Momentum builds amid renewed expectations of rate cuts

Global and Philippine Market Update
May 1 to May 8, 2023

Global Markets

Global Stocks rallied amid weaker employment data supporting the possibility of lower interest rates.

• The US economy added 175,000 jobs in April, fewer jobs than expected, while unemployment rate rose to 3.9%, sparking hopes that the Fed might cut interest rates in the coming months. Average hourly earnings also fell below expectations, growing at 3.9% year-on-year. This led traders to anticipate a strong chance of two interest rate cuts by the end of the year. The jobs report was a good sign as it provides the Fed with data it wants to see.

• Federal Reserve (Fed) Bank of Boston President Susan Collins stated that the recent upward surprise in inflation suggests the need to maintain policy at its current level. Persistent price pressures have created uncertainty regarding when the central bank might consider cutting rates, although Fed officials have not ruled out the possibility of easing. However, they have refrained from providing a specific timeline. Collins remains optimistic about achieving 2% inflation but acknowledges that it may take longer than previously anticipated.

• Tensions between Washington and Beijing have escalated as the US increases trade restrictions and sanctions on China, citing national security concerns. Trade between the US bloc, which mainly includes Europe, Canada, Australia and New Zealand and China-leaning countries, including Russia and Syria, has declined. Although economic fragmentation has not reached Cold War levels, its potential impact is significantly due to the global economy’s dependence on trade. Despite this trend, the ratio of total goods trade to global GDP has remain stable over the past two decades. 

Philippine Stocks

Philippine Stocks edged lower as it tries to build positive momentum.

• May is expected to maintain its volatility following a turbulent April, characterized by a major correction from the local market. Traders are bracing for continued uncertainty amid the declining likelihood of rate cuts and increased geopolitical tensions. Historically, May is challenging for the market, but with the positive earnings season, there is optimism for a potential boost that could provide a lift to equity prices.

• The Philippine economy expanded by 5.7% in the first quarter of the year, slightly below the government’s target and slower than the 6.4% growth recorded in the same period last year. The administration aimed for a growth rate of 6 to 7% for this year. However, analysts believe that achieving a 6% growth rate would be challenging as long as interest rates remain high. The current environment dampens consumption which has already been affected by elevated prices.

• Philippine manufacturing surged in April, registering its quickest expansion as per S&P Global’s Philippine Purchasing Managers’ Index (PMI), climbing from 50.9 in March to 52.2. This reading placed the Philippines second among six Association of Southeast Asian Nations (ASEAN) members, trailing only Indonesia at 52.9. Manufacturers heightened their purchasing activities at the fastest pace in nine months during April, driven by improved demand and heightened production needs.

Philippine Bonds

Philippine Bond yields fell in line with US treasury yields.

• The Bureau of Treasury (BTr) fully awarded a reissued treasury bond with a remaining term of 9.7 years at an average rate of 6.825%. This was lower than similar bonds quoted in the secondary market. The lower yield was driven by easing tensions in the Middle East and lower US treasury yields.

• Headline inflation continued its upward trend for a third consecutive month, driven by increased food prices and transport expenses, as reported by the Philippine Statistics Authority. This remained withing The Bangko Sentral ng Pilipinas’ (BSP) forecast range of 3.5 to 4% for the month and markets the fifth consecutive month that inflation remained within the central bank’s target range of 2 to 4%.

• Rice inflation notably surged by 23.9% year-on-year, contributing approximately 46.2% to the overall inflation rate. Agricultural losses due to El Niño amounted to Php 5.9 billion, with Php 3.14 billion attributed to rice production.

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/2024/05/03/jobs-report-april-2024-us-job-growth-totaled-175000-in-april.html (2) https://www.cnbc.com/2024/05/08/us-and-china-trade-bloc-divisions-threaten-a-reversal-for-global-economy.html (3) https://www.reuters.com/markets/us/feds-collins-says-economy-may-need-weaken-get-2-inflation-2024-05-08/ (4) https://business.inquirer.net/457999/philippine-economy-grew-5-7-in-q1 (5) https://www.bworldonline.com/stock-market/2024/05/01/592157/volatility-may-persist-after-wild-april-for-market/ (6) https://www.bworldonline.com/top-stories/2024/05/03/592543/manufacturing-expands-at-fastest-clip-in-5-months/ (7) https://www.bworldonline.com/top-stories/2024/05/08/593427/phl-inflation-quickens-to-3-8-in-april/ (8) https://www.pna.gov.ph/articles/1224262

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.