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June didn’t bring in strong rains, but rather more positive signs of economic recovery. These included: the plunge of inflation to 2.7%, the rally in National Government (NG) spending in May (up 8.9%, excluding interest payments), exports growth remaining in the black for the second month in a row, and more leeway for the Bangko Sentral ng Pilipinas (BSP) to further cut policy rates and reserve requirements ratio (RRR) with M3 meekly rising by 6.4% in May. The peso appreciated by 0.9% as the balance of trade deficit narrowed. These and the prospect of continuing lower interests in the US, fueled more optimism that spilled into the bond and stock markets by early July.



Key developments in May include the cut in Bangko Sentral ng Pilipinas (BSP) policy rate and in reserve requirement (100 bps) effective end of May, and commitment of the Finance Secretary to ramp up government spending with the April 15 approval of the 2019 National Government (NG) budget. NG has devised a catch up plan, especially for infrastructure spending to reach 5.2% of GDP for the year. The rise in inflation rate to 3.2% in May from 3.0% a month ago appears temporary and we expect it to fall below 3% by June and onward to below 2.0% by September.



The economy expanded only by 5.6% in Q1, due to the delayed approval of 2019 National Government (NG) budget resulting in slower infrastructure spending (-8.6%) and a larger current account deficit (which alone cut growth by almost 0.7% points). However, consumer spending gained a lot, with lower inflation and widespread election spending. Bangko Sentral ng Pilipinas’ (BSP) policy rate cut by 25 bps and reserve requirement ratio cut by 200 bps (phased from end May to end-July) should support a strong recovery starting Q2. The bond markets will likely fully benefit from the cuts more by July. The stock market, which managed to eke out a slight 0.4% rise, may have to wait until after the “ghost month” to break away from its trading range.











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Wall Street

Wall Street at New High; Risk Indicators also Higher

July 11, 2019


Wall Street closed at new peak. Boom! America’s S&P 500 index has closed at a new all-time high last night. And it’s again about the Fed’s dovish tone. Federal Reserve Chair Jerome Powell told the US Congress about a pending rate cut this month, citing risks from the trade truce with China and that June’s strong U.S. jobs report (higher than expected at 224k versus average of 160k monthly in recent months) had not shifted the outlook.

Yields Fall on Short Supply

Yields Fall on Short Supply

July 5, 2019


Expect local bond yields to remain subdued with appetite still mainly in the short-end, which fell last week by an average of 16bps against the long-end’s 9-bp average decline. Buying interest in the short-end was reflected in the dramatic 50-bp drop of the 91-day bill rate to 3.88% and the slight correction in the long end from of 4.9% to 5.10%.

Profit taking

Profit taking

July 5, 2019


This week, we expect the resistance of 8,100 to hold, meaning PSEi will again struggle to break above it as the market recently sold on news of the June inflation beat and ahead of Fed’s Powell Congressional appearance amid the US markets’ correction after hitting new all-time highs. US and Philippine second quarter earnings results are coming out in the next two to three weeks and guidance for the rest of the year will be closely watched.

















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