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The economy likely expanded faster in Q3 than the 6% posted for Q2, as red-hot investment spending and robust manufacturing sector stepped up on the accelerator. Capital goods imports soared by 39% in July, while National Government (NG) spending added fuel to growth with a 29% uptick, likely driven by infrastructure and capital outlays. Exports had its third consecutive month of growth, albeit still at a mild pace. Accelerating inflation in September to 6.7%, highest in the region, will put some brakes on consumer spending as it has done for the bond and stock markets.



New positive economic data have failed to dominate the financial markets as faster inflation and renewed peso weakness have clouded the overall picture. Capital goods soared by 30.1% in June, while the volume of industrial production (VOPI) again rose double-digits at 11.8% in July. Exports appear to have turned a corner as growth entered positive territory in June and July. We expect the Monetary Board to lift policy rates by 50 basis points (bps) to 4.5% this month as it seeks to cool inflationary expectations and exchange rate pressures.



Just after very strong numbers (above-20% upticks) emerged from investment spending, infrastructure and capital outlays, foreign direct investments, and volume of industrial production index in Q2, the Philippine Statistics Authority reported an underwhelming 6% GDP growth for Q2, a substantial deceleration from 6.6% in Q1. The locus of the weakness came from the demand side, particularly the larger deficit in the trade of goods and services. It could also be attributed to faster inflation which clocked at 5.7% in July, shortly after which Bangko Sentral ng Pilipinas (BSP) raised its policy rates by 50 bps to 4%. The reported slowdown also contrasted with the positive performances of the equities and bond markets.








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Strategy report: Tighter

September 21, 2018


Corporates are seeing higher rates in the horizon and borrowing now through bonds, commercial papers and long-term deposits. It will be a tighter monetary system because inflation is not peaking anytime soon due to the typhoon devastation and thus the likelihood of BSP’s stronger inflation countermeasure; 50 to 75 basis point policy hike for the rest of the year.

Awaiting Policy Rate Hike

Awaiting Policy Rate Hike

September 14, 2018


We expect the PSEi to continue its downward bias as global trade tension re-emerged after Pres. Trump approved new tariffs worth $200bn of Chinese exports and threatened tariffs on $267bn more Chinese goods. On the domestic front, investors will await the Monetary Board (MB) meeting on Sept. 27 which is expected to raise policy rates by another 50 bps following BSP Gov. Espenilla’s pronouncement of another strong monetary action to support the peso which slumped to a 13-year low of P54.11/$ on Sept. 17 and ensure that inflation will return to BSP’s target of 2-4% by 2019.

Rate hikes ahead

Rate Hikes Ahead

September 14, 2018


Indications in the bid rates of the Bureau of the Treasury’s (BTr) auctions and in the secondary market show that the market is already pricing in a 50-bp hike next week. The latest 10-yr auction, which was fully-rejected, had an average bid rate of 7.64%, almost a full percentage point higher than the last done rate of 6.725%. Furthermore, BSP Governor Espenilla recent statement that the bank will take “strong monetary action” amid rising inflation and uncertainty over impact of recent Typhoon Mangkhut on local prices of goods.











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