Stock Market
The Philippine Stock Exchange Index (PSEi) slightly picked up in April to close at 7,952.72, increasing by 0.40% from March’s 7,920. Year-to-date, the local bourse inched up by 6.52% from 2018’s finish of 7,466. Likewise, foreign flows remained strong, posting a year-to-date net buying of P42.72 billion following an inflow of P10.09 billion in April.
Trading remained sidelined as the index consolidated within the 7,700-8,000 levels amid mixed catalysts at home and abroad. Selling pressures were imminent, beating down investors’ confidence on recurring global growth uncertainties. Accordingly, the International Monetary Fund (IMF) trimmed its outlook for world growth to the lowest since the financial crisis amid bleaker outlook in most advanced economies and on signs that higher tariffs are weighing on trade. Latest projections showed the world economy may grow by 3.3% this year, down from the 3.5% it forecasted in January. Though, the IMF noted that growth may recover in the second half of the year, before steadying to 3.6% in 2020. Likewise, multinational lender Asian Development Bank (ADB) downgraded its growth forecast for the Philippine economy this 2019 to 6.4% from its earlier 6.7% estimate due to the delay in the national budget approval, coupled by the expected slowdown in the global economy. ADB also revised its outlook for the region, expecting Southeast Asia to grow by 5.7% in 2019 and 5.6% in 2020, lower than the 5.9% growth in 2018. Further hunting financial markets were the persistent geopolitical tensions including the Brexit deadlock and the Sino-American trade conflict. With a lot of loopholes and defeat in acquiring majority votes in the Parliament, the United Kingdom has missed its second departure deadline, resulting to Prime Minister Theresa May’s acceptance on EU’s offer to remain until October 31 and participate in the bloc’s Parliamentary elections on May 23. Meanwhile, trade negotiations of US and China over their year-long tariff wars have been on a seesaw ride after President Donald Trump threatened Bejiing anew with increased tariffs, warning on the current 10% tariffs on $200 billion worth of Chinese goods could rise to 25%, and threatening to impose 25% levies on additional $325 billion Chinese goods. Optimism, though, was relived alongside news of improving economic activity for these major countries. China’s economy grew at a steady 6.4% pace in the first quarter of 2019, defying expectations of a further slowdown, as industrial production jumped sharply and consumer demand showed signs of improvement. Also, the US’ gross domestic product (GDP) expanded at a 3.2% annual pace in the first three months of 2019, higher than the last quarter of 2018 at 2.2%. Likewise, the Federal Reserve kept its benchmark interest rate steady at a target range of 2.25-2.5% during its Federal Open Market Committee (FOMC) meeting on April 30-May 1. The unchanged decision of the Fed affirmed projections of the market, signaling no rate changes may happen for the rest of 2019.
This May, the local index may trade within the 7,700 to 8,000 levels as market players stay cautious ahead of key developments at home, particularly the continuing quarterly corporate earnings rollout, the GDP release and the May elections. Investors, though, were motivated anew following the Standard and Poor’s revision on the country’s sovereign long-term credit rating from ‘BBB’ to ‘BBB+’ with a stable outlook, so far the highest rating that the Philippines has received. Meanwhile, the 1Q2019 GDP data will be released on May 9 with analysts speculating the economy may still grow ‘above the 6%’ mark, despite the delayed approval of the 2019 national budget. Nevertheless, we still advise caution as recurring headwinds continue to bring choppy swings into trading. Other crucial events to monitor this month include the release of the FOMC minutes of the meeting, the European Parliament election and the MSCI and FTSE rebalancing announcements.
Peso Bond Market
For the month of April, local bond yields rose by an average of 15 basis points (bps), reversing March’s 33-bps drop on profit-taking activities as sentiments turned sidelined ahead of the Monetary Board meeting of the Bangko Sentral ng Pilipinas in May. On a year-to-date basis, however, local bond yields remain lower than end-2018 level by 86 bps, reflecting upbeat investor sentiments on the local bond market as against the comparable year. Inflation continues to decelerate, with the four-month tally averaging to 3.6%, which is within the government target band of 2-4%, yet still above the 3.1% full-year average target of the BSP for 2019.
