Ongoing tariff concerns lead to market volatility

Global and Philippine Market Update
Nov. 14 to Nov. 20, 2024

Global Markets

Global Stocks retreated as tariff concerns weighed on investor sentiment. 

• The Federal Reserve Chairman Jerome Powell stated that the recent performance of the US economy has been "the best of any major economy in the world." This comment came a week after the Fed cut interest rates for the second consecutive meeting. The US central bank has begun reducing its key lending rates from a two-decade high, shifting its focus from combating inflation to supporting the labor market as inflation rates have moderated. "The recent performance of our economy has been remarkably good, by far the best of any major economy in the world," Powell said. He also mentioned that inflation, according to the Fed's preferred gauge, is "running much closer" to the target, though it hasn't quite reached it yet.

• Morgan Stanley’s chief global economist, Seth Carpenter, has indicated that Donald Trump’s proposed tariffs could hinder U.S. economic growth through 2026. President-elect Trump has announced plans to impose a blanket tariff of 10% to 20% on all imports, with additional tariffs of 60% to 100% on goods from China. During the September Presidential debate, he described this strategy to extract funds from competing countries. The timing and speed of these tariffs' implementation remain uncertain. If enacted all at once, they could deliver a significant negative shock to the economy. 

• A growing number of Japanese companies in China are relocating their production bases to ASEAN countries. This shift is driven by the slowdown in China's economic growth and rising concerns about the risks of operating in China, including the arrest of foreign residents on unclear charges.

Philippine Stocks

Philippine Stocks gained amid bargain hunting as the market stayed undervalued.

• The local market is expected to be volatile due to a weak peso and negative market sentiment regarding incoming US President Donald Trump’s protectionist policies. "Concerns over trade and global growth continued to weaken emerging markets in general," referencing another weekly sell-off. Japhet Louis O. Tantiangco, senior research analyst at Philstocks Financial, Inc., added that economic headwinds could lead to a market fall. "If our current headwinds persist this week, the risk of another decline remains high," he said. "These headwinds include the weakness of the local currency and the rise of long-term local and US yields.“

• The Philippine market closed higher for the fourth consecutive day this week, reaching the 6,900 level, driven by the possibility of a 100 basis-point (bp) rate cut by the Philippine central bank next year. The market was buoyed by reassurances from the Bangko Sentral ng Pilipinas (BSP) that the country's monetary policy remains in its easing phase, with a potential total rate cut of 100 bps next year. BSP Governor Eli M. Remolona, Jr., mentioned that the Monetary Board is likely to implement rate cuts in the 100-bp range but hinted that they might either cut or maintain the rates at their December 19 meeting.

Philippine Bonds

Philippine Bond yields remained rangebound as rate cut hopes clashed with weak peso.

• Inflationary pressures might lead the Philippine central bank to halt its easing cycle, but a slowdown in growth could allow for another rate cut, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. Inflation pressures may cause us to pause a bit, but weak growth may cause us to cut, he said. Depending on the data, the Monetary Board may decide to cut or pause at its December 19 meeting. This year, the BSP has implemented a total of 50 basis points in rate cuts, with 25-basis-point reductions in both August and October.

• Analysts suggest that the government needs to enhance the productivity of the rice industry to effectively tackle the issue of volatile rice prices, noting that reducing import tariffs is only a short-term fix. "The longer-term solution would be to strengthen the rice industry to stabilize prices and contribute to food security," said Marie Annette Galvez-Dacul, Executive Director of the University of Asia and the Pacific (UA&P) Center for Food and Agribusiness. She added that lowering tariffs on imported rice will only temporarily reduce prices. "There is a need to balance supporting consumers with lower prices and protecting farmers," she emphasized.

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.msn.com/en-ph/news/other/us-has-best-performing-economy-fed-chief/ar-AA1u9QVb?ocid=BingNewsVerp (2) https://www.cnbc.com/2024/11/20/trump-tariffs-to-push-down-us-growth-going-into-2026-morgan-stanley.html (3) https://business.inquirer.net/491085/japanese-companies-transferring-production-from-china-to-southeast-asia (4) https://www.bworldonline.com/stock-market/2024/11/17/635339/psei-may-decline-on-weaker-peso-trump-victory/ (5https://www.bworldonline.com/stock-market/2024/11/20/636236/psei-rallies-to-6900-level-as-bsp-hints-of-rate-cuts/ (6) https://www.bworldonline.com/top-stories/2024/11/21/636328/inflationary-pressures-may-prompt-pause-in-december-remolona/ (7) https://www.bworldonline.com/economy/2024/11/20/636311/lowering-rice-tariffs-called-a-temporary-inflation-fix/

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.