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Macroeconomy

The remarkable job creation reported January, NG’s commitment to continue spending on various Build Build Build projects, strong capital goods imports and other economic indicators pointing to a healthy growth, reinforce our view that PH will register a faster expansion in 2018.

Fixed-Income Market

With US Treasuries appearing to be range-bound, investors are more focused on domestic drivers of interest rates. The primary concern is rising inflation, which may peak only by July at above-4.5%, the National Government’s need to fund its Build-Build-Build program and the perception that the BSP is behind the curve in raising its policy rate. Nonetheless, we don’t see much upside for yields till the next report as investors have priced these into the climbing yields.

Equities Market

As the earnings yield (E/P) less 10-year bond yield measure remained just below 1.5 standard deviations from the 10-year spread average, and earnings appearing unscathed, it is more likely that bond yields have risen too fast. However, without much positive news in the short-run (except a transitory boost from Q1 GDP growth announcement by May), the PSEi may trade sideways along its present 7,500-7,800 range. Besides, a quick recovery may be weighed down by negative economic and political factors (both domestic and external). Bargain hunting should, thus, be selective and tempered by longer holding periods.

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