Markets move higher as inflation continues to ease

Global and Philippine Market Update
July 4 to July 10, 2024

Global Markets

Global Stocks gained amid resilient growth and declining inflation.

• Federal Reserve (Fed) Chairman Jerome Powell expressed concerns that maintaining high interest rates for too long or reducing them too late or too little could weaken economic activity. Fed officials have noted that recent inflation data has been encouraging, and further positive data would boost their confidence that inflation is sustainably moving towards the 2% target. Despite the increasing unemployment rate and declining gross domestic product (GDP), Powell believes the US economy continues to expand at a solid pace.

• US unemployment climbed to 4.1%, its highest level since October 2021, supporting the idea that the Fed may cut rates relatively soon. According to David Russel, global head of market strategy at TradeStation, the job market seems to be bending but not breaking, which bolsters the argument for rate cuts. Despite indications from the fed of just one cut, markets are pricing in two rate cuts this year.

Philippine Stocks

Philippine Stocks maintained their upward trend as sentiment improves.

• Philippine tourism generated Php 282 billion in revenue for the first half of 2024, a 32.81% increase from the same period last year. Tourism Secretary Christina Frasco noted that this increase will contribute to more livelihood opportunities. The second half is expected to see even more tourists, leading to greater revenues and more Filipinos employed in tourism-related industries.

• National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan stated that the Php 35 increase in the daily wage of workers in the National Capital Region would have a minimal impact on Philippine GDP. The hike could affect 40,000 to 140,000 workers if small businesses close or reduce personnel, but this number is considered negligible. Despite this, the economy is still expected to grow 6 to 7%, which should provide alternative jobs for those affected by the wage increase.

Philippine Bonds

Philippine Bond yields moved lower in line with US rates.

• The Bureau of Treasury (BTr) fully awarded a re-issued 20-year treasury bond at an average rate of 6.286%. This was lower than the prevailing rate in the secondary market. Bangko Sentral ng Pilipinas (BSP) officials reiterated the possibility of a rate cut in August, which will help pull yields lower.

• Philippine inflation eased to 3.7% in June, falling within the Bangko Sentral ng Pilipinas’ (BSP) target forecast of 3.4-4.2%. This marked the seventh consecutive month that inflation settled within the BSP’s 2-4% target band. The cooling inflation can be attributed to slower increases in housing, water, electricity, gas, and other fuels. However, food inflation continues to rise, reaching 6.5% in June, up from 6.1% in May. On a positive note, rice inflation dropped to 22.5% from 23% the previous month. 

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/2024/07/09/fed-chief-powell-says-holding-rates-high-for-too-long-could-jeopardize-economic-growth.html (2) httpshttps://www.cnbc.com/2024/07/05/jobs-report-june-2024.html (3) https://business.inquirer.net/468165/dot-on-tourism-revenue-for-2024-first-half (4) https://www.bworldonline.com/top-stories/2024/07/10/607040/ncr-wage-hike-unlikely-to-hurt-economy-neda/ (5) https://www.pna.gov.ph/articles/1228584 (6) https://www.bworldonline.com/top-stories/2024/07/05/606375/philippine-inflation-eases-to-3-7-in-june/

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.