Markets higher on AI optimism despite hawkish tone from Fed

Global and Philippine Market Update
Feb. 15 to Feb. 21, 2022

Global Markets

Global Stocks increased despite hawkish tone from the Fed. 

• The US inflation picture becomes more complicated as the Producer Price Index (PPI) jumped 0.3% in January, marking its largest increase since August 2023. However, on a 12-month basis, PPI stands at just 0.9%, slightly lower than December’s 1%. The market had anticipated the Federal Reserve to leverage easing inflation figures for substantial cuts this year, but these expectations are being tempered as inflation remains stubbornly elevated.

• The British economy entered a technical recession in the final quarter of 2023, but January’s robust retail sales bring hope that the recession might be brief. Economists see the uptick as a positive sign for the retails sector, with falling inflation and increasing wages expected to support recovery in 2024. The two consecutive months of increased sales volume are promising, especially after 19 months of decline.

• Buying interest was seen after NVIDIA released a higher earnings estimate than market forecast which drove optimism around AI.

Philippine Stocks

Philippine Stocks edged higher on strong corporate result.

• Standard Chartered Bank economist Jonathan Koh notes the resilience of consumer spending in the Philippines. He suggests that consumers may be tapping into savings and borrowing simultaneously. Consumer loans to residents saw a significant 23.6% growth to Php 1.27 trillion at end-December, fueled by credit card, motor vehicle and salary loans. With robust labor market conditions and improved employment, household spending is expected to receive support, as Filipino families aim to repay loans with higher incomes. Standard Chartered Bank forecast a 6% growth rate for the Philippines in 2024, up from 5.6% in 2023.

• Some corporate earnings numbers were out during the week. Results generally performed in line with or exceeded market expectations, contributing to the overall optimism.

Philippine Bonds

Philippine Bond yields inched higher as Fed minutes read more hawkish than market expectations.

• Fed worried about cutting rates too soon as shown in minutes of January meeting. The minutes seemed to reinforce the recent message of Fed policymakers that they would be in no hurry to deliver on rate cuts that officials still expect to begin sometime this year.

• Pantheon’s Chief Emerging Asia Economist, Miguel Chanco, observes that the discussion about the necessity of maintaining sufficiently tight monetary policy has vanished, with monetary board members committing to keeping it unchanged amid improving inflation. The BSP is navigating a delicate balance to support the economy without stoking inflation or putting pressure on the peso, which could lead to capital outflows. Pantheon predicts an average inflation rate of 2.8% for 2024 and anticipates the Bangko Sentral ng Pilipinas (BSP) will lower rates by 100 basis points this year.

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/2024/02/16/january-wholesale-prices-rise-0point3percent-more-than-expected.html (2) https://www.cnbc.com/2024/02/16/uk-retail-rebound-provides-glimmer-of-light-for-recession-hit-nation.html (3) https://www.bworldonline.com/top-stories/2024/02/21/576865/philippine-consumer-spending-may-grow-5-5-this-year-sp/ (4) https://www.bworldonline.com/top-stories/2024/02/20/576715/analysts-bsp-may-cut-rate-starting-may/ (5) https://www.bworldonline.com/stock-market/2024/02/21/577026/stocks-rise-further-on-strong-corporate-results (6) https://www.reuters.com/markets/us/fed-concerned-about-cutting-rates-too-soon-minutes-january-meeting-show-2024-02-21/

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.