Accordingly, the Bureau of Treasury (BTr) made a partial award for the auction of its Treasury bills (T-bills) last April 29. The government borrowed just P13.01 billion from the proposed P15 billion offers. Broken down, the Treasury borrowed P4 billion under the 92-day tenor as tenders reached P9.85 billion which resulted to an average rate of 5.563%. The government also made a full award for the 183-day T-bill, accepting the programmed amount of P5 billion with total offers amounting to P10.947 billion. In turn, the average yield was registered at 5.978%. Meanwhile, the BTr only borrowed P4.01 billion out of the P6 billion planned volume via the 365-day debt note, despite tenders amounting to P8.46 billion, with the average yield recorded at 6.085%.
Also, the Treasury saw mixed results for the auction of its Treasury bonds (T-bonds) in April. The government raked P15 billion for the reissuance of its 10 year debt papers last April 10, with tenders reaching P46.47 billion. The 10-year bonds, which carry a coupon rate of 6.875%, fetched an average yield of 5.954%, 24.2 bps lower than the 6.196% quoted when the debt papers were last offered on March 12. On the other hand, the BTr rejected bids for its P20 billion of reissued 20-year bonds despite the P31.717 billion tenders. Had the BTr made a full award, the debt notes would have fetched an average rate of 6.215%, down by 50.1-bps from the 6.716% fetched when the securities were last offered on January 22.
Meanwhile, the BSP still saw strong demands for the auction of its term deposit facility (TDF) offering even if the central bank opted not to offer one-month papers throughout April. The 20-billion auction block was fully awarded, with the average rates for the 7-day and 14-day logged at 4.7198% and 4.7524%, respectively.
For the coming weeks, the local fixed income space may remain trading sideways with a positive bias alongside improving investment façade with the accommodative inflation environment. April recorded a headline inflation rate of 3.0%, the lowest since January 2018’s 3.4% and below March’s 3.3% print. Accordingly, the BSP may consider tweaking rates in their Monetary Board meeting this May 9, simultaneous with the release of the first quarter gross domestic product (GDP). Meanwhile, banks’ reserve requirement ratio could be reduced from the current level of 18% following the sustained single-digit liquidity growth for seven consecutive months, with March money supply growing by just 4.2%, the lowest in more than six years.
Dollar Bond Market
For the month of April, prices of Philippine sovereign US-dollar denominated bond (ROP bond) dropped by 0.36%, partly reversing the previous month’s rise with market players cashing in some gains. Year-to-date, though, prices were up by 3.89% as the bond market continue to gain optimism alongside dovish policy remarks from the Fed. Improving sentiments on the US economy have, nonetheless, prompted players to be bias on higher yielding equity assets. Reports showed that the US’ gross domestic product (GDP) expanded at a 3.2% annual pace in the first three months of 2019, which was above market projections and even higher than the last quarter of 2018 at 2.2%. Even if economic activity rose at a ‘solid rate’ coupled by an unemployment rate at near a half-century low, the Fed unanimously voted to maintain its benchmark interest rates in a range of 2.25-2.5% during their April 30-May 1 Federal Open Market Committee (FOMC) meeting. The committee kept its policy stance unchanged for the 4th consecutive meeting this year, noting that inflation have declined and running below their 2% target with the latest figure recorded at 1.5%.
In the coming month, the dollar bond market may stay muted as players await for developments in key economic data as well as for fresh leads from Fed officials. The policy making body is still firm in keeping an ‘easy-money’ policy this year alongside low-record inflation figures despite the pick-up in both economic activity and the labor market. Fed Chairman noted that global threats including the Sino-American trade tensions, Britain’s departure deadlock, and geopolitical crisis in some countries had ‘moderated’ and signaled that the central bank will remain data-dependent. Also, analysts will keep their watch on the release of the Fed’s last rate-setting meeting minutes as some policymakers are keeping the opportunities open on lifting rates anew.
