Trump delivers on tariff threats

Global and Philippine Market Update
Feb. 27 to March 5, 2025

Global Markets

Global Stocks edged lower as tariffs take effect.

• Shipping giant Maersk warns that President Trump's tariffs on Mexico and Canada will lead to higher prices soon, despite the White House's stance that inflation is not a concern. Retailers like Target and business lobbies such as the US Chamber of Commerce expect price increases throughout supply chains, affecting consumers directly. Trump's tariffs include a 25% tax on goods from Mexico and Canada, plus additional levies on Canadian energy products and Chinese goods. In response, Canada and China have announced their own retaliatory tariffs, with Mexico set to follow. Maersk anticipates that the inflationary impact of these tariffs will persist in the mid- to long-term, although the effect may soften over time. Despite concerns, the US consumer market remains resilient and strong, continuing to drive the economy. Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent have downplayed inflation fears, suggesting that other countries will absorb the tariffs, but the broader trade war remains a significant concern for the maritime and transport sectors.
• China has expressed its readiness to engage in "any type of war" with the US as President Donald Trump increases economic and political pressure. The Chinese Embassy in the U.S. stated on X that they are prepared to fight till the end, whether it's a tariff war, trade war, or any other type of war. This follows Trump's additional 10% tariffs on Chinese imports, bringing the total to 20%. A Chinese foreign ministry spokesperson urged the U.S. to stop its domineering behavior and return to dialogue and cooperation.

Philippine Stocks

Philippine Stocks found support from low inflation.

• Philippine shares gained some momentum as headline inflation slowed to a five-month low of 2.1% in February. The slowdown in inflation is expected to positively impact gross domestic product performance, particularly household consumption. It also raises prospects for policy easing by the Bangko Sentral ng Pilipinas (BSP). The better-than-expected February inflation data kept the index above the 6,100 mark.
• Analysts believe the Philippines is well-insulated from retaliatory tariffs due to its trade balance and currency stability. The country imports more than it exports, reducing its vulnerability to tariffs. US President Trump's new tariffs on imports from Mexico, Canada, and China have raised concerns, but the Philippine economy is largely driven by domestic consumption, making it less affected. The US targets countries with significant trade surpluses, which does not include the Philippines. Additionally, the Philippines could benefit from foreign direct investment as companies seek alternative destinations. The peso is expected to perform better than other regional currencies due to its higher yield and the country's economic resilience.

Philippine Bonds

Philippine Bond yields rose amid concerns over tariff impact.

• The government encountered higher borrowing costs during the latest Treasury bond (T-bond) sale, amid financial market unease due to new US tariffs taking effect. The Bureau of the Treasury (BTr) successfully raised P30 billion as planned through reissued T-bonds with a remaining maturity of five years and four months. The auction attracted total tenders of P56.8 billion, doubling the original offering size. Despite this strong demand, the debt securities fetched an average rate of 6.019%, higher than the 5.968% from the previous auction of the same tenor on February 4.
• Headline inflation in the Philippines sharply decelerated to 2.1% in February, the slowest in five months, according to preliminary data from the Philippine Statistics Authority (PSA). This was below the Bangko Sentral ng Pilipinas (BSP) forecast of 2.2%-3% and the 2.6% median estimate from a BusinessWorld poll. The main driver of the deceleration was the food and nonalcoholic beverage index, which slowed to 2.6% from 3.8% in January. Rice inflation decreased significantly due to government interventions, including the release of buffer stocks and adjustments to the maximum suggested retail price. Despite the overall slowdown, pork prices rose due to African Swine Fever, and electricity inflation dropped even as Meralco raised rates. Analysts expect inflation to remain within the BSP's 2-4% target, though they remain cautious of potential risks such as higher electricity prices and global commodity price increases.

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/2025/03/04/inflation-from-trump-tariffs-will-hit-soon-says-shipping-giant-maersk.html (2) https://www.cnbc.com/2025/03/06/tariff-war-a-trade-war-or-any-other-type-of-war-china-says-its-ready-to-fight-us-until-the-end.html (3) https://www.bworldonline.com/stock-market/2025/03/05/657394/psei-rallies-as-phl-inflation-eases-to-5-month-low/ (4) https://business.inquirer.net/510030/t-bond-rates-up-as-investors-take-cover-from-fresh-us-tariffs (5) https://www.bworldonline.com/top-stories/2025/03/06/657543/inflation-eases-sharply-in-february/ (6) https://www.bworldonline.com/top-stories/2025/03/05/657175/philippines-to-be-well-insulated-from-trumps-tit-for-tat-tariffs-analysts-say/

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.