Optimism drives markets higher on positive economic data

Global and Philippine Market Update
August 15 to August 21, 2024

Global Markets

Global Stocks continued to rally amid resilient consumer spending.

• July showed positive signs for the US economy, with consumer spending surpassing expectations and inflation pressures easing. According to the Commerce Department, advanced retail sales increased by 1% monthly, exceeding the predicted 0.3% growth. This shows that the US consumer continues to surprise on the upside. The recent Walmart earnings report also demonstrated the theme of a stable consumer. Walmart reported strong earnings and showed confidence by raising its outlook. However, they expressed some caution regarding the second half of the year.

• Goldman Sachs has reduced its probability forecast for a U.S. recession to 20% after raising it earlier, indicating positive signs for the economy. The reassessment came after the release of fresh labor market data which showed no indications of a recession. Retail sales for July rose more than expected, and weekly unemployment benefit claims were lower than anticipated. While further weakening in the labor market could potentially push the U.S. into a recession, markets have already factored in a 25-basis point Federal Reserve (Fed) rate cut in September.

• The recent New York Federal Reserve survey reveals concerning trends in the U.S. labor market. The survey shows a decrease in employed individuals, a rise in job seekers, and growing dissatisfaction with pay. Job security is a growing concern, with more people expecting to be employed beyond the retirement age as 34.2% of survey respondents anticipate working beyond the age of 67. The survey also showed a decline in job retention, with only 88% of individuals who were employed in the previous survey retaining their jobs. This is the lowest retention rate since 2014.

Philippine Stocks

Philippine Stocks moved higher, on track to hit 7,000.

• The Philippine Stock Exchange index (PSEi) surged above 6,800 early in the week, marking its best close in over four months, driven by the Philippine central bank’s first rate cut in nearly four years. Investor optimism was fueled by the Bangko Sentral ng Pilipinas’ (BSP) recent 25-basis point rate cut to 6.25%, with expectations of further monetary easing. The market is poised to test the 7,000 psychological resistance level. A successful breach could trigger a significant upward breakout.

• Analysts are becoming more optimistic amid growing investor confidence and market strength. The PSEi is likely to surpass the 7,000 level before the year ends. The anticipated looser monetary policy should benefit the stock market by lowering borrowing costs and improving valuations. Sustained economic growth could also attract more foreign investments and increase liquidity. However, risks remain, with high inflation dampening consumer spending and a possible U.S. recession still posing a threat to the Philippine market.

Philippine Bonds

Philippine Bond yields trended lower on expectations of further easing.

• Nicholas Mapa, Chief Economist at Metrobank, believes the BSP has room to cut rates three times this year due to softer inflation and robust growth. The BSP forecasts that inflation will remain within their 2-4% target through 2026. They aim for a “calibrated” shift to an easier monetary policy stance, indicating that the current easing cycle will be gradual.

• The BSP rate cut cycle is expected to continue into 2025, with benchmark rates potentially dropping to between 4.5% and 5% next year. The BSP can afford a gradual cut as economic growth remains stable and the labor market strong. The BSP may follow the Fed’s rate cuts one-for-one in the coming months. The easing cycle is unlikely to significantly impact the local currency, as the peso has been one of the top performers over the past month, even with the BSP cutting rates ahead of the Fed. 

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/2024/08/19/goldman-sachs-cuts-odds-of-us-recession-to-20percent-on-fresh-data.html (2) https://www.cnbc.com/2024/08/19/fed-survey-shows-lows-in-employment-and-dissatisfaction-with-pay.html (3) https://www.cnbc.com/2024/08/15/retail-sales-july-2024-.html (4) https://www.bworldonline.com/stock-market/2024/08/19/614914/psei-rallies-to-6800-on-positive-market-sentiment/ (5) https://www.bworldonline.com/top-stories/2024/08/21/615202/phl-stock-market-seen-to-get-much-needed-lift-from-bsp-easing-cycle/ (6) https://business.inquirer.net/475884/2-more-bsp-rate-cuts-seen-in-2024 (7) https://www.bworldonline.com/top-stories/2024/08/19/614718/policy-rate-seen-at-4-5-5-in-2025/

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.