists were forecasting an increase of 8.7%. Investors took this as an encouraging sign that inflation may have finally peaked and that the Fed rate hikes are working.
• US companies surprisingly reported good earnings despite the negative outlook on the economy. Growth estimates were lower for the second half of the year but remain positive. Investors were prepared for earnings to drastically drop but reports show corporate earnings as more resilient than anticipated.
• The US unemployment rate came in at 3.5% which brings it back to its pre-pandemic levels and tied for its lowest since 1969. Wages have also improved by 5.2%, year-on-year. The labor market remains strong even as the economy shows signs of weakness. This is a good sign for the broad US economy and may keep it from entering a recession or keep any recession short.

Philippine Stocks

Philippine Stocks ended higher this week in line with global trends.

• The Philippine economy grew by 7.4%, which is at the high end of the government’s 6.5-7.5% target. Socioeconomic Planning Secretary Arsenio M. Balisacan stated that the country’s economy needs to grow by 5.3% in the second half of the year to achieve a 6.5% full year growth rate. He believes that this is achievable despite the challenges the country faces.
• Philippine unemployment rate held steady at 6% in June, but job quality improved as underemployment fell 5.88 million from 6.41 million the previous year. Average hours worked also improved to 40.3 hours in June compared to 39 hours a year ago. The improving job market is a good sign for the overall economy as it moves beyond the pandemic.

Philippine Bonds

Philippine Bond Yields trended lower, particularly between the 4- and 10-year maturities. Concerns over further central bank rate hikes and inflation have eased, which led to growing demand for bonds.       

• The Bureau of Treasury (BTr) fully awarded a reissued seven-year bond at an average rate of 5.79%. This was significantly lower than the 6.76% rate fetched during the previous auction in July. The pullback in yields was due to high demand for longer tenor bonds as investors took advantage of the high yields on offer.
• The debt to gross domestic product (GDP) ratio eased to 62.1% in June, lower than the 63.5% seen in March. Rizal Commercial Banking Corp. Chief Economist Michael Ricafort stated that the lower ratio was partly due to faster economic growth, which widened the GDP base. Finance Secretary Benjamin Diokno expects the ratio to steadily drop to 61.3% by next year and 52.5% by 2028.

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/2022/08/10/consumer-prices-rose-8point5percent-in-july-less-than-expected-as-inflation-pressures-ease-a-bit.html (2) https://www.reuters.com/markets/us/us-corporate-profits-economic-outlooks-surprisingly-upbeat-2022-08-02/ (3) https://www.cnbc.com/2022/08/05/jobs-report-july-2022-528000.html (4) https://www.bworldonline.com/top-stories/2022/08/10/467228/q2-growth-slows-amid-rising-inflation/ (5) https://www.bworldonline.com/top-stories/2022/08/09/466762/unemployment-rate-steady-in-june/ (6)https://www.bworldonline.com/top-stories/2022/08/10/467227/banks-npl-ratio-falls-to-21-month-low-in-june/ (7) https://www.philstar.com/business/2022/08/10/2201478/demand-up-rates-down-t-bonds (8) https://www.bworldonline.com/top-stories/2022/08/10/467226/phl-debt-now-at-62-1-of-gdp/

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.

The information here is compiled from various credible sources and is a summary of a particular period only. Though we strive to provide accurate and complete information, we cannot guarantee that this article will be error-free.