Monetary easing keeps markets trending higher

Global and Philippine Market Update
Sept. 19 to Sept. 25, 2024

Global Markets 

Global Stocks trended higher on expectations of further cuts.

• Significant changes are anticipated for the U.S. economy by year-end, and experts advise investors to prepare now. The Federal Reserve recently reduced interest rates by 50 basis points, with further cuts expected. The main question is whether the next cut will be 25 or 50 basis points. The upcoming November election adds another layer of uncertainty, with market volatility likely to persist through October. However, post-election market rallies and a strong fourth quarter earnings season are expected to create a positive impact.

• China is planning to inject up to 1 trillion yuan ($142.39 billion) into its largest state banks to help support the struggling economy. This is part of a broader set of stimulus measures introduced by Beijing. The funding will likely come from new special sovereign bonds. The National Financial Regulatory Administration has not yet commented on this. Major Chinese banks are dealing with shrinking margins, declining profits, and increasing bad loans due to slow economic growth and a property sector crisis. This would be the first major capital injection since the 2008 financial crisis. Following the news, China’s CSI300 index and Hong Kong’s Hang Seng Index rose, and the yuan strengthened.

Philippine Stocks

Philippine Stocks got a boost as central banks begin the easing cycle.

• Despite macroeconomic challenges, Philippine banks remain optimistic for 2024-2025, expecting double-digit growth in assets, loans, deposits, and net income. The 2023 Banking Sector Outlook Survey revealed that most banks foresee a stable or stronger banking system, with improved loan quality and robust capital and liquidity positions. Banks plan to focus on corporate and retail lending, sustainable projects, and digital transformation while enhancing risk governance to address credit, operational, and macroeconomic risks.

• Philippine shares moved higher, buoyed by expectations of further rate cuts from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve. Investors were encouraged by Wall Street’s record performance, which was driven by optimism about the Fed’s monetary policy. Positive sentiment towards the BSP’s policy outlook also contributed to the market’s upward momentum, according to Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco.

Philippine Bonds

Philippine Bond yields are expected to continue trending lower as inflation eases.

• BSP Governor Eli Remolona Jr. suggested that the BSP might cut interest rates by 25 basis points at each of the last two Monetary Board meetings this year, potentially totaling 75 basis points and bringing the key rate to 5.75% by the end of 2024. Inflation, which slowed to 3.3% in August, may further decrease in September due to reduced tariffs on rice. The September inflation figure, expected next week, will be crucial for their projections, as monetary policy effects are typically delayed.

• Philippine inflation is projected to drop to 2.5% in September, which could give the central bank more leeway to cut interest rates, according to Finance Secretary Ralph G. Recto. However, the government remains cautious due to the potential for rising global oil prices amid the Middle East conflict. The September inflation data, set to be released on October 4, could influence the BSP to align its rate cuts with those of the US Federal Reserve.

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/2024/09/25/interest-rate-cuts-market-volatility-what-investors-can-do-to-prepare.html (2) https://www.bworldonline.com/world/2024/09/26/624061/china-weighs-injecting-142-bln-of-capital-into-top-banks-bloomberg-news-reports/ (3) https://business.inquirer.net/482115/two-more-rate-cuts-this-year-possible-bsp (5) https://www.bworldonline.com/top-stories/2024/09/25/623670/sept-inflation-likely-eased-to-2-5-recto/ (6) https://www.pna.gov.ph/articles/1234212 (9) https://www.bworldonline.com/stock-market/2024/09/24/623639/phl-shares-rise-further-on-rate-cut-expectations/

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